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Here's what you should do when you hear a rumour on a stock

Updated : December 04, 2019 04:32 PM IST

CNBC-TV18 and National Stock Exchange (NSE) have come together to promote investor awareness through a special campaign hashtag called Informed Investor, that empowers you to make the right decisions with your money.

As part of this special segment, CNBC-TV18's Anuj Singhal will take us through what should you do when you hear a rumour on a stock.

If you are investing in rumour, and rumour can be anything, positive or negative and if you are trading on that, it is basically gambling. It is not an investment. What it does is, it leads to a price discovery which in the near term may look according to what you want, but in the medium term, it will revert back to the mean. That is why it leads to unstable price discovery.

There is absolutely no doubt that rumours are created by people to help a set of traders. There is some vested interest, you will not get a tip from anyone unless that person has a vested interest.

To deal with rumours, first draw a chart of the stock and you look at the left-hand side of the stock which is to see the price and volume of the stock before that tip has come to you. If it has already seen a big move, that means it has been given to you because someone wants to exit. That exit will be possible if you and some more people buy.

Also, do your study, ask your financial advisor, see if there is merit in it. If there is some kind of buzz, if it makes sense, if it works according to risk-reward, perhaps you want to consider that but otherwise, just give it a wide berth.
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