buy the rumour, sell the news

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pages: 245 words: 75,397

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader by Colin Lancaster

Adam Neumann (WeWork), Airbnb, always be closing, asset-backed security, beat the dealer, Ben Bernanke: helicopter money, Bernie Sanders, bond market vigilante , Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, buy the rumour, sell the news, Carmen Reinhart, Chuck Templeton: OpenTable:, collateralized debt obligation, coronavirus, Covid-19, COVID-19, creative destruction, credit crunch, currency manipulation / currency intervention, Donald Trump, Edward Thorp, family office, fiat currency, fixed income, Flash crash, global pandemic, global supply chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Growth in a Time of Debt, housing crisis, index arbitrage, Jeff Bezos, Kenneth Rogoff, liquidity trap, Long Term Capital Management, low skilled workers, margin call, market bubble, Mikhail Gorbachev, Modern Monetary Theory, moral hazard, National Debt Clock, Nixon triggered the end of the Bretton Woods system, Northern Rock, oil shock, pets.com, Ponzi scheme, price stability, quantitative easing, reserve currency, Ronald Reagan, Ronald Reagan: Tear down this wall, Sharpe ratio, short selling, statistical arbitrage, The Great Moderation, too big to fail, trickle-down economics, two and twenty, value at risk, WeWork, yield curve, zero-sum game

It’s the largest rescue package in American history, but the markets expected it to get through Congress and the relief package has now been priced by the markets. More often than not, by the time a headline like this hits the Bloomberg terminal, it has already been baked into prices. By the time it hits CNN or FOX, it’s already old news. Buy the rumor, sell the fact. Futures are down again. The markets know we are in a race against time. The USA is embarking on its sharpest downturn since the Great Depression. In two weeks’ time, the period of a typical paycheck, many workers will struggle to make ends meet. Most people are living from paycheck to paycheck.


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, break the buck, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, declining real wages, European colonialism, fiat currency, financial innovation, foreign exchange controls, German hyperinflation, housing crisis, implied volatility, intangible asset, Kickstarter, large denomination, manufacturing employment, margin call, market bubble, market fundamentalism, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, refrigerator car, reserve currency, risk free rate, Savings and loan crisis, short selling, sovereign wealth fund, too big to fail, transaction costs, universal basic income, value at risk, yield curve

–New York Times October 3, 2008 Bailout Bill Fails to Reassure Investors -New York Times October 3, 2008 Horrible Market Action “Price action around the TARP has been very bad, consistent with our view that the TARP won’t be a game changer. Friday’s price action in stocks held to the classic buy-the-rumor, sell-the-fact pattern. Except that normally you get a big rally into good news and a selloff after the news is fact, culminating in a net gain...this time...the stock market traded to new lows after the vote became fact.” –BDO October 3, 2008 159,000 Jobs Lost in September, the Worst Month in Five Years -New York Times October 5, 2008 Financial Crises Spread in Europe -New York Times October 6, 2008 Fed Considers Plan to Buy Companies’ Unsecured Debt “Under the program, the Fed said that it would buy the unsecured short-term debt that companies rely on to finance their day-to-day activities.


pages: 504 words: 139,137

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

activist fund / activist shareholder / activist investor, algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Bear Stearns, Black-Scholes formula, Brownian motion, business cycle, buy and hold, buy low sell high, buy the rumour, sell the news, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, Eugene Fama: efficient market hypothesis, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, late capitalism, law of one price, Long Term Capital Management, margin call, market clearing, market design, market friction, merger arbitrage, money market fund, mortgage debt, Myron Scholes, New Journalism, paper trading, passive investing, price discovery process, price stability, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk free rate, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, selection bias, shareholder value, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stocks for the long run, stocks for the long term, survivorship bias, systematic trading, tail risk, technology bubble, time value of money, total factor productivity, transaction costs, two and twenty, value at risk, Vanguard fund, yield curve, zero-coupon bond

If you think the earnings will come out higher than others expect, you buy before the announcement and sell after the announcement. More generally, such opportunistic traders try to put on a position before something is broadly known and unwind the position when the information gets incorporated into the price based on the motto: Buy on rumors, sell on news. If you know a rumor to be true, then you could be engaging in illegal insider trading (as Gordon Gekko, played by Michael Douglas, in the movie Wall Street). Whereas equity long–short managers often have more long positions than short, the reverse is true for dedicated short-bias managers.


