Here's an article from Worth on stock boards.
98/08 - Cruising the Boards
worth.com
News You Can't Use
By Allan Hoffman
If only they had listened to Schmeitzig. Dime Store Cowboy,
porgynbess, and scores of lurkers are reading and writing
messages at the bulletin boards covering the stock of Alliance
Entertainment on the Yahoo! Web site. They're searching for
answers about the company's bankruptcy or hyping the stock in
the face of its likely demise--or even, like quartzintelligence,
buying 25,000 shares ("Am looking to double my moey [sic] in
next few days"). But Schmeitzig simply viewed it all, amused by
the chaos and confusion. Anyone who'd read the press releases
or reviewed the Securities and Exchange Commission filings in
late March and early April should have known the situation was
hopeless for the music wholesaler's shareholders. The company
president had said the stock would be canceled under a plan of
reorganization. Schmeitzig's advice? "Run for the hills." This was
the Alamo: a lost cause. "Run!" he said. "Run before the army
arrives!"
And they should have. But they didn't.
"AETTQ will fly soon," wrote coolman329 on April 20. "New
[sic] is coming out soon. This news will send AETTQ up like a
rocket."
Well, he was right in one sense--there was news. Under
Alliance's reorganization plan, filed a month after coolman's "up
like a rocket" message, shareholders would get nothing.
Coolman's rocket, quite obviously, wasn't about to lift the stock
into the stratosphere; it was more like a Sputnik-era test,
crashing and burning. Quartz's 25,000 shares? Worth $5,250 on
the day he bought them, April 22, and $750 just a month later.
Business as usual at the Internet's investment forums, where
anonymity reigns, everyone claims to have "insider" knowledge,
and you never know whether you're dealing with a bona fide
investment banker, a 15-year-old Spice Girls wannabe, or a
scammer who's answering his own questions. The result? A
spiral of hype, ignorance, misinformation, and rumor--all
reaching a worldwide audience.
Alan Stomel, a Los Angeles bankruptcy attorney, was
unwittingly drawn into this netherworld when someone posted his
name at Yahoo! (and elsewhere) as a U.S. attorney interested in
representing Alliance shareholders. Some investors thought he
was a federal prosecutor investigating the company (wrong on
both counts). Others believed he was planning a class-action suit
(nope). Stomel, as it happens, wanted nothing to do with
Alliance. But his name was out there, and soon he was getting
phone calls, faxes, and E-mail from investors who had learned of
the stock through Internet forums, had bought thousands of
shares, and couldn't fathom how they could lose nearly all their
money (the stock was at 2 cents a share in mid-June, down from
47 cents on January 30).
The investors who contacted Stomel wanted the answer to one
question: Was there hope? "That took me about five minutes to
figure out," Stomel says. Of course, the situation was hopeless,
as he learned by connecting to the SEC's easily accessible
EDGAR database and reviewing Alliance's filings.
Which was something anyone with an Internet connection--in
other words, anyone posting at Yahoo!--could have done.
Yahoo!, in fact, provides a link to SEC filings from its
stock-quotes page. A couple of clicks, and you're looking at
Alliance's 8-K from April 3, which contained a news
release--also posted at Yahoo!--plainly stating that any equity in
the company would go to creditors or new partners. You
couldn't miss it, or so you'd think.
"I was just shocked by the ignorance of people who own
thousands of shares of this stuff," says Stomel, who tried to
educate the masses by posting (in his customary guise as
chapter11dude) at Yahoo! "How could people possibly be
thinking they should hold on to this--or buy it?"
That's the irony: The Internet offers investors quick and easy
access to reliable, useful information: SEC filings, news,
company profiles. You don't have to do much to find these
resources; they're everywhere, with links to sites that offer
quotes, online trading, and anything else related to investing. But
the forums, and their lesser cousins, the chat rooms--where
conversations occur instantaneously--have a certain allure, often
due to the chance of coming across that insider tip, that tidbit of
knowledge about a stock that is set to double in the next day or
two.
