Lose a Million in 30 Minutes

Pity Engadget. A good blog most days, the editors blew it on May 16 by suggesting that both Apple's (Nasdaq: AAPL  ) highly successful iPhone and forthcoming Leopard operating system would be delayed. From the original report:

This one doesn't bode well for Mac fans and the iPhone-hopeful: we have it on authority that as of today, the iPhone launch is being pushed back from June to ... October (!), and Leopard is again seeing a delay, this time being pushed all the way back to January of 2008.

Apple's stock plunged 2.2% on the rumor, which was debunked within 30 minutes.

Fortunately, the Mac maker recovered most of that loss in afternoon trading. Yet statistics from Yahoo! Finance show that 40.2 million shares changed hands that day. Odds are, someone lost a lot -- perhaps millions -- on this mistake.

Sell the rumor, sell the news
That's unfortunate ... but don't blame Engadget.

Think about it. If you're one of those who decided to sell Apple based on a Nicole Richie-thin assertion published by an admitted rumor site, then you're not an investor. But you might be a moron.

I don't say that easily. It's just that investors need some tough love right now, and I happen to be within hugging distance. I also know how it feels. Once, I needlessly allowed a 20-bagger in Sun Microsystems (Nasdaq: SUNW  ) to become a zero-bagger.

Let's vow not to repeat these mistakes. We can start by studying the mechanics of the market. On July 6, there were:

  • 1.2 billion shares traded on the New York Stock Exchange.
  • 1.6 billion shares traded on the Nasdaq.

Plenty of stocks went crazy, too. Shares of soon-to-be-acquired Hilton Hotels (NYSE: HLT  ) -- which changed hands more than 20 million times -- were passed about like a risque video of its most famous benefactor. (Oooh, that's hot.)

Meanwhile, on the Nasdaq, Sun changed hands more than 70 million times. Sirius Satellite Radio (Nasdaq: SIRI  ) drew 43 million trades. Marvell Technology (Nasdaq: MRVL  ) was a target nearly 15 million times. And Rule Breakers wannabe Network Appliance (Nasdaq: NTAP  ) rallied 11 million traders to its pirate flag.

Get behind the action
Now, how many of these trades were made by rational human beings using perfect information? If your answer is "almost zero," I'm with you.

Market hysteria isn't something that rears its ugly head once a decade for some Black Monday-sized event. Nope, with millions of shares trading hands each minute, market hysteria happens every single day.

Profit when others panic
Hysteria can give you an edge as an investor -- if you're willing to ignore it. Go back to the Apple example. Those who held are up 23% from Apple's closing price on May 16, and up 28% from the low created when Engadget's gaffe went live.

Holding positions in great companies for years at a time often leads to what subscribers to our Rule Breakers service call a "daybagger," which occurs when, in one day, a stock you own rises more than your original purchase price.

Many of our rebel Fools enjoyed the feeling that comes with a daybagger when Microsoft bid $6 billion for aQuantive in May. And while he doesn't say so specifically, it wouldn't surprise me in the least if Warren Buffett, whose ideal holding period is forever, has enjoyed dozens of daybaggers throughout his investing career.

Let that be a lesson. While there are always good reasons to sell stocks, a hyperactive rumor mill should never, ever be one of them. Unless, that is, your aim is to lose millions in 30 minutes.

Spiffy-pop! aQuantive is one of 10 stocks in the Motley Fool Rule Breakers portfolio to at least double. Want to find out the names of the other nine? Click here to test-drive Rule Breakers for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers is a sucker for growth stocks and a regular contributor to Rule Breakers. Tim owned shares of aQuantive at the time of publication. Microsoft is an Inside Value pick. The Motley Fool's disclosure policy wants to say something witty here, but it hasn't had its coffee yet. (Yawn.)


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