An Expensive Rumor

I have had several dumb buys. My most recent was trading on a rumor about a big financial company. When news broke that a deal was going down in which banks were going to buy up shares of the firm, I bought 100 shares. When the dust settled and the deal was done, I had lost $3 per share and the stock was still falling fast. At one point, I was down 34 percent in one week. It was a good learning experience. Don't trade on rumors. Just buy solid companies and hang in there.

— F.L., online

The Fool Responds: We agree. Remember that there is always a chance that a rumor has been started by someone who stands to gain from actions people will take in response to it, whether it's true or not. This is especially true with penny stocks, whose prices can be relatively easily manipulated. Even when a rumor is true, it may not pan out. Two companies may be discussing merging, for example, but they may ultimately decide against it.

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