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. What was Nathan Rothschild's interest in funding the Napoleonic Wars?

    By funding the Napoleonic Wars, Nathan Rothschild and the Rothschild family were able to manipulate forces and institutions ... Read Full Answer >>
  2. How do mutual funds split?

    Mutual funds split in the same way that individual stocks split, but less often. Like a stock split, mutual fund splits do ... Read Full Answer >>
  3. How does days to cover a short position relate to a short squeeze?

    Days to cover a short position reveals the intensity and duration of a potential short squeeze. A short squeeze occurs when ... Read Full Answer >>
  4. Is it better practice to use a stop order or a limit order?

    Both stop orders and limit orders have their advantages and disadvantages; traders need to decide between the two based on ... Read Full Answer >>
  5. What is the difference between a buy limit and a sell stop order?

    A buy limit order is a specific type of buy order used to enter a market, while a sell-stop order is a sell order that can ... Read Full Answer >>
  6. What is the difference between a short squeeze and a long squeeze?

    A short squeeze and a long squeeze are situations that can force traders and investors out of their positions. A short squeeze ... Read Full Answer >>
Related Articles
  1. Term

    Three Ways to Profit Using Call Options

    A call option gives an investor the right, but not the obligation, to buy a stock at a specific price, known as the strike price.
  2. Term

    Understanding Rational Choice Theory

    Rational choice theory assumes an individual will always make prudent and logical decisions that yield the most benefits.
  3. Active Trading Fundamentals

    New Traders: Trade the Market in 5 Steps

    New traders shouldn’t throw money at securities without knowing why prices move. Follow these five steps to tilt the odds in your favor.
  4. Investing Basics

    The January Barometer: Is it Still Relevant?

    The January Barometer has been historically accurate. Will that be the case in 2016?
  5. Investing News

    Will China Slip Into a Recession?

    The Chinese economy is an entanglement of many factors gone wrong: an overvalued, engineered stock market, slow GDP growth and a devalued currency. What happens next and what will be the global ...
  6. Investing Basics

    How Advisors Can Help Clients Stomach Volatility

    Investing has its ups and downs, but financial advisers can do much to prepare their clients and their clients' portfolios for such volatility.
  7. Stock Analysis

    Looking for a Trade? Eye These High-Beta Stocks

    High-beta stocks are volatile, presenting profitable trading opportunities ... but not without risk.
  8. Active Trading Fundamentals

    The Best Sectors To Sell Short in 2016

    Three groups of stocks and sectors should underperform in 2016, generating profits from selling high and buying low.
  9. Term

    What Is Capitulation?

    Capitulation occurs when investors sell equity positions as quickly as possible.
  10. Investing Basics

    NYIF Instructor Series: Shark Watcher

    In this short instructional video Jack Farmer explains what a "Shark Watcher" is in the investing world.
RELATED TERMS
  1. Neuroeconomics

    Neuroeconomics attempts to connect economics, psychology and ...
  2. Head-Fake Trade

    A trade where a stock or market appears to be making a move in ...
  3. Crowded Short

    A trade on the short side with an overwhelmingly large number ...
  4. Outcome Bias

    A decision based on the outcome of previous events without regard ...
  5. Hindsight Bias

    A psychological phenomenon in which past events seem to be more ...
  6. Centipede Game

    An extensive-form game in game theory in which two players alternately ...
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center