January 11, 2011
Trading on rumors doesn't pay
Turns out that trading on rumors doesn't pay. Who knew!? Just another reason to hold a low-cost index fund. From Bloomberg - if you hear a merger rumor, short the stock. You'll do better over time.
Electronic news services, brokerages and newspapers reported at least 1,875 rumors about potential buyouts of 717 companies between 2005 and 2010, according to data compiled by Bloomberg. A total of 104, or 14.5 percent, were acquired, the data show. While stocks that were the subject of takeover speculation initially jumped 2.9 percent, betting on declines yielded average profits of 1.2 percent in the next month, an annualized gain of 14 percent.
January 11, 2011 | Permalink
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