It happened once again: Shares in a stock were brought low by a mistakenly posted and completely untrue news story based on a death. First, it was the accidental reporting of the pre-written obituary of Apple
In the case of Apple, the damage was minimal because the story ran just as the markets were closing and Bloomberg -- the news outlet that mistakenly ran the obit -- quickly caught the error. Not so with UAL, which for nearly 15 damaging minutes saw its shares cut by as much as 75%. The cause: A six-year old story about UAL's 2002 bankruptcy filing somehow got pushed to the forefront of news sites like Google
Did you hear the one about ...
False rumors are nothing new with stocks. Just this past June, an anonymous poster on investing website SeekingAlpha wrote an article that spooked investors in Microvision
The burned hand learns best
The lesson here is that you should know what it is you're investing in before you put your money on the line. While a good number of investors are betting on the technology that Apple offers to keep it ahead of the game, that scenario contains an implicit reliance on Steve Jobs remaining at the helm for years to come. His creative genius is part and parcel of the Apple mystique.
That's similar to the situation at Berkshire Hathaway
Just the facts, ma'am
That doesn't mean you shouldn't invest in Berkshire Hathaway, Apple, or any other particular company. Rather, it means that understanding the risks you face beforehand will lessen the chance that you act irrationally when a particular event occurs -- or even a rumor is spread that it has.
Indeed, knowing the risks and planning for them allows you the opportunity to capitalize on them should they eventually play out. You can pick up shares quite cheaply by being ready for the worst and acting when it comes.
Following these simple, common-sense rules ought to be enough to keep you from reacting -- and overreacting -- to innuendo and suggestion. That way, you'll ensure that when you do invest in a company, you won't see your money wiped out by some rumor.
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Berkshire Hathaway is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers recommendation. Berkshire Hathaway and Apple are Motley Fool Stock Advisor picks. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days.