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Joshua, what does it mean to buy the rumor and sell the news?
All right. So buying the rumor, selling the news, everybody says it, but I don’t think people really thoroughly understand it. It’s actually a pretty simple concept. What I want you to do is, I want you to think of you when you’re a little kid and there is a birthday party. When you’re a little kid, you get so excited and you get the birthday invitation. It’s like two weeks away. You’re like, “I can’t wait for this party.” You go to school, you see your friend. “Your party’s going to be so cool. Then you go with your parents and you buy the gift and your parents are like, “Hey, you can’t tell your friend what you got him.” But you’re so excited to give them the gift and you’ve built up all of this stuff. Right? And then once you get to the party, it’s this big celebration. You’re giving the gift, eating the cake, eating the ice cream, you’re running around playing tag. Then the party’s over. Then you get your goodie bag and you go home and it’s like, “Well, that was fun.”
So that’s how all this stuff works. Imagine that there is a stock, there’s a company. And this company, there’s a rumor out there that says, “Hey, within three months from now this company is supposed to release a new acquisition. They’re actually buying a company that no one knows about, that they’re not going to name until three months from now, and they’re going to combine resources and this other company has access to a patent technology that’s going to three times, four times, five times the initial company now. So if you buy that stock right now, you could five times your money if this actually happens.”
Now, you don’t know if it’s going to happen or not, but it could. And so what happens is that rumor will drive a lot of interest in that room, just like the birthday party. Like, “I can’t wait for this party.” You can’t wait for that date, and what happens is people are buying. People are buying. FOMO. Fear of missing out. Nobody wants to miss out on this new acquisition. Then what happens is the announcement is made.
Well, whether they acquire the new company, whether it works out or not, basically whatever the anticipated move that was going to take place, normally majority of that already happens. So what happens is what people end up doing is, they will buy the rumor. They’ll buy the rumor of, “Hey, this company on this date three months from now could acquire another company to release a patent pending technology or patent technology that could five times their company. So get in now. And then the company will get 300% within a short period of time.” Announcement comes out, everyone who tripled their money, they exit. Boom, boom, boom, boom. And that brings the market down. Or the stock kind of fizzles out or whatever. That’s because, party’s over.
So buy the rumor, sell the news. It means if you hear the rumor, traditionally, you want to get in on the excitement and then you want to get out right before the announcement actually happens because realistically, who cares if it’s going to work or not? Because, you three times your money, take your money and run. But that’s kind of the thought process behind it. Buy the rumor, sell the news. Of course, if you truly believe in the company, you’re going to hold onto your stock, much, much longer, take advantage of tax benefits and so on and so forth.
But, anyways, hopefully that makes a little bit of sense. Just like a birthday party. There’s a lot of excitement leading up to the party, but once the party is over, it is over. Buy the rumor, sell the news. Joshua Martinez.
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