Buy the rumor, sell the news. Or is it the other way around? It’s a relative thing, I guess, depending on perspective. Investors should probably sell on the rumor (high) and buy on the news (low), because, or so it is said, reality tends to fall short of the whispers and the gossip. Whispers and gossip, however, can be an issuer’s friend, and issuers may be best off issuing on the rumor, rather than the news, and convincing investors to buy accordingly. It can be confusing. Especially in the era of blogs and a million other “news” outlets, in which the rumor becomes the news. Or vice versa.
In any case, a recent commentary on the TechCrunch blog suggested that a certain popular messaging service may be best off not trying to generate revenues too soon, as any such attempt could fall way short of expectation and puncture the valuation that, based on rumor, said messaging service is currently being offered. Without revenue, but with lots of heady whispers about its potential, suitors are more likely to pay up, or such was the commentary’s rationale.
I am reminded of a time back in the ’90s, when all the headiness and whispers revolved around broadband rollouts and related infrastructure builds that would, at lower and lower costs, offer to consumers… 100 video channels! (More than a decade later, the lower cost part sure doesn’t jive with my cable bill, and I still watch the same handful of channels… Alas.) So back then, there was a lot of rigmarole about a technology called “wireless cable”, also referred to as MMDS by the cognoscenti and enthusiasts of the time. The theory at the time was that wireless, rather than wireline, cable, would have the opportunity to reach all the same people – or at least those people whose houses are not obscured by a tree or some other unlikely coincidence such as another house – but at a fraction of the cost to build out fiber networks and the like. Hundreds of millions of dollars were raised by wireless cable startups, which was a lot of money then… but some of these issuers did the wise thing: they did not begin to spend it. Because the possibility of spending it was worth much more. With hindsight, that was the right call. These ventures were acquired by telcos, but not much if anything has happened to the technology since then.
There is nothing new under the sun. The list of web services that were rolled up into AOL or Yahoo! or others, only to be shut down almost immediately, is extensive. This is not to suggest that Google would do the same with Twitter – only an example, not a rumor – but we can all learn from the ancients, and those MMDS guys were smart. In an age of splashy headlines, a global PR machine known as the Internet, and a proclivity to buy or sell in frenzied volumes, what looks large from the distance close up is never that big.