A typical message, from a site called Stock Traders News
Network: "FAMH- -Buy before the end of the day." The poster
urges quick action, saying the "concensus"--incorrect spelling is
de rigueur on the Internet--"is that FAMH will move to $3-$4
before two weeks time." A couple hours later, another
contributor--maybe the same person, maybe someone else--
says he now has the "real" info; the stock "would probably see
$1.00 in two weeks."
That was April 20, when it was trading at 58 cents. Two weeks
later, it traded at 45 cents. A month after that, 20 cents.
Like a lot of other upstart investment sites, Stock Traders News
Network allows a particularly insidious form of anonymity at its
forum, which is called--appropriately enough--Rumor Central.
At STNN and other sites, such as Stock-Talk, you select a
moniker each time you post a message-- WallStGuy one minute,
AlanGreenspan the next.
"These people could be liars," says Jack Marks, the site's
founder. "For all you know, they're unloading their position while
you're buying it. It's Rumor Central. This is stuff you've got to
investigate for yourself. There's a lot of garbage, but there are a
lot of very accurate, timely tips. The 20 percent that's good is
worth gold."
The logs recording visits to these anything-goes sites reveal some
nefarious schemes. Sometimes a person asks a question under
one name and answers it under another, says Paul Williams, one
of the partners in Stock-Talk. One guy could create a whole
conversation, only to have dozens of other people read it,
thinking it was a genuine dialogue. That may not _y in a
discussion of Microsoft or GM, but in the free-for-all of forums
on microcaps and small-company stocks--for which news is not
quite as readily available--the lies, hype, and half-truths may be
treated seriously by some. "A lot of people are checking these
boards just like they check their stock quotes," says Williams,
whose day job is vice president of special investments at the
brokerage firm Joseph Charles & Associates.
Not all forums allow that sort of freewheeling anonymity. At
Yahoo!, you've got to sign up (for free), choose a name for
yourself, and provide an E-mail address for verification. You
can't easily create--as at Stock-Talk--a new identity each time
you post something. At Motley Fool, that bastion of
conservatism (in terms of the orderliness of its message boards),
you can find a participant's E-mail address, the number of posts
from that person, and "how many love" him or her (in other
words, those who think the Fool is worth a listen). Even better,
you can view the person's--or persona's--previous messages: a
handy way to check a track record. But that's the exception.
The Internet, for all its value, is the world's chief producer of
data smog--too much information clogging the synapses. The
pinnacle of this phenomenon? The chat rooms, where the stream
of words never stops. Enter America Online's Investing forum, a
part of the Personal Finance area that lets readers post messages
on stocks and funds. And the first one appears (from
Appliedacc): "Market will Crash in August!!!" Others toss off
ticker symbols, random predictions, political slogans. As for
complete sentences, you'll find few.
Just look at the names in the chat rooms and forums, and think
about whether you should trust these people: Sellfirst,
Bloodmoney, MajorPump_n_Dump. Unless a community
develops, as at Motley Fool and a select number of other sites,
you don't know whom to trust. Unfortunately, the hypesters have
a powerful tool in the Internet. At BOBz, yet another site with
investing forums, it's possible to view the number of people who
have read each message; those like "This should be the hottest
stock around tomorrow" have two or three times the number of
readers as other, hypeless messages.
Back at Yahoo!, the Alliance Entertainment thread persists,
perversely, with messages like "IS there a chance?" and "Maybe
we can..." Stomel, the bankruptcy attorney, visits now and then,
just for a laugh. As for Schmeitzig, there has been no sign of him
lately. Who was he? Schmeitzig's "profile" at Yahoo! doesn't say
much: male, 34, investment banker from Santa Monica,
California. No E-mail address. But he was, like chapter11dude,
a voice of reason. "If you want to gamble," he wrote, "go to
Vegas."
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