There’s a saying on Wall Street: “Buy the rumor, sell the news.”
It can be a nifty way for traders to make money. Here’s how it works: Be the first to find out about a big company announcement. Then, buy the stock low, and sell high.
Bill King is a market strategist at M. Ramsey Securities, Inc. Before that, he was a trader for about 20 years.
“The smart guys are getting out and they’re looking for the suckers to take their positions off their hands,” says King.
By positions, he means stocks, or whatever investment they made to exploit the rumor.
And “buy the rumor, sell the news” can work with some big global events. Traders watch international news closely, looking for trends.
“Is it the beginning of something new? Or is it the beginning of, you know, just a temporary event that’s kind of a blip on the screen?” says Doug Roberts, Chief investment strategist at Channel Capital Research.com.
Take the 1973 oil embargo, when members of OPEC wouldn’t sell to the US. People in the know bought before oil prices shot up. But, Roberts says buy the rumor, sell the news doesn’t work all the time. It sounds neat and easy, but it’s just one tool for traders.
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