Memo:
I subscribe to the 'Nepeague Letter', a well written piece on the Internet, that has had good notices. Today he had the following to say, which I found interesting...
Bob...
. THE NAPEAGUE LETTER
Thursday, January 14, 1999
Editor: Bob Davis napeague.com
The New Information Order
A Quote from the current issue of Newsweek:
"It's a new information order. Nowadays you often hear the opinionated
"take" first, then perhaps you log on or go to the newsstand for the
facts. "News" now comes from a thousand mouths - from Meredith Viera or
Chris Ruddy or some caller on the line named Mike. Stories can move from
internet rumor to Leno monologue without stopping at a traditional news
organization in between."
The Newsweek article discussed the breakdown of disciplined coverage of
general news events, but reading it I realized that there is also a "new
information order" coming into existence for investments.
Prior to the mid-1990's, there was a relatively organized flow of information
to individual investors. This process had definite flaws. There really wasn't
very much information readily available, it suffered from some "quality"
problems, and it rarely was timely. However, the process generally included
some built-in controls which screened out a lot of "mis-information" before
it was widely distributed.
The personal computer and the Internet have made possible massive changes in
the ways that individuals invest, and these changes have only just begun to be
felt. However, these changes are a mixed blessing....
Internet brokerage firms have enormously reduced the costs of investing,
and have "unbundled" the transaction itself from the analyst reports upon
which to base the investment decision. In the long term, this is probably
a good move. But "internet investors" are often cut off from any well-reasoned
analyses, forcing them to base their decisions on a variety of other sources
of information.
The growth of internet forums and news groups allow the widespread exchange
of investment ideas - reading through them I often see experienced investors
"mentoring" the less experienced, and the information provided is often
reasonably sound. However, these same forums also allow totally anonymous
individuals to write anything at all about a stock, whether it is relevant,
or even true.
E-mail is a valuable communications tool. However, powerful e-mail software
can blast a million glibly-written messages, touting the glories of otherwise
valueless OTC BB stocks, into almost everyone's e-mail in-baskets.
Technical analysis is invaluable in understanding how the market has reacted
in the past, but it was once very labor-intensive and not well understood.
The easy availability of T/A software has certainly changed all that. But
this same software has now converted many people into "instant experts" in
technical analysis, and given them the belief that they can use it to detect
the future movement of a stock's price. In fact, there is an element of
"self-fulfilling prophecy" in T/A. If the chart says that a stock is going to
go up, investors who rely on T/A are more likely to buy that stock, thus
fulfilling the prophecy by bidding it up in price.
EDGAR, the Securities & Exchange Commission's internet database of corporate
filings, makes information readily available that previously was difficult to
obtain. However, the required format is almost impossible to follow unless
the reader has a substantial amount of experience working with it. Likewise,
there is no easy way to download EDGAR filings so that formatting and
page-counts are preserved, which makes it even more difficult to work with
them.
My most immediate concern is with the amount of mis-information that is posted
on the various Internet forums, and generally by people who post anonymously.
As Winston Churchill once said, "Where there is a great deal of free speech
there is always a certain amount of foolish speech."
If you have read the article entitled TASA - What happened? When did it
happen? Why?, which I published on the TNL site two days ago, you will
see that I believe that a series of somewhat-misleading posts on the
Yahoo TASA forum actually led to a key move in the stock's price at a
point in time where I would have expected the stock to rebound.
Subsequently, there has been additional incorrect information posted on the
TASA forum - including some recent posts which are clearly malicious in
nature, and which have no bearing whatsoever on TASA.
Likewise, I have seen "Blivit List" stocks hyped upwards on these Internet
forums, without one legitimate piece of documentable information available
about the company itself.
Although I am very concerned about each of the changes that I outlined above,
I don't have any "instant solutions" or even concrete advice to offer you -
only a vague warning to look at everything that you read on the Internet with
a healthy degree of skepticism. And this warning includes The Napeague Letter
itself. Don't ever take my Analyses for granted. Check out the supporting
materials before you take any actions - that is why I include them.
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