DON’T BUY STOCKS ON RUMORS

Posted by stocker on October 26, 2010 in Stocks For Dummies | Short Link

Stocks sometimes go up on rumors and you have to be careful not to get sucked in. One of the worst stock market for dummies moves you can make is to buy a stock solely based on a rumor or speculation that you hear.

Earlier today, there apparently was a rumor that Apple might be looking to by Sony (SNE). That “news” even sent Sony stock up 3% in Japan on Tuesday and it probably was the reason the stock went up right at the open here in America as you can see in the chart below.

Apple has over 50 billion dollars of cash and there has long been speculation about what they are going to do with it. Many shareholders want them to start distributing dividends but so far Apple hasn’t done that. They have bought some smaller companies that were competitors of theirs or that had technology they needed but so far no major purchase.

The rumor was based on nothing more than an article in Barrons that perhaps Apple is setting up to buy a bigger company with all it’s excess cash. Sony might have been mentioned in the article and that was enough to start the rumor.

Stay away from rumors as that is a sure way to lose money. If you bought Sony stock early this morning you still have a good stock but you probably paid more than you should just because of all the unfounded speculation. Additionally, you now own stock in a company that you likely had no interest in until you heard the rumor. You can always sell it back but that is not a good way to invest. Always invest in things you know, not on what you think you know.

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