|What Does 'Buy on Cannons, Sell on Trumpets' Mean?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 fears 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 ("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 ("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. (See also: When Fear and Greed Take Over and Taking a Chance on Behavioral Finance.)
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