Elon Musk’s Twitter offer could prompt retail investors to ‘buy the rumour, sell the news’: Here’s what financial advisers are suggesting instead
After news broke that Elon Musk is now looking to buy Twitter for over $43 billion and take it private, stock price rose first in Twitter, the company he is considering, and diminished in Tesla, the company he leads.
As the richest man in the world knocks on Twitter’s door, does the opportunity arise for the person who plays the stock market to profit from Twitter, Tesla and high-stakes history and highly publicized?
Maybe so, financial advisers told MarketWatch — or maybe not. Bad bets could mean the drama unfolding in the boardroom could turn into a personal finance tragedy for a retail investor who thinks he’s making a quick buck.
Twitter shares TWTR,
were trading up almost 2% at midday Thursday at around $46.70 per share, then fell slightly to $45.90 before recovering slightly. The stock closed at $45.08, down about 1.7%.
That’s still well short of Musk’s offer to buy the remaining shares at $54.20, if Twitter’s board accepts what Musk calls its “best and last” offer. That’s a nice premium to Wednesday’s stock closing price of $45.85, although, as Cowen analyst John Blackledge observed, the supply is near the midpoint of Twitter’s 52-week trading range.
Tesla shares were trading on Thursday, indicating investors feared Musk could stretch. They ended at $985, down 3.6%.
Musk told a TED Talk event on Thursday that “there is” a “plan B” to acquire the company if its current bid is rejected.
Keywords: Elon Musk says there’s a ‘plan B’ to acquire Twitter if his bid fails – but he doesn’t say what it is
As of today in 2022, Tesla shares TSLA,
were down nearly 6.8% and Twitter shares rose 4.3%. Over this same period, the Dow Jones Industrial Average DJIA,
was down almost 5.2% and the S&P 500 was down 7.8%.
If the goal is plump long-term investment returns, many advisers say the Twitter-Tesla hype is best ignored. And it’s also good to remember that there is a difference between investing and speculating, they add.
“It can be tempting to want to focus on buzzy names like Tesla and Twitter, but it’s probably best to avoid news around these companies and stick to consistent, disciplined investments in index funds,” said Erik Baskin of Baskin Financial Planning in Dayton, Ohio.
There’s this Wall Street chestnut to “buy the rumor, sell the news.” But, as Baskin noted, “There are algorithms that trade millions of dollars in these companies based on news stories and you have almost no chance of consistently profiting from news-based trading because the price market reflects this news instantly.”
“People looking to act on short-term, fleeting news, far removed from the actual activity of the stocks they buy, speculate in the hope of selling something tomorrow for more than they paid for today. today – they don’t really expect to own one at all,” said Elliot Pepper, financial planner and tax manager at Northbrook Financial in Baltimore.
There’s nothing wrong with speculation, as long as people can see it for what it is and not confuse it with investing, Pepper said. “A successful investment should, for the most part, be boring; the speculation should be exciting.
Musk’s bid for Twitter was rocket fuel for people on Reddit’s WallStreetBets trying to guess Twitter’s board response, Musk’s Twitter endgame, effect on Tesla and what all it meant to them. “Not gonna lie if Tesla drops enough I might be tempted to add 30,000,” one user wrote.
If you’re going to play the market
This is where having a plan is important if you want to be coached down the path to stock picking, said Lacy Rogers, founder of Dedicated Dollar.
Start with the fact that for every profit bragging someone hears from a successful short-term trader, someone also doesn’t hear the multiple other losses that have occurred. An example? A $900,000 account Rogers heard about that shrunk to $80,000 within hours after bad options trades.
But once all other financial goals and obligations are met, Rogers said, “it’s not always a bad idea to mess around with a small percentage of your wallet. If you have an interest in individual stocks or alternative investments like crypto, using a VERY small portion of your funds (think: a budget on the amount of a weekend bar) to experiment and learn can be a great idea. opportunity for personal education and growth. .”
Keeping stock market play money to less than 10% of investable assets is a good approach, said Bryan Minogue, founder of Kardinal Financial. Others say it should not exceed 5%. Better yet, Minogue added, make sure there’s at least 15% or 20% going to diversified funds in IRAs and 401(k)s before stock purchases.
Set personal standards for what to expect from certain stock investments, he said. “I cringe a bit when I have conversations with people who talk about their stock portfolio and how it went up 10% in a given year…but the market went up 20%. “
One way to do this is to compare returns to a diversified fund that tracks the broader stock market, Minogue said. “A second, and equally important, order to track is your after-tax returns if you’re making these stock picks in a taxable account,” he said.
Find that performance benchmark, spot where to enter and where to exit, said Rockie Zeigler of RP Zeigler Investment Services in Peoria, Illinois. It could be a quantifiable point like a measure of market performance, a total amount of money a person is financially willing to lose, or some other threshold.
But stick with something, Zeigler said. “If for no other reason, respect it for your own sanity.”