The effects of crisis and other matters in the stock market

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Ever heard the saying “buy on rumor, sell on news”?

source:
http://www.csmonitor.com

That saying has been one of the most quoted when there is a crisis that affects the trend of a stock market. Right now there are two pressing issues happening that might adversely affect the trending Philippine stock market: the North Korea threats and the return of the infamous bird flu.

One indication that these two may have already affected the Philippine economy is the value of the peso against the dollar.It was expected that the US dollar will be at 35 pesos this year which is not yet happening one because of some measures made by the Banko Sentral ng Pilipinas to have control of the Philippines’s financial structure. We have seen it in the 40 Pesos/1 US Dollar level for some time but with the latest news and scares by the North Korean threats and the spreading bird flu the Philippine Peso went to the 41 Peso/1 US Dollar recently.

Rumors disrupt the normalcy of any economy or even economies thus it tends to pull down the pace. On this times lots of people don’t know what to do or where to turn to so they go into protective move by placing investments in safer vehicles like gold or bonds of other nation which they think wont be affected with such incidents. Such scenario of course pulls down the general prices of stocks thus forcing holders to sell at low prices because of losing the value of their investment. On the other hand wise investors see this as an opportunity.

With prices dipping to low levels they can accumulate lots of shares of certain string companies. After that they hold on tight to their investments until such confirmed news surfaces. A news is the most concrete thing that can be use as basis. When there is certainty in such news investors who accumulated the stocks has more hope that they will get back their investment thus they keep holding until the right price comes.

But today it has become harder to pinpoint which is news or rumor. We can turn our TV and watch prime time news and see various events of the day. Often times the media over-inflate stories just to get huge viewership. Thus it becomes harder to grasp what is truly news and what is rumor. At times a rumor which has gone so public with the media becomes the news and after several days it turns out to be just a rumor.

At times rumors are use for personal gain. Some companies deliberately create so-called rumors to attract public interest thus hyping their company’s stock price.

As much as possible verify the noise you hear before buying a stock. Always, again I say, always do your due diligence before buying a stock. Don’t let yourself get caught with a frenzy or when you heard that a barber bought a certain stock and made millions in a day because such is just a hype which you might catch or get caught in it and be stuck with a bad investment.

As always the best advice is to trade at your own risk which means to do your homework before buying or selling your stocks. Another good guide to follow is that you should have a good reason why you are buying a stock. Don’t buy because the atmosphere and people are going crazy buying such stock. Buy it because you got good reasons to based your decision.