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I was thinking about which question I get asked the most about investing. That got a little easier recently as we ask for questions in the “Naked Money” podcast.
I reckon this one comes up all the time:
“This company I hold issued a fantastic trading statement/results so how come it went down so much. It just does not make sense!
“Surely if the company has done so well, the share price should be going up after the statement.”
The answer to this is actually reasonably simple.
There is an old stock market saying: “Buy the rumour, sell the news.”
You bought a company and you’re happy and it keeps on rising. Then the statement comes out and it is excellent.
The reason the share price goes down is traders say: “Meh, great statement but all in the price now, time to take profits.”
So the price goes down. As long as the company is going well, then eventually the price should start to go up again.
One idea to play this is if your share is about to report and the share price has risen a lot ahead of the statement why not sell some and bank the profit the day before?
Wait for the price to fall on the day, then wait a few more days for it to settle, then buy it back.
But what if a share price has done badly before a statement? Could be, as long as you like the company you could buy the day before as the price could go up on the day of the report if it’s good. Risky though!
It is always worth noting down when your companies are going to report so you aren’t caught out.
You can usually find out on ADVFN news – watch out for “Notice of results” statements then note them down.
Yes, where there’s a tip there’s a tap!