The recent outbreak of swine flu has sent speculators scrambling to buy into Biota, the company responsible for the Tamiflu vaccine in the hope of making a quick dollar. But is this really smart investing or just plain gambling?
On Friday 24 April Biota closed at $0.87 before rising 78.16 percent to a high of $1.79 just two trading days later (Tuesday 28 April). Six days later it had fallen 41 percent in price, which means anyone who purchased the stock after 24 April would be sitting on a loss. Gambling on a stock rising in price as a result of market announcements is extremely risky and definitely not smart investing.
It is important to remember that what goes up fast can also come down fast and often much faster if people panic. Smart investors know, however, that long-term profits are only generated through astute buying of good quality shares utilising sound money management principles. It is for this reason why I advocate investors stay away from investing based purely on market announcements simply because the majority of investors end up entering the stock too late and as a consequence suffer losses as the share falls back to its true value.
Right now the market is presenting some great opportunities to purchase good quality blue chip shares for the expected rise, however, I would urge all investors entering the market to set a stop loss as the run up will be short, lasting around 8 weeks into the yearly high.