Podcast: Buy the rumour, sell the fact

In JSE Direct, Latest by Simon Brown

Simon Shares

Day 146 of lockdown and Covid-19, new cases definitely on the decline and hence we’re now in level 2.

  • S&P500 closed Tuesday at all-time highs.
  • Sasol (JSE code: SOL) after liking the update the market does not like the results.
  • Truworths (JSE code: TRU) has now written down GBP231million of the GBP256million they paid for Office in 2015.
  • Afrimat (JSE code: AFT) buys Coza iron ore for R300m.
  • Tigerbrands (JSE code: TBS) sells value-added meat products business.
  • PSG shareholders holding the share at the close on Tuesday will receive 14 Capitec* (JSE code: CPI) shares for every 100 PSG shares.
  • City Lodge (JSE code: CLH) rights have ceased trading and the share is off almost 30% as many sell their new shares they paid 212c for via the rights issue.
  • Curro (JSE code: COH) results were okay but Keith McLachlan notes that their older schools are losing students at an alarming rate.

  • Anthony Clark then tweeted this which to my mind is damming. Sure 50/50, but that’s a long way from 100/0.

* I hold ungeared positions.

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Buy the rumour, sell the fact

Last week all the talk was about a move down to level 2 lockdown and a lifting of the ban on alcohol and tobacco.

There was an NCC meeting on Wednesday, the state of disaster expired on Saturday and the roar against the alcohol ban was deafening.

Against this backdrop, we saw the leisure and alcohol stocks running last week.

Then on Saturday night, the president made the announcement, level 2. We can travel between provinces, buy alcohol and tobacco and visit friends and family.

Yet Monday saw the stocks that had run hard all start giving back their gains and most are back at where they started last week.

This is not surprising, a common saying in the market is “buy the rumour, sell the fact”. This applies to results, mergers, takeovers and now also lockdown restrictions.

The logic is that everybody thinks they’re clever having spotted the potential news before anybody else and positioning themselves ahead of the news. But they’re to the only ones spotting it as the price action tells us. Then when the news happens the reality is that

it’s actually a long road and those early buyers take their profits.

For traders, the lesson is careful buying as the news breaks. Sure often the news will send a stock price still higher, but watch the price action and if the news starts to see weakness in the price, take your money and run. The other lesson is that to be early often pays, but careful of how early. Buying weeks or months ago on an eventual lifting of the ban will make a profit, but being that early means your profit is still some way off.


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