Takeover Mania, Part 2

By Andrew M. Gordon

Takeovers are taking over the market. As I mentioned yesterday, there’s a way for your portfolio to benefit from this hot trend. But first, you need to understand what happens to the shares of participating companies.

When companies are about to be taken over, their shares usually rise (on the expectation that they’re being bought out at a premium). Even rumors of a takeover will elevate share price. When companies are preparing to buy other companies, their shares fall (on the expectation that they’ll be overpaying) - and, yes, this happens even at the rumor stage.

The trick is to "buy the rumor and sell the news". Let me explain. While rumors are still fresh and prices are just beginning to rise, buy the company that has become a takeover target. When the news confirms that the deal has either gone through or fallen apart (it doesn’t matter which), sell right away. To play it safer, sell even before then.

Now, this sort of investing isn’t for everybody. It’s for people who follow business and investment news anyway, so there’s not a lot of extra reading involved. And you have to be okay with the fact that you’re not always buying fundamentally sound companies. You also have to act fast - read, investigate, and invest in one sitting. The Internet makes this easy to do, if that’s your cup of tea.

Start off by investing small amounts for the first three to six months, while you get your feet wet. As you grow more comfortable and start raking in juicy profits, gradually increase the amounts you’re putting into these speculative investments.

This article appears courtesy of Early To Rise, the Internet’s most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com.