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player ready...Rumors are a way of life in the stock market, and experienced investors learn which ones to heed and which ones to ignore. Although “the market” turns up its share of kooky ideas, the rumor mill on high-tech stocks has taken on a strange characteristic of late: It’s been right.
Bay Networks Inc. being bought by Northern Telecom Ltd., and Ascend Communications Inc. taking out Stratus Computer Inc. were gossips’ staples before the deals happened.
But how should investors without sources of their own react to what they hear from their brokers, the media and their friends?
“The source of the rumor is key,” notes veteran San Francisco gossip and stock trader Harvey Baraban. “If (CNBC reporter) Maria (Bartiromo) is on the floor of the exchange, it could just as easily be a plant.
“Newspapers,” he continues, “should not be taken lightly. Anything where there’s been a thought process involved” is more credible. How about investor message boards on the Internet? “Totally unreliable.”
In the case of the most recent and biggest as-yet-unfulfilled rumor, International Business Machines Corp. purchasing Sun Microsystems Inc., gossips reacted primarily to word that a major institution had made a large trade in Sun’s stock.
That didn’t stop others from spinning their own theories, such as the belief that an absence of stock transactions by insiders could mean something is in the works.
“Fourteen separate (Sun) insiders sold a total of 281,159 shares during the month of February at prices between $44.09 and $48.06,” writes Craig Columbus, a researcher with Disclosure Inc. in Bethesda, Md. “Since that time, the selling has basically dried up. The lack of selling gains significance if you consider that Sun insiders are traditionally regular sellers throughout the year–and especially during the summer. During July and August of last year, for instance, company execs dropped over 2.2 million shares at $37.75 to $53.00.”