A market adage or saying (market maxim) that implies the notion that market reacts to information including news and rumors, and this in turn impacts supply and demand. In other words, this is based on the belief that stock prices move in expectation of news and rebound back on profit taking after the news is made public. Most of the time, the market tends to respond to information and misinformation rather quickly. And in specific cases, it overreacts to available news, including business rumors and gossip as market participants rush to get an edge over competitors and other players.

Rumors, however, may carry some true news. If an investor buys on the rumor, he/ she can benefit from the price change that would occur shortly. For example, news events such as earnings announcements may be engulfed with a cloud of rumors before official release. If earnings turned out to be good (i.e., corroborating the rumors or exceeding the rumored proportions), the market would react positively and prices would catch up. In this case, investors may early react by buying the rumor and selling the news: buying securities in hopes that they stage a price increase in the near or very near future.

In the opposite situation, when the rumor is bad or unfavorable, the market would be gripped with an opposite scenario: sell the rumor and buy the news (which translates as sell on the rumor and buy on the news).