what does it mean to buy the rumor and sell the news?
Okay, so you hear it a lot, buy the rumor, sell the news. People say it, but what does that really mean?
Well, in short, once the news hits, usually the move is already over. But when the rumor is introduced, people will usually get involved during the rumor phase. So an example, let’s just say, hypothetically speaking, you’re trading a stock. Let’s just say, this stock is traded at $5 a share. Hypothetically speaking, the rumor is, well, this stock is introducing a patent pending technology that is going to transform the technology sector as well as the healthcare sector all together and at the same time, they’re going to merge with two other companies and form a mega company, but it’s not news yet. It’s just the rumor.
Buy the Rumor
When the rumor gets spread, people are going to say, “Wow, I don’t want to miss out on this opportunity,” so they began to buy the stock. What can happen is the stock can increase in price over time and usually for months at a time. Then once the news hits, then the remaining of the movement, if let’s just say it’s true, the remaining of the movement gets introduced into the market, and then it’s traded at the normal price. So what that really means is when you start to hear the rumor, what could be, what’s possible, wow, this … If they only do this, can you imagine what their company will be valued at? You want to find those aspects in theory, that’s if they buy the rumor, so you buy into the stock during the rumor phase, and then once the news hits, usually the rumor baked in the cost already, and then you sell at the news.
Sell the News
A lot of it is just when the news is introduced, and the facts are introduced, and laid out at the table, then the excitement’s over with. It’s like a holiday. Everyone’s excited for the upcoming holiday. Here in the United States, my kids, they love Halloween, and so months leading up to Halloween and they’re like, “I want this outfit. I want this costume. I want to hit this neighborhood. I want this much candy. How many more weeks until Halloween? I can’t wait to get all this candy.” Then what happens? Halloween comes, it’s super exciting, and then it’s over with. Sure, they got a little bit of candy, but then the day, the excitement phase is over.
So the old saying is buy the rumor, sell the news is exactly that. When there’s an excitement opportunity, sure you want to verify it, but that’s usually the theory. You buy the rumor. It can push a stock, or a market, or a currency or indices up or down because of the anticipated news. But once the news hits, it’s usually over with and the move’s done. All right, this is Joshua Martinez.
