An Old Adage
There’s an old adage on Wall Street that says, “Buy the rumor, sell the news.” It’s a simple synthesis of how the market operates in that it reacts to expectation or forecasts, it doesn’t wait for them to be announced. And when there is an announcement, it’s often too late for an investor to take advantage of it because it’s already priced into the market. And for a trader, it’s time to sell.
We saw a good example of “buying the rumor” late last year as it became more apparent that tax reform legislation would be passed in the United States. When it was signed into law on December 22nd, that was the news. Time to sell? Well, we think not. In this case, tax reform is broadly considered positive, but the real impact will be company and industry specific. So, we think the “news” will be revealed in the fourth quarter earnings reports which will start in mid-January.