This Is Why You Buy on Rumors, Sell on News

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Yesterday, I reported on rumors coming out of Taiwan that Apple (Nasdaq: AAPL  ) might be changing its hardware designs radically. That was based on rumors, but believable enough to send Cirrus Logic (Nasdaq: CRUS  ) to the market's doghouse for allegedly losing its prized audio chip contract with Apple.

Today, we know better. Analysts with the ability to read Mandarin Chinese have clarified the original article, which turned out to focus on how Qualcomm (Nasdaq: QCOM  ) would benefit leading chip foundry Taiwan Semiconductor Manufacturing (NYSE: TSM  ) if a CDMA-enabled iPhone ever comes to pass. That article mentioned Cirrus and others only briefly, and actually only to point out that they probably would stay in Apple's good graces. The fact that Cirrus' department of corporate communications felt the urge to notify me of this re-reading tells me that there's probably something to it.

Cirrus, for one, largely recovered later in the day but has sunk a little further since then; probably just the sugar high wearing off after a big mention on Jim Cramer's Mad Money show Wednesday. The bottom line is this: A wild rumor pushed Cirrus down, but reality paints a different picture. There's no reason to sell Cirrus Logic or AT&T (NYSE: T  ) today, nor would you be wise to buy Qualcomm or Marvell Technology (Nasdaq: MRVL  ) based on their landing large roles in Apple's next generation of iPhones. If you bought Cirrus on the negative rumor, you should be able to make a nice profit if and when actual news of the company staying iPhone-bound comes out. Funny how that works.

What remains is the separate rumor putting Samsung OLED screens in iPhones next year to the detriment of Samsung's own smartphones. That possibility has yet to be debunked and may present an actual catalyst for OLED technology licensor Universal Display (Nasdaq: PANL  ) . Then again, you hardly need an excuse to love where that stock is positioned today, do you?

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Universal Display is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. The Fool owns shares of Apple, Marvell Technology Group, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (7) | Recommend This Article (28)

Comments from our Foolish Readers

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  • Report this Comment On October 01, 2010, at 8:47 PM, TAP56 wrote:

    Reporting rumors without checking any sources is dangerous and can be misleading, as your "report" of yesterday seems to have been.

    It is sad that Cirrus had to contact you. I would think that a responsible reporter would contact a company like Cirrus before repeating a damaging story (especially a story emanating from Taiwan, outside the jurisdiction of the SEC, and published in Mandarin) about it. Look at the number of shares that were traded yesterday. The rumor - the apparently bad rumor - significantly moved the market. Many people not in the know got hurt, I am sure.

    If an identifiable source (like a Taiwanese newspaper) falsely reported that you had committed a heinous crime, would it be ok with you if the Motley Fool, Barron's and other media sources across the world reported that you were rumored to have committed a heinous crime - without checking with you?

    Whatever your thinking or motivation, it seems to me that you played a part in manipulating a stock, helping some and hurting others.


  • Report this Comment On October 02, 2010, at 11:15 PM, Xcnner wrote:

    It is shocking what passes for "journalism" today. Reading this story tells me the incredible laziness of the "reporter". No effort was made to verify a single fact and yet it claims that “this is why you should by the rumor and sell the fact”. Generally, that applies to when the rumor turns out to be true, not when some moron spouts crap he has no idea about. To be a reporter used to mean speaking to sources. Sources are PEOPLE who have the ability and the position to have insight. Cutting and pasting BS does not constitute journalism, or at least it did not, not too long ago. Please read about Edward Murrow. The author of this article should take a lesson from that age of journalism for the sake of his readers and everyone he thoughtlessly damages.

  • Report this Comment On October 03, 2010, at 11:14 PM, tradefortoys wrote:

    Oh please...David Gardner is not a journalist.

    He is a stock promoter and he trashes a stock when he is shorting it. Pure and simple.

    It is amazing how his tune in regards to CRUS has changed, just a few days ago he bad mouthed the company to no end. Now he is positive, hmmm...guess we can assume now is he long on CRUS?

    And I really find it hard to believe that anyone from CRUS contacted Mr. Gardner to set the record straight.

    Mr. Gardner motives are for his own profit. Thru MF he can make $$ on his stock picks. If he is long, he praises it, and short, he trashes it, what a great gig.

  • Report this Comment On October 04, 2010, at 7:00 AM, TMFZahrim wrote:

    @tradefortoys, I wrote this article but I'm not Mr. Gardner. The Motley Fool is, and I'll quote from our disclosure boilerplate here, "made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community."

    I made it perfectly clear in the original article that we were looking at rumors, and sometimes they don't pan out. David and Tom Gardner never instructed me to write either of the stories, never touched them in the publication and editing process, and may or may not have read them by now. Any opinions detected here are purely my own; that's how we roll.


  • Report this Comment On October 04, 2010, at 9:19 AM, MadMicro wrote:

    Its worth pointing out that the offending article in Apple Insider was the basis for the Barron's article and the main reason the stock tanked.

    My instincts told me to buy more and I probably missed an opportunity... but at least I didn't sell :)

  • Report this Comment On October 15, 2010, at 10:15 AM, BabyBeluga2 wrote:

    The note of caution from Jim Cramer today-- Cramer's Lightning Round - Sticking a Neck Out for Cirrus (10/14/10)--is sending the stock into another rumor-inspired dip. I would appreciate it if Anders would transcribe the communication from CRUS about its continuing relationship with Apple.

  • Report this Comment On October 20, 2010, at 11:57 PM, khoonie wrote:

    Readers should be aware about the quality of news coming out from Taiwan newspapers, especially those that talks about stocks, money and in this case Apple parts suppliers. I've lived there long enough to see that the media there is pretty much out of control - they can write or say whatever they want to create sensational stories without any fear or repercussion. I'm not saying that the media in the US or anywhere else is any better, but I've seen / heard enough to know when to tune out.

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