Last week on Tuesday, June 12th, AT&T (T) got the “go ahead” from a judge to proceed with its $85.4 billion takeover of Time Warner (TWX) – taking one step closer to becoming one of the biggest companies in the world – after defeating the nefarious Justice Department in court.
In the week preceding the ruling, investors were buying shares of AT&T like it was going out of style, driving the price up roughly 6% in just a few days.
And why shouldn’t they have been doing that? After all, AT&T was about to become a media-telecom giant and own nearly everything on the planet (except your soul, maybe).
A quick look at a daily AT&T chart shows that there were likely quite a few happy campers who bought in when they heard about what was going to take place:
Moreover, they probably felt like savvy investors. That kind of profit in just a matter of days would make any trader happy.
“But just imagine…”
Many of them thought,
“…Just imagine what will happen if AT&T actually WINS their case against the Justice Department!”
That’s why speculators bought in before the ruling anyway – to make a boatload of money once AT&T got the green light to absorb Time Warner. And everything was going according to plan.
Then June 12th rolled around, and US District Court Judge Richard J. Leon gave AT&T permission to go ahead with the merger – marking the Justice Department’s first antitrust loss in court.
As you could imagine, the reaction from the press was not positive in the slightest:
Journalists used different words to describe it, ranging from “bad” to “damaging”:
And my personal favorite:
The consensus was overwhelmingly negative for consumers. Bad news for you, me, and anyone else who consumes media.
In contrast, this was positioned as absolutely great news for AT&T and their investors. They blew past the flimsy antitrust measures put in place, ready to finalize the merger by the end of the month.
So of course, the stock price skyrocketed, right? Let’s take a look:
Ouch! Not exactly what those speculators were looking for. There were plenty of investors who got burned when Judge Leon’s ruling was passed – even though it seemed to be something that could only cause AT&T’s share prices to go up.
You may be thinking, “oh but the price SURELY corrected over the next few days, right?”
Well… not really. Even after a week AT&T is still lingering around where it started before the short, hype-driven rally began…
…Even though the news would leave you to believe that AT&T shares should be screaming upwards in price.
While there is a time and place for being sensitive to current events in investing, trying to play news headlines for a gain is simply unreliable.
What may be a “big deal” to me is small potatoes to everyone else, and vice versa. When you try to trade around hotly anticipated news at a company, you’re no longer investing wisely.
At that point, you’re basically gambling with your portfolio – years of hard earned cash that could be gone in an instant if the market decides to move the wrong way.
So unless you have access to a diligent, well-thought out trading strategy that can capture profits after a scenario like this plays out (like many of our members currently do), you’re better suited to watching and waiting while the bag-holders go down with the ship.
