Back in my college days as a chemical engineering student, I found myself driving down to Kingsport, TN. I was due start a cooperative education job at the Eastman Kodak Co. (KODK) chemical plant there.
Now, I won’t regale you with stories of my time there. At least not this time. But I do remember looking at the biggest chemical plant in the world with awe (13,000+ employees at the time). Kodak sold off its chemical business – now Eastman Chemical (EMN) – in 1994.
But this former employer of mine has been in the news a lot lately. Through a $765 million loan from the Trump administration, it was set to revive the U.S. pharmaceutical industry.
As the news hit and the Robinhood trading crowd piled in, shares soared from $2 to more than $60 in two short days. Hope and optimism ruled.
A few days later, reality set in. The stock cratered. It’s now around $10 and trending down.
This is an example of what we in the trading world call “Buy the Rumor, Sell the News.”
When a rumor first hits the news feeds, it creates excitement, and optimism. Stocks rise, and other traders don’t want to miss out.
But things are rarely as rosy as they look at first glance. Once reality sets in, excitement gives way to reason. People start looking into the actual details of the matter.
And more often than not, it turns out that, in their excitement, traders overshot.
Kodak’s pharmaceutical loan was one example.
But that’s small potatoes compared to what’s coming next. Kodak was just one company.