A Cautionary Tale about Stock Gossip
A cautionary tale this week about acting on second-hand "gossip".
I'm sure most of us have been told about a special "tip".
A mate in the pub or a friend on e-mail may "tip" you a company that his best friend, uncle, or dog is closely connected with, which is about to win a contract - or something vague. You get excited and think about buying.
Think twice about it. First of all you could (though unlikely) get done for insider trading. Secondly, if you know about it now, so probably do hundreds of others - and that means, if there's any truth in the story (which there probably isn't), that it's already priced in!
Here's a true story taken from a chapter on real trading stories from my forthcoming book, "The Naked Trader", published on June 30th (Note the clever way I inserted a plug for this into the column):
"A very good friend of mine who works in a pub rang me to say he had a BT employee in for a pint, who told him that Marconi were just about to announce a multi billion pound contract with BT, and that the shares should rocket, so why don't I do a spread bet "long".
I asked him when this was likely to be announced so I could decide whether to do a March or June contract, and he said that the announcement would be made within the next couple of weeks. So on the Monday morning, I watched the March contract go up and it eventually finished up about 12 points higher.
On the Tuesday, I went long at 692.82 at £10.00 per point, and by the close of play it was at 696.86, giving me an immediate profit of £40.05.The next day it closed at 722.35, my profit now was £295.30. By Friday, I was back down to £40.40 profit, but by Wednesday of the next week, I was up £417.35 and by the end of the week, my profit was down slightly at £385.25.
So by the end of 9 days, I was ahead by the above figure and I should have been grateful and taken my profit. But no - then the rot set in!
By the time my March contract was about to expire, I was down £843.20!!!!
The news never came, and I learnt a very expensive lesson: never listen to gossip or even tips, from wherever, and if you are fortunate enough to make a profit, bearing in mind I was doing this strictly short term, take the profit and be grateful, not greedy."
So the moral of this tale?
- Don't buy on a tip "from a friend"
- Don't take heed of tittle-tattle
- Spread betting should generally be for short-term trading - take the profits!
ough trading conditions for shares continue, and I've been taking some profits, most recently banking nearly £800 from Windsor and nearly £400 from Diploma. I'm getting very cautious with any buying, but like the look of Erinaceous (ERG) which I've bought at 264.9p
It's certainly a time to be wary and not a time to be playing with risky stocks!