How should you respond to market rumors?
It is quite often that ACCICB and I have the same stock in our books. Recently one of them was subjected to a takeover rumour which caused the price to skyrocket once market opened. As the news broke after market closed, I placed an order to sell my lot before market opened the next day and boy did it open strong!
I was chided by ACCICB as to why I made such a rushed decision aka I should wait and see whether rumor is true or at least later so that maybe prices will go much higher etc. This was a stock that I held for slightly more than a month as I couldn't exit earlier as it fell slightly short of my exit price. Yes I simply ignored the indicators although back then it was primed to sell and pocket a small profit.
It was a company I was comfortable with, good dividend payer, well liked and covered by analysts, solid business model etc so I was in no hurry to exit except at my target. My philosophy was simple. The rumor was unconfirmed and has a 50% probability of being true and 50% probability of being fake...perhaps a manipulation by a trader/ hedgie or someone who has a vested interest in making the stock price fly to the moon. As a small fish in the ocean, I can't make waves but can only ride the waves and hey if I see food, I'll eat it up and be happy!
The opening price had exceeded my expectations and seeing how choppy the price was for the past month, I thank the person who released this yummy tidbit to the media! ACCICB held on to the stock for a couple more days and sold it based on the indicators at a slightly lower price than mine. The high over the past few days was a couple more dollars than what I sold so I was happy since I didn't have to look at it or think about it and have more time for the rest of the stocks in my books.
I could have easily just sold a portion of my holdings and hold on to the rest which I think is what an investor would have done. Given the loan I was holding which to me is like a ticking clock and since I do have my doubts on the reliability of this rumour, I chose to exit in full. If the price becomes attractive again, I may pick up some shares later on.
Post market rumour days have seen the stock price falling but not diving so I guess people are still hoping. It's early days yet so we shall see.