People love shorting strong stocks that are up on takeover rumors. They reason “these companies are blah blah blah” and “their businesses are blah blah blah”. I won’t use any examples because the details are quite inconsequential, it’s the same pattern again and again. No matter how good or bad a company is, how full of BullShip the management is (good!)(for shareholders) or bad they are (meaning they’re idiots or they tell the truth)(first one is common, second, extremely rare, aka never, but if it did happen, it’d be bad for shareholders because the truth is ugly), the industry, the potential, the hot tip your roommate/coworker/mistress tells you about the play, whatever, these rumors may turn out to be true. So, what are short sellers doing—they’re playing the classic Wall Street guessing game. Right or wrong, they give short sellers a bad name. I want no part of it. Let me explain.
Take two such takeover rumor plays, Take Two Interactive (TTWO) and Asyst Technologies (ASYT). Both companies are horrendous—long-term shareholders have suffered greatly—but they have products that are in demand, somewhat, so that gets outsiders thinking, maybe I can in there and do better. The rumors start flying as do the stocks of the rumored takeover candidates:
TTWO has lots of big-time hedge funds involved and when I was last on CNBC nearly one year ago—note to self, mixing sex and finance turns some stuffy people off (suck on it!), I was discussing takeover rumors—yeah, sometimes the process can take foreverrrrrr—while ASYT has just recently become the center of such speculation. With today’s news, they both show what happens when the rumors become reality. TTWO got a $2 billion buyout offer from Electronic Arts (EA) and ASYT put out some “expression of interest” aka takeover PR. Pre-market, TTWO is up nearly 50%, ASYT up 20%. They may fluctuate, especially uber-crap company ASYT (they’re so bad, they’ll probly screw this up somehow too!), but it appears it’s game over for the shorts, their bets proven wrong.
Sure hindsight is easy and the majority of takeover rumors are BullShip, but why risk it? Ever? Yes, you can make the case that successful financial speculation is all about playing the odds, but why risk getting stuck going against these overnight, especially Monday (as I posted why I didn’t short ASYT over the weekend, Monday is the most popular day to announce deals) big moves? Ever?
As I often post, I prefer plays with similar spiking prices/charts, but where the news is already out, the chart patterns are already formed and the only real players are fickle day traders. Plays like these (mostly anyway) (read the damn book if you don’t understand which ones are good and which aren’t, that’s why I wrote it!)
Lately, examples include AKNS, SEED, COIN, IDMI—all of which I’ve covered extensively and profited somewhat—just short into the fluff super spikes. Sounds easy, right? Haha, nothing worth doing is ever easy, but it is EASIER than playing takeover stocks. Not having to play with the big boys, not having to guess what Blue Horseshoe likes, quicker down moves, more downside and less risk of overnight gap ups. Don’t play takeover rumors stocks and email CNBC to get them to allow models back on! Leaarnnnnnnnnnnnnnnnnnnnnn
Posted in Guessing Games, Patterns To Avoid, Rumors