Don’t get sucked in by ‘rumours’ to invest

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If you have a friend who also provides breaking news, be cautious. When investing in the stock market, if an investor wants to avoid something first, it is rumours. This is because it has been observed that about 60% of the movement in shares is based on rumours. Only 40% of trades are based on solid news or reliable information. This is a harsh reality. In fact, before any news arrives, the market starts making its assumptions or estimates. The nature of the market is such that it tries to discount events or news before they happen. That’s why most analysts make their target evaluations keeping in mind the value of the shares at least a year ahead.

Fundamental play Fundamentals play a role in the price of any share much later. In most cases, it is observed that when news comes from reliable sources, the share price tends to have the opposite effect. There is a saying among share traders, “Buy on Rumour, Sell on News,” which means buying a share before positive news arrives and selling it on the day the news comes to collect profits.

But this strategy is dangerous for the average investor. The average investor receives information late, and their sources are not reliable, which leads to them feeling cheated later and losing their hard-earned money. How do rumors spread in the stock market? There are several mediums through which rumours spread in the stock market like social media, TV news channels, newspapers etc.

Source of rumour So,  who spreads these rumours. Generally these rumours are spread by people that have invested in these companies. If they have made long call then they try to spread positive rumours and if then have taken short position they try to spread negative news about the company. Besides TV channels, newspaper, whatsapp and telegram, articles are also published on the internet.

Similarly SEBI has investigated fake Whatsapp and Telegram channels at different times. In lot of cases, fines have been imposed and channels banned.

Most analysts discuss news-driven stocks on business news channels or social media platforms, but these stocks are actually rumour-driven stocks. This is because most of these stocks are the ones that make headlines in the morning newspapers, but there is no one to confirm their authenticity. However, traders who trade in these stocks can make significant profits from them.

SEBI, the market regulator, has cracked down on several groups that make money and trap small investors based on such networks or rumors, and in recent times, the regulator has taken several strict steps. SEBI believes that news is only valid if confirmed by the company. Therefore, SEBI has recently decided that the top 100 companies in the country will have to disclose within 24 hours about any rumours related to them and how much truth is there in the news.

Now the question arises, what are the authentic sources to gather reliable information? There are 3-4 main sources to gather reliable and solid information about any company:

1) Stock exchange websites 2) Company’s own website or investor presentations 3) Investor concalls or TV interviews 4) Company’s financial statements, annual reports, etc So, you should rely on information or rumors only if they are confirmed by these sources.

If anyone is trading in shares, make an effort to find out what is happening in that company, what is going on inside that company. Do not make investment strategies in the stock market based solely on rumors. Instead, invest in a share based on solid or reliable information. If there is still any confusion, seek advice from your investment advisor. If you base your hard-earned money on hearsay in the market, it can lead to significant losses.