It's not the first time unsubstantiated rumors -- as logical as they may appear -- send a stock skyrocketing, and it won't be the last: Early on Monday, scuttlebutt began swirling that 3D Systems (NYSE: DDD) was in buyout talks, and the madness began.
When the dust settled, 3D Systems stock had soared 16% to $16.73 on an incredible 13.6 million shares trading hands. For some perspective, a mere 1.68 million shares were traded the prior session.
Predictably, on Tuesday, its stock lost nearly half of those gains, sinking 7% to close at $15.56 a share. Many day traders and other short-term opportunists love buyout rumors, particularly for up-and-comers in markets that offer so much potential.
Why? Because with the invariable momentum, near-term investors know rumors often result in quick appreciation opportunities. Then, they take their money and run. And this is hardly the first buyout parade 3D Systems has been a part of. Rumors of a 3D Systems buyout have been off-an-on for a couple years.
Betting on a buyout when there's little to no substance behind the "news" is an awfully risky proposition, as those who bought into 3D Systems late on Monday now know all too well. If you're an investor who believes 3D Systems stock warrants a look based on its business and prospects, that's one thing. Buying in on pure speculation is another, and can end up costing investors dearly.
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Tim Brugger has no position in any stocks mentioned.