A:

All the events and news that happen around the world can have a great impact on the stock market. Very often, if a war breaks out or political problems arise the stock market will take a plunge. The saying of "buy on the sound of cannons, sell on the sound of trumpets" suggests that the start of, or the continuance of, a war is a good time to invest in the stock market, while the end of a war is a good time to sell. The saying was coined in 1810, and is attributed to London financier Nathan Rothschild.

The idea behind this phrase is that during times of war there is a considerable amount of uncertainty and panic in the markets, which leads to selling. This selling pushes down the value of stocks leading to lower valuations and making it an attractive time to buy even if there is a war ("buy on the sound of cannons"). In contrast, when the war ends and uncertainty and the risks of war are removed from the market, people start to buy. This increase in buying causes stock prices to rise again - leading those just-purchased-at-low-prices stocks to higher valuations, making this an attractive time to sell ("sell on the sound of trumpets").

The term also is used in a similar manner to the phrase, "buy on bad news, and sell on good news." This constant theme in the financial market simply suggests that the market often overacts to both good news and bad news, which provides investment opportunities if you are watching carefully.

For further reading, see When Fear And Greed Take Overand Taking A Chance On Behavioral Finance.

RELATED FAQS
  1. How did World War II impact European GDP?

    Understand the effect of World War II on the European gross domestic product and what foreign and domestic factors influenced ... Read Answer >>
  2. Why does the IRS withhold income taxes from employee paychecks?

    In the midst of WWII, the U.S. government ran into trouble funding the war effort. The problem did not originate from citizens ... Read Answer >>
  3. What was the Marshall Plan?

    The Marshall Plan was a U.S.-sponsored program implemented following the second world war to aid European countries that ... Read Answer >>
  4. Why do stock prices change following news reports?

    Stock prices move up and down every minute due to fluctuations in supply and demand. If more people want to buy a particular ... Read Answer >>
  5. How long has the U.S. run fiscal deficits?

    Read about the history of deficit spending in the United States, dating back to 1789, and learn about then-Treasury of the ... Read Answer >>
Related Articles
  1. Trading

    How Global Events Affect The Forex Market

    Learn how politics, war and natural disasters move the forex market, and how you should respond.
  2. Investing

    What Is A Currency War And How Does It Work?

    We look at what a currency war is, what factors may lead to it, the impacts of such a strategy, and whether there is a currency war currently.
  3. Investing

    Investing During Uncertainty

    The inability to forecast future events can turn the markets upside down. Find out how to stay right-side up.
  4. Investing

    Will Star Wars Be Killed By Its Own Hype? (DIS, HAS)

    As Dec. 18 draws near, the expectations around Star Wars are ballooning. Will the movie franchise be able to live up to expectations?
  5. Investing

    When To Sell Stocks

    Buying at the right price determines profit, but selling at the right price locks it in.
  6. Insights

    Original Star Wars Trilogy Returning to Theatres in August

    The oldest three Star Wars movies return to the big screen in August in a special program called "Return of the Trilogy".
  7. Investing

    Online Broker Price Wars Will Slash Earnings

    Price wars will provide online brokers with little benefit.
  8. Investing

    Economic Conditions That Helped Cause World War II

    Dire economic conditions following the First World War intensified antagonisms between nations that would eventually lead to the outbreak of World War II.
  9. Investing

    Are These the Top 4 Game & Toy Stocks of 2016?

    These four toymaker stocks have the potential to deliver moderate to significant stock appreciation plays in 2016.
  10. Investing

    When To Sell Stocks

    Selling stock at the right price and time ensures the preservation of gains, and it reduces the chance of incurring major losses.
RELATED TERMS
  1. War Damage Insurance Corporation

    A government financial protection arm created during World War ...
  2. War Risk

    1. The possibility that an investment will lose value because ...
  3. Price War

    When companies continuously lower prices to undercut the competition. ...
  4. War Economy

    The organization of a country's production capacity and distribution ...
  5. War Exclusion Clause

    A clause in an insurance policy that specifically excludes coverage ...
  6. Trade War

    A negative side effect of protectionism that occurs when Country ...
Hot Definitions
  1. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  2. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  3. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  4. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  5. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  6. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
Trading Center