There are many adages to ‘help’ investors use the news in their investing decisions. I use ‘help’ in inverted commas because some of these adages should be treated with caution, especially as successful investors should aim to build a well diversified portfolio which is balanced in line with their overall target, rather than one that is swayed by individual events.
Still, it’s worth being familiar with some of the suggestions out there.
‘Buy the rumour, sell the news’, for example, which suggests investors should follow market sentiment, which can be reversed by news that confirms any rumour. ‘Buy when there is blood on the street’ is another, which suggests bad news can be a positive signal.
More general sentiment indicators look beyond the individual news announcements from companies. One of my favourites is the magazine cover indicator which states that once the news is on the cover of The Economist, everyone knows and the markets have already priced it in.
Studies have also attempted to guide investors to the right way to play the news. In 2022 a team from Toronto studied over 21m news articles associated with 9000 listed companies and found that stock...
