Buy the rumour, sell the news
Updated: Jul 3
So on this blog I have been writing primarily about my medium and long term investments. I have focused on relatively safer companies that is most likely to be alright in the long run and suitable for you if you are a new investor like myself. However, there is another entirely different side to investing, which are short-term and speculative trades. While day traders have claimed that there are formulas to earn money regularly through day trades, you really need to have deep technical understanding of the charts and their movements.
Personally, I have a small sum of money set aside for my short-term speculative trades. While I am aware that these are high risk trades and you need years of practice to master the skill of day trading, I must say my curiosity has forced me to give this a try as well.
This post is to describe what I have learnt over the last 2 weeks as I dabbled in some speculative trades. I must put a disclaimer that these are high risk speculative stocks that I will be discussing, and I had invested a small sum with the expectation that I might lose it all. Thus, I would not recommend anyone trading based on speculation alone, especially if you are a newbie.
The title of this post – “Buy the rumour, sell the news” is apt for my experience in the last 2 weeks, as I somehow managed to pull this off perfectly. I would attribute this 100% to luck though, with no skills of mine.
My plan was simple. Oil price had come crashing down, and most of the American Oil and Gas companies were hurting. Every single company in that industry had seen their stock price plummet by about 50%. My belief was that surely the US government would do something about this and mediate between Russia and Saudi Arabia and the market sentiment will recover in a short period of time. So obviously I buy at the when people are freaking out about oil and sell the moment there is news of OPEC and Russia reaching a deal.
What I did
I basically went and found a few relatively small Oil and Gas companies based in the US and decided to buy them and wait a couple of weeks. Why did I choose smaller companies? Because these had crashed harder than the oil majors and I expected them to come back to their original levels, which would mean a healthy amount of profits. So I bought shares in Callon Petroleum Company (CPE) and Kosmos Energy Ltd (KOS) last week.
And then Donald Trump tweets this which sends the market into a temporary hysteria. Of course, later Trump came out and clarified that he had not actually spoken to MBS or Putin about anything, but that OPEC would be having a meeting on 9th April 2020 to discuss production cuts. This is when I bought more shares hoping to sell when the market rallies right after something is announced.
On 9th April while the OPEC meeting was going on, these oil stocks started rallying and I was up on average 20%. This is when I had to make the crucial decision. I could wait till OPEC actually announced something officially, and the oil companies would obviously spike in price; or I could take my 20% and run. Being new to this, I actually took my profits about 1 hour into market open on 9th April. What happened later actually surprised me.
A few hours later OPEC and Russia actually did announce cuts to their production, but the market did not rally as I had expected. The prices actually ended up lower than where they had opened. Frankly this was shocking to me, but I was glad that I got out with my profits. Of course, next week as the market opens again these stocks could really climb again, but I was really confused that what I had predicted did not happen.
What did I learn from this
Buying the rumour and selling the news encourages one to exploit the market by choosing a position based off a rumour and then selling when the news has reached the market, and hopefully you profit. In this case I tried to anticipate that eventually the oil producing nations will cut their production having a positive impact on crude oil prices. This would mean that the companies in the oil and gas industry would benefit and their stocks would rise. Clearly, in reality this did not happen (yet). I managed to profit off my positions by sheer luck.
To be honest, that is a very stressful thing to do. Since I had done no research and traded based on speculation, I was incredibly anxious when the markets opened on 9th April and I sold because my emotions got the better of me. I will probably being doing less of speculative trades moving forward, but it definitely was a fun lesson, and one I got paid for!
Disclaimer: This post should not be interpreted as investment advice as I am not a professional financial consultant. The objective of this blog is to share my experiences with others and receive feedback. I will provide links to my information sources to the best of my abilities, but the reader is responsible for their own due diligence