The myth
News and announcements can influence the value of investments. Investors follow developments in the economy, within certain sectors, and down to the company-level details to get hints on which assets to buy or sell.
Some even react to the expectation of good or bad news. Anticipation can fuel buying or selling, which may then affect prices before anything actually happens.
The strategy of “buying the rumor and selling the news” is about trying to stay ahead of the curve. People make decisions based on how they feel upcoming developments might unfold.
The reality
Some traders act on rumors because waiting for actual news might mean they’re acting “too late.” Prices may already reflect market sentiment by the time the news comes out.
For example, if a company is expected to report high earnings, people may rush to buy its stock before the report is released.
When the announcement comes, the news might already be “priced in” to the stock’s current value. Even if the good news is confirmed, the stock price may no longer rise by much or even start dropping.
A decline may happen if the people who bought the rumor start selling their shares to take profit. The drop may be worse if the earnings aren’t as good as experts predicted.
This speculative approach is typically associated with traders who buy and sell assets frequently within a short period.
It can take a lot of time, effort, and skill to monitor forecasts and identify which rumor may end up becoming real and having a big effect.
This method also requires a good understanding of how certain kinds of news might affect the markets and specific investments.
Relying on rumors can be very risky and lead to losses if your timing is off, if the rumor turns out to be inaccurate, or if it doesn’t end up having the effect that you expected it to.
Long-term investors can view this saying as a reminder that markets can move based on emotions and expectations – not just facts – especially in the short term.
That’s why it’s important to keep a long-term view instead of letting price fluctuations alone influence your decisions.
Verdict: It depends.
"Buy the rumor, sell the news" is a popular saying that reflects how financial markets behave sometimes. Prices can rise on a rumor and start falling after the news actually breaks.
However, reality doesn’t always align with investors’ expectations. There can be other forces that may move the markets in ways that are hard to predict.
When making investment decisions, you shouldn’t rely solely on rumors and instead do your own research as well so you can do what’s right for your own portfolio and situation.
Investors tend to gravitate towards rumors to act ahead of the crowd, but there’s nothing wrong with going slow if a long-term strategy suits you better. Faster isn’t always better.
