There are very few shares listed on the stock market which are not subjected to rumours and counter rumours at some stage. The fact that company shares are tradable can often make them susceptible to dark forces which may have an underlying aim. This may be something as simple as starting negative rumours so the share price drops and they can start picking up stock. You would have thought in this day and age it would be fairly simple to find the origin of rumours?
Smaller stocks more susceptible
There is no doubt that smaller companies are more susceptible to rumours, counter rumours and those challenging the truth. They can be fairly volatile as a consequence of limited liquidity and unfortunately the best time to buy is when there are sellers around. The best time to sell in size is when there are buyers around. So, even if you were to find a small company with great prospects it may take some time for the underlying value to be revealed.
Tracing trades
There are obviously ways and means of tracing trades which “take advantage” of share price volatility just before or just after rumours emerge. Everything today is electronic and details of underlined buyers/sellers are part of the compliance package. However, proving that one or more parties were dealing on the back of rumours/counter rumours is very difficult even if it does look obvious to the naked eye.
Stock markets operate on news flow
It may sound value obvious, but stock markets and share prices do depend upon news flow. This may be news flow for a particular company, sector or even the prospects for an economy. You will begin to notice that much of the news flow which changes share prices is rumour/unofficial. Yes, we do see companies announcing results, trading statements and other major events but very often even these are leaked before the official announcement.
Maintaining a long-term focus
There are many large companies today which started with relatively small market capitalisations on the stock market. No one company will ever enjoy a smooth ride from relative obscurity to leading light such as Apple. They will see bumps along the way, financial issues, contract wins/losses and news which will impact short-term trading. However, the key to any successful investment is maintaining a long-term focus assuming that the story has not changed.
Learning when to sell
While many people assume buying shares is the most difficult decision, bizarrely, selling shares could turn out to be the biggest challenge. As we touched on above, as long as the long-term story does not change then there are reasons to maintain your shareholding. However, if the situation was to change then you need to strip all emotion out of your investment decisions and do what is right, not what you hope for.
Remember, nobody ever went bust taking a profit!
Conclusion
Rumours, counter rumours, truths and untruths move share prices on a daily basis. The most successful investors will maintain long-term focus, assuming that the long-term story does not change, and to a certain extent they ignore the short term volatility. This is not easy, it can push your patience to the limit, but as long as the story remains intact then there is every reason to hold on for longer term.
One potential issue to muddy the water; what happens if another interesting investment emerges? One which may have more potential? Then, you will have a decision to make………