Trade Your Way to Financial Freedom by van K. Tharp

asset allocation, backtesting, Bretton Woods, buy and hold, buy the rumour, sell the news, capital asset pricing model, commodity trading advisor, compound rate of return, computer age, distributed generation, diversification, dogs of the Dow, Elliott wave, high net worth, index fund, locking in a profit, margin call, market fundamentalism, passive income, prediction markets, price stability, random walk, reserve currency, risk tolerance, Ronald Reagan, Savings and loan crisis, Sharpe ratio, short selling, Tax Reform Act of 1986, transaction costs

You will also observe that pending news will move a market longer and further than actual reported news. The anticipation of bullish news can support a market for weeks or even months. When the bullish news is eventually reported, the market may well move in the opposite direction. That’s why the old adage of “Buy the rumor, sell the fact” seems to work so well. (Of course, the same logic applies to bearish news as well.) Be Careful about Reacting to Fundamental Reports For example, let’s assume that a crop report has just been released showing that the soybean crop is going to be 10 percent smaller than it was last year.


pages: 272 words: 19,172

Hedge Fund Market Wizards by Jack D. Schwager

asset-backed security, backtesting, banking crisis, barriers to entry, Bear Stearns, beat the dealer, Bernie Madoff, Black-Scholes formula, British Empire, business cycle, buy and hold, buy the rumour, sell the news, Claude Shannon: information theory, cloud computing, collateralized debt obligation, commodity trading advisor, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, diversification, diversified portfolio, Edward Thorp, family office, financial independence, fixed income, Flash crash, hindsight bias, implied volatility, index fund, intangible asset, James Dyson, Jones Act, Long Term Capital Management, margin call, market bubble, market fundamentalism, merger arbitrage, money market fund, oil shock, pattern recognition, pets.com, Ponzi scheme, private sector deleveraging, quantitative easing, quantitative trading / quantitative finance, Right to Buy, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Rubik’s Cube, Savings and loan crisis, Sharpe ratio, short selling, statistical arbitrage, Steve Jobs, systematic trading, technology bubble, transaction costs, value at risk, yield curve

By observing retail clients, I learned a lot about what not to do, like taking small profits and letting losses run—a lesson that I had also learned from my trading days in college. I learned about the psychology of the markets and how certain traders were surprisingly accurate at picking tops and bottoms—the wrong way—based on emotional decisions and market activity rather than technical or fundamental analysis. I learned the value of the classic “buy the rumor, sell the facts” kind of trading because it put you on the opposite side of retail buying. I also noted how the most obvious technical patterns were often the ones that didn’t work. I still look for those trades today; the more obvious they are from a chart standpoint, and the more the opposite position makes sense from a fundamental standpoint, the more interested I am if the pattern fails.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", job automation, Johann Wolfgang von Goethe, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Mikhail Gorbachev, Milgram experiment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Plutocrats, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, survivorship bias, tail risk, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

