*AV*--Hopefully the DJ news organization won't come after me for this since I am giving credit to the author.
08/20 7:29A (DJ) Net Stock Gurus Valuable Tools, But Investors Are Warned
By Johanna Bennett
NEW YORK (Dow Jones) --when OKlDay" started playing the market three months ago, she knew nothing about investing. So when she read a newspaper article about a World Wide Web page where investors post their stock picks on message boards, she was impressed. And she was equally impressed with one particular pundit, "Lion Master," whom she blindly followed, buying whenever and whatever he posted.
It took her about a week to lose her investment, roughly $4,000. "I lost big time," said OKlDay, who declined to reveal her real name. "I was warned to be careful. - I learned my lesson the hard way."
Unfortunately, according to some chat-room operators, too many Mom-and-Pop investors are engaged in the same blind-man's bluff version of follow the leader.
The Internet is playing midwife to a growing number of pundits whose supposed expertise at picking winning stocks has gained them fame and followings on message boards and chat rooms. Ranging from the Motley Fool, a famous financial Web site that recommends its own portfolio, to personalities with their own threads on Silicon Investor, they provide a valuable tool to those on the prowl for the next big market score.
But all too often, investors, especially novices, blindly follow these "gurus," buying their picks and skipping the legwork and research normally required to make intelligent decisions.
Add to that the fact that some of these "gurus" have less than altruistic motives, and an unsuspecting investor can end up getting badly scorched.
It is just one area of Internet investment fraud that has come to the attention of the Securities and Exchange Commission. An agency spokesman declined to discuss particular cases or particular "gurus." But scams can range from the typical "pump and dump", to paid promoters who fail to disclose to the public that they receive compensation for including a particular stock on their list of picks.
"I feel it is an enormous problem," said an official with Silicon Investor, a popular investment message board that caters to technology stocks "People are frequently following gurus and shirking their own responsibility for doing their own due diligence. They are not considering what the possible motive of the 'guru' might be."
The power of a message board stock guru can be considerable. Since their "picks" are sometimes followed by hundreds, even thousands, of investors, they easily can send a small, low-priced stock spiraling.
"Our society is into hero worship and the vast majority of people are
followers looking for a hero," said Steve Marek, co-founder of KingFine, an Internet message board dedicated to stock-picking. "But people are here to make a profit, and if they think someone can help them do that, they will follow him."
Some Pundits Legit, Others 'False Profits'
Many pundits operate rather informally, posting recommendations and tips on message boards where their names are recognized. Others start up their own message board threads, such as "TA Trader," a Lutheran pastor from Michigan, whose thread, "TA Trader Gizzard Study" has counted more than 2,400 postings in three months.
"I do this because I love to trade," he said. "It's like a Monopoly game a diversion from work, Besides, I like helping people."
Others turn it into a profession, publishing e-mail newsletters and Web sites where some charge users hundreds of dollars a year in membership tees.
Joe Park, a restaurant owner from Manhattan whose alias, "TokyoMex," is recognized in almost any chat room, does all three. The former corporate attorney started his stock-picking last year when he began e-mailing a newsletter to members on a Motley Fool chat room. Today, a message board on Silicon Investor that bears his name counts more than 30,000 postings and he runs a daily informational Web site - "Tokyo Joe's Societe Anonyme" - that caters to momentum trading.
Members, who number about 130, pay $499 annually for access to the site. A disclaimer warns Web site users that "Societe Anonyme" isn't required to provide information to federal authorities and has no obligation to disclose its trades. So users should assume that while they are buying a stock, "Societe Anonyme" is selling a stock.
"I don't consider myself a guru," Park said. "I share information with people.
Certainly some gurus are legitimate, amassing a following with a proven track record. Others are far from knowledgeable, relying more on luck than skill. And some are "false profits," bent on hyping and manipulating a stock for their own profit.
In the end, it is up to investors to take care. "My opinion is that some (message board gurus) are dangerous," said Mike Burke, a former hedge-fund manager who runs a thread on Silicon Investor called "Ask Mike Burke."
"Some of them, the depth or their knowledge is not great," he continued "But they can be useful. You have to judge the information yourself. You should not look at the name of the person saying things, but why they are saying it."
"Newcomers especially must be careful," said KingFine's Marek.
Founded earlier this year, KingFine originally was intended to track the results of a stock-picking contest initiated on a Yahool Finance message board. Now the site includes an archive of contest statistics that provides users with a track record against which to judge other people's stock picks.
"You have to demand to see fundamentals," said co-founder Marek, who is also known as "stockmeister."
"And I like to see the track record," he said. "That's a key." The site is free of charge, and anyone can post. Put all stock picks must be accompanied by backup information or the message is deleted from the board, Marek added. Most Internet message boards, however, don't monitor postings.
Ironically, Marek said he is a poor stock-picker. He attributed his
notoriety to his days on the Yahoo! Finance message boards, when he corralled other participants to help him do his due diligence. Although he never will buy a stock based on one person's recommendation, he will buy if the stock is endorsed by at least three people he considers trustworthy -
Sometimes, especially in momentum trading, there just isn't enough time for thorough research, Marek said.
"It's not the best thing to follow Just one person," he said. "But it is appropriate to follow three, especially if you check their work and their records. Nobody is always right, but if they're right more than they're wrong, then I will buy. I made a lot of money this week doing it."
Should I be upset no one interviewed me<GGG>. But seriously, it is nice to see exactly what I have been saying appear in print. While it was dated stamped early this morning, I just now came across it and just knew it had to be posted here. Do with it as you see fit.
Andrew
BTW-TokyoMex gets $499 per person annually and no one has offered to buy me a pizza here. Oh the injustice of it all. |
