I should know better than to buy the rumor. We all should. Still, at the ripe old age of 50, when the story came across my phone that Paypal was in talks to buy Pinterest valuing the company at $70/share, I did what every rookie does. I hyperventilated.
“Gigi, Paypal is going to buy Pinterest at $70 and it’s only trading at $60. Should we buy some?” I asked my wife.
“What are you talking about?”
“Paypal is going to buy Pinterest. The rumor is that they’re offering $70/share. But right now, Pinterest is only trading for $60/share. If we buy a bunch and it sells for $70, we lock in a 16% rate of return and get to hold shares of the company for years to come.”
“But it’s a rumor right? Rumors aren’t facts. What happens if it’s not true?”
(long, uncomfortable silence)
“But all the major news publications are talking about it. That usually means there’s something to the rumor. Like when KD was rumored to be leaving the Warriors. Totally true.”
“Who’s KD?”
With Hollywood divorces and NBA trades the rumors are usually true. Why not corporate buyouts? To be honest, this rumor made a lot of sense. Pinterest is growing. At the start of 2020 they had 320 million active users and nearing the end of 2021 they’re up to 478 million and rank as the 14th most popular social media platform in the world. That’s a lot of human beings checking out hats and wallpaper. Paypal is searching for a way to expand its digital shopping horizons and become the payment of choice for users buying through social platforms. Why wouldn’t this union happen? And it was being reported all over the internet. And the internet never lies!
In general, I fully understand that by the time I’ve heard about something, the time to buy it and make any substantial profit has long passed. But what’s wrong with making an easy 16% profit on two companies you know and love? To be fair, I have owned shares of Paypal since 2016 and since that time the stock is up 503%. But if the party is nearing its end, if we’re all going to be searching for attractive 4% bond yields for the next decade, why not try to make one last quick profit just for old times sake?
As my dad often told me, “If it sounds too good to be true, it probably is.” I think he was talking about the possibility of watching another season of Ozark or Stranger Things before our grandkids arrive but it holds true here as well. I bought shares of Pinterest last week at $63/share and then the rumor burst like a kid’s soapy bubble in the back yard. Apparently, Paypal has no interest in buying Pinterest. Was there ever an interest? Was it something I said? And apparently, people aren’t buying enough stuff on Pinterest to boost its valuation. Will this picture change in the future? Maybe. Possibly. Is it worth the wait?
Today, when I log into my Fidelity account, I see a 29.34% loss staring me right in the face. It’s a good reminder that it rarely pays to buy the rumor.
