Diamond Foods Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of embattled snack maker Diamond Foods (NAS: DMND) were showing some life today, gaining 13% in intraday trading on rumors of an investment from investing hotshot David Einhorn.

So what: Diamond Foods shares have been under pressure ever since it announced it'd be investigating its own accounting, including looking into payments it made to walnut growers. Since then, shares have been violently whipsawed, posting big gains or further losses based on almost any whiff of news to hit the wires.

Today, rumors swirled that Einhorn -- likely through his Greenlight Capital vehicle -- had taken a stake in Diamond. The rumors started on CNBC, quickly sent the stock spiking, then lost some steam, but left the stock up significantly on the day.

Now what: There are a lot of bad reasons to buy a stock, but high up on that list is buying a stock solely because some other investor bought it -- and that's whether it's David Einhorn, Warren Buffett, John Paulson, or your Uncle Larry. There could be a viable thesis to buy Diamond right now, and perhaps Einhorn's interest (if it's true) could be a good reason to take a closer look at the stock. However, it's important that before you jump in, you do your homework first.

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