The following question and answer by Sheikh Yusuf Talal DeLorenzo attendees of the Dow Jones University Courses on Islamic Investement.
Question:: One of my friend bought 500 stocks for Vrio company for 35 dollars each stock share and the next day some Japanese company bought this Vrio company and the stock price shot up to 65 dollars and he decided to sell it. Is this allowed or not allowed according to Sharia'h? Please email the answer.
Answer: The decision to sell was certainly warranted from a business standpoint and there is nothing wrong with it from a religious perspective either. I have described a Muslim investor's purchase of stock as a responsible commitment to ownership; and I have explained that this is why the practice of day-trading is inconsistent with Shari`ah principles. (Please see my answer to an earlier on day-trading above) In the situation you describe here, however, there is no evidence of day-trading, or a day-trading mentality. Rather, something occurred, and the investor took advantage of the situation. Yes, the investor might have held on to the stock of the new company. But s/he originally purchased the stock because s/he saw value in the first company. The high point of that value may have been, in the estimation of the investor, its buyout by another company and the resulting rise in the price of its stock. This may or may not have been a correct assessment of the situation; but it was purely a business decision. The important thingis that nothing in the situation you describe even resembles an intention on the part of theinvestor to gamble on the direction of the market. Instead, all I can see is that a good investment was made, and the investor decided that it was a good time to profit from it. And Allah knows best