One of my favorite companies, Illinois kefir maker Lifeway Foods
I am guessing Lifeway is not referring to Kraft Foods
You see, Lifeway's announcement raises a lot of questions. Who is Lifeway buying? For how much? And is Lifeway getting a good deal, or is it getting ripped off? Lifeway's announcement is silent on all these points.
There is no name given for the target company. No mention of the price. No indication of the target company's revenues or profitability to help an investor know whether the deal is a good one.
Sadly, Lifeway, once a strong value stock, has been transformed by day traders into something of a momentum stock. In this regard, it's instructive to look at what happened to Lifeway's stock price in the wake of the acquisition announcement. On Tuesday, when the acquisition was announced, that price leapt higher than 10%, while nearly every other stock on the Nasdaq, from Cisco
Unfortunately, momentum works both ways. While clearly no one had time to read all three of the paragraphs of Lifeway's announcement on Tuesday (no time to read -- there's trading to be done!), the momentum junkies apparently found a few minutes to spare on Wednesday. At which point they saw that there was really very little to get excited about (or upset about, and just barely enough to feel ambivalent about) in the acquisition of a nameless company for a secret price. Momentum was back again, but this time, it was Lifeway that slid (more than 13%), while the major indexes all went up. Result: Lifeway's price at the end of Wednesday was roughly the same as Lifeway's price at the end of last week.
Now, every good story has a moral, and this story has three:
- Day trading, the likes of what went on over the past two days with Lifeway's stock, enriches the E*Trades
(NYSE:ET)and the Ameritrades (NASDAQ:AMTD)of the world, as they rake in "buy" and "sell" commissions.
- It also enriches the "professional" (and I use the term loosely) day traders as they transfer your money into their pockets.
- Don't be a fool. Be a Fool. Invest for the long term, and leave the day traders to pick each other's pockets.
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Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.