Sell Twitter Or Else! Says Daily Telegraph
IN what might not be the very best share tipping column ever the Daily Telegraph is telling us all that we should unload our Twitter shares immediately. This isn’t sensible advice: or rather, it might be but it isn’t for the reasons they’re giving. Which is that the lock in is about to end and thus lots of people might start selling their stock:
Twitter investors should sell shares now as a clause that prevented the majority of shares being sold is about to expire next Monday, May 5. This could cause another sharp fall in the share price as a flood of shares comes to the market from employees looking to bank gains.
When twitter floated last November it offered 70m shares for trading on the US stock markets. However, there are 589.5m shares in existence today but holders of those shares have their hands tied by a “lock-up” clause that prevented them from being sold for 180 days from the November 6.
All of that is factually true and they can indeed start selling their shares on Monday if they should so wish. But the advice is ignoring the fact that markets are forward looking. We’ve known since November 6 th that those insiders can start selling as of this coming Monday. Therefore the price already includes the possibility that people will start selling this coming Monday.
Note what I’m not saying: I am not saying that the price includes the effect of people starting to sell on Monday. Nor that it includes people not selling on Monday. Only that it already contains the possibility that they will.
And thus, given that we don’t know whether they will start selling on Monday we shouldn’t expect any particular movement in the stock until we know whether they do start selling or they don’t. This is the efficient markets hypothesis in action: that all information is already included into a stock price. It’s only new information that can change it.