The protracted storyline, like it or not, of Elon Musk’s bid for Twitter, which turned into a legal battle with the social media platform, took another big turn on Tuesday.
He will buy the company after all – and at the original offering price of $44 billion, which equates to $54.20 per share.
But retail investors could do well by ditching that ride for now, financial advisers told MarketWatch.
CEO, reportedly planned to continue with his original deal for the social media company.
“Those considering buying shares of a company before it is acquired should expect volatility and should be supported by investors with a high tolerance for risk,” said Danielle Miura, founder of Spark Financials in Ripon, California.
A letter from Musk’s lawyers to Twitter, contained in an SEC filing, said he intended to pursue the deal. When trading resumed on Tuesday afternoon, the stock continued to climb. It was down just over 2% in early trading Wednesday.
The potential breakthrough would mean Musk buying the company at original offer of $54.20. The stock closed at $52.01 on Tuesday after opening at $42.81. (The 22.2% rise was Twitter’s second-largest percentage gain in a day, behind Musk for the first time. revealed his initial stake in the company.)
““Those considering buying shares of a company before it is acquired should expect volatility.””
In July, Twitter continued Musk in Delaware Chancery Court to force him to go ahead with the acquisition after Musk sought to void the deal, pointing to concerns including the prevalence of bot activity on the site. A five-day trial date was scheduled to begin on October 17.
Even though the Twitter deal at $54.20 per share seems closer today than yesterday, financial advisers still have a message for everyday investors who think they spot an opportunity: think really hard first.
Last year — even the September market performance alone – could have weakened the stomach for potential losses as the stock market continues to test new lows for the year.
The Nasdaq Composite
is down about 28.5% since the start of the year. The S&P 500
is down more than 20% during this period and the Dow Jones Industrial Average
is about 18%.
shares are up 28% on Wednesday, supported by Tuesday’s news. You’re here
shares climbed 2.9% on Tuesday on the Twitter news, but fell 4.7% on Wednesday.
““I would always say don’t buy it. Obviously this is getting a lot of attention, but I think the story is far from over.”
“We have received the letter from the Musk parties that they have filed with the SEC. The company’s intention is to complete the transaction at $54.20 per share,” a Twitter spokesperson said Tuesday.
Nothing is assured here, Miura said. “Until Twitter is fully acquired, there is a chance that the deal will fall through or approval will take longer than expected; if that happens, there’s a chance that the stock price will drop. Think long-term growth opportunities “rather than trying to time the market”.
“I would always say don’t buy it,” said John Bovard, owner of Incline Wealth Advisors. It’s the same advice he gave his clients when news of Musk’s offer first emerged on Twitter in early spring. “Obviously it’s getting a lot of attention, but I think the story is far from over.” Musk “makes quick and brash decisions and changes his mind quite frequently.”
But if there are people determined to allocate money for speculative play, at least apply a guardrail, Bovard said.
This means applying a stop-loss order, which triggers selling when a stock’s price reaches a certain point, to protect against declines. It also means using a sell limit order, which triggers selling at a certain time, to avoid hanging on too long after a rally.
Given the stock’s volatility even during a trading session, “if you don’t watch, you could find yourself stuck with the stock on a huge downside.”
““Deciding whether or not to buy Twitter shares right now depends on where they open once trading resumes.””
“Whether or not to buy Twitter shares right now depends on where they open once trading resumes,” said Carlos Legaspy, president and CEO of Insight Securities, a stockbroker. /trader and investment adviser. “Musk’s offer was $54.20, any price below that would be what’s called a ‘bid discount’. With someone as volatile as Musk, that discount on the deal must be significant because there’s always the possibility that he’ll step down again and continue the lawsuit.
Given a slim “deal discount” of around 6% given Twitter’s share price on Wednesday morning, Legaspy said: “The market seems a bit skeptical about the conclusion of the deal. At this level, it’s probably a good idea to take profits because a 6% upside seems too low for the risk.
If anyone wants to invest money in Twitter now, Jamie Ebersole, founder and CEO of Ebersole Financial, also urged caution. The discrepancy between the $54.20 figure and the current stock price “indicates that there is still some skepticism that this deal will close.”
A small game for a game on Twitter could ultimately generate a nice return if the deal closes — if it actually happens, Ebersole said.
“So the overall risk-reward ratio isn’t great, and the market continues to price the trade as if there were significant risks to it going through. That being said, for an investor diversified with a high risk appetite,” this could be a “decent money-taking opportunity” for Musk.
If someone really wants to roll the dice, no position in a single stock should exceed 2% of their liquid net worth, said Kevin Brady, vice president of Wealthspire Advisors.
When it comes to Twitter, “my reaction is honestly the same to any single stock buy – it is and remains a gamble”.