Rumors and Stuff . . . Be Careful With Them

Discussion in 'Stock Market Forum' started by Rainman, Feb 9, 2015.

  1. JR Ewing

    JR Ewing Super Moderator Staff Member

    Feb 2014
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    About the only time you have a chance to make money on an announcement is if the announcement is made during trading hours and you can get in right away before the price moves too much. You probably want to get out fairly quickly once the price movement starts to slow down and the volume starts to drop. This may be as little as a few minutes or even less. You would ideally have a small amount of cash set aside for such things - an amount that would limit the amount of overall damage you might do to your portfolio if the trade doesn't go as expected for some reason and you fail to profit or even lose $ for whatever reason.

    Or you can sometimes profit off things announced outside of trading hours if these things are more vague and general, and don't move the price TOO much - such as a company "exploring strategic alternatives". I remember some years ago this happening with a company called Medimmune that Carl Icahn had a stake in. They made this announcement on a Friday after the stock closed at ~ $38 or so. I bought a little @ $41 that Monday morning. Over the next few days, there were additional bits of info released during market hours several times that indicated a possible "auction", with an estimated valuation @ $50 or so. I loaded up several more times in the mid to upper $40's. I was pleasantly surprised the following Monday to learn that Astra Zeneca had outbid all others for a $58 buyout. I sold out completely and realized a nice low five figure profit in about a week's time.

    Again these things are not sure things and should be treated as speculative events that you limit the amount of $ you put into, particularly if you're relatively inexperienced in these things. These opportunities don't happen very often - much of what you see and hear on a daily basis is just chatter that you shouldn't act on. Be careful and keep most of your money and attention focused on longer term investing. If you learn to find good companies trading at good prices with lots of cash, or that otherwise have strong competitive advantages, you'll often find sooner or later that they either grow beyond your wildest expectations or do eventually get taken out by larger competitors at very nice premiums or whatever.

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