Sure-fire moneymaking ideas are highly sought after. Comedians John Bird and John Fortune (the Long Johns) captured the quality of financial advice in a YouTube comedy sketch. One John tells the other that State Street Global Markets has issued research stating that “market participants did not know whether to buy the rumor, sell the news, do the opposite, do both, or do neither, depending on which way the wind is blowing.” Then, a few days later, ABN-AMRO analysts provided clients with even more telling advice: “we are back to ‘happy days’ again.”4 In early 2010, a controversy developed in Australia over financial institutions paying news networks to allow their analysts to appear on news bulletins.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, bond market vigilante , borderless world, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, disinformation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, Plutocrats, plutocrats, Post-Keynesian economics, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, Savings and loan crisis, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Needless to say, such a discovery is not of much help to speculators. Tests of the semi-strong form of the EMH during the 1960s consisted of observations of stock prices just before and after important announcements like stock splits, dividend changes, and the like. These provide statistical confirmation of the Wall Street axiom to buy the rumor and sell the news: most of the change in price around such announcements occurs before their public release, suggesting that a significant fraction of investors are remarkably prescient, remarkably skilled at analyzing public information, or remarkably well-informed. Even in 1970, the strong form of the EMH was empirically the weakest of the three versions.


pages: 650 words: 204,878

Reminiscences of a Stock Operator by Edwin Lefèvre, William J. O'Neil

activist fund / activist shareholder / activist investor, bank run, British Empire, business process, buttonwood tree, buy and hold, buy the rumour, sell the news, clean water, Credit Default Swap, Donald Trump, fiat currency, Hernando de Soto, margin call, Monroe Doctrine, new economy, pattern recognition, Ponzi scheme, price stability, refrigerator car, reserve currency, short selling, technology bubble, trade route, transcontinental railway, traveling salesman, Upton Sinclair, yellow journalism

Of course, it often happens that an experienced trader acts so quickly that he hasn’t time to give all his reasons in advance—but nevertheless they are good and sufficient reasons, because they are based on facts collected by him in his years of working and thinking and seeing things from the angle of the professional, to whom everything that comes to his mill is grist. Let me illustrate what I mean by the professional attitude. 17.6 Anticipation was a very important theme for Livermore, one he expressed again and again to reporters who sought out his secrets. Today we would recognize the concept by the phrase “Buy the rumor and sell the news.” William Hamilton, the fourth editor of the Wall Street Journal, wrote in 1922: Jesse Livermore was quoted in the columns of Barron’s as saying that “all market movements are based on sound reasoning. Unless a man can anticipate future events his ability to speculate successfully is limited.”


pages: 442 words: 39,064

Why Stock Markets Crash: Critical Events in Complex Financial Systems by Didier Sornette

Asian financial crisis, asset allocation, Berlin Wall, Bretton Woods, Brownian motion, business cycle, buy and hold, buy the rumour, sell the news, capital asset pricing model, capital controls, continuous double auction, currency peg, Deng Xiaoping, discrete time, diversified portfolio, Elliott wave, Erdős number, experimental economics, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, global village, implied volatility, index fund, information asymmetry, intangible asset, invisible hand, John von Neumann, joint-stock company, law of one price, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, market design, market fundamentalism, mental accounting, moral hazard, Network effects, new economy, oil shock, open economy, pattern recognition, Paul Erdős, Paul Samuelson, quantitative trading / quantitative finance, random walk, risk/return, Ronald Reagan, Schrödinger's Cat, selection bias, short selling, Silicon Valley, South Sea Bubble, statistical model, stochastic process, stocks for the long run, Tacoma Narrows Bridge, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, Tobin tax, total factor productivity, transaction costs, tulip mania, VA Linux, Y2K, yield curve

Perhaps even more compelling evidence of the presence of trend-chasing strategies is the wide prevalence of “technical analysis” that tries to spot trends and trend reversals by using technical indicators associated with past price movements [53]. Rumors Many on Wall Street think that rumors move stocks (see Figure 4.3). The old Wall Street saying, “buy on the rumor, sell on the news,” is alive and well, as can be seen from numerous sources in the media and the Internet. Rumors can drive herding behavior strongly. Rumors are most easily documented for extraordinary events. Here are a few remarkable examples. The Y2K bug is one of the most famous recent rumors during which misinformation was rampant.


pages: 433 words: 125,031