Saturday, January 24, 1998
Pathfinders of a wired way
Investors are banding together to search for online information that will
convert rumors into net assets
By PETER KUITENBROUWER
The Financial Post
On the shrub-dotted lots of Etobicoke in western Toronto, big brick garages jut from aging dream
homes. They are the split levels that went up in the 1950s to house the engineers building the Avro
Arrow. But when Canada cancelled the jet project in 1959, the engineers moved away and
desperate real estate agents parked a brand new Nash Rambler in each garage just to sell the
houses.
The Arrow may be long gone, but innovators still live here. One is Jim Erven, a self-employed
consultant after 28 years at Ontario Hydro. He has built his own craft in the basement, a glorious
assemblage of chips and wires and mouses and screens. With all this, he fearlessly roams the new
frontier of stock market investment on the Internet, sometimes for profit and always for adventure.
A metre-wide satellite dish on the garage roof hooks him to real time quotes for stocks and
commodities worldwide 24 hours a day. And in his basement, "Jimsy" - the moniker he uses online
- awaits messages on his home page webhome.idirect.com.
"Ed," Jimsy types, in a note about Everest Mines & Minerals Ltd. on a diamond-hunting "thread"
that links electronic messages on the Silicon Investor (SI) Web site, "everybody and his momma
gotta have a piece of this one.... I know a broker who has been buying this one up all through
December.... Hope he knows some good stuff coming down the pipe as I couldn't resist at $0.28
one day."
Jimsy, Supervalue, Surething and Mr. Metals are all handles for wired investors on the Net's
junior mining stock chat rooms. Using technology, they and thousands of others are pioneering a
new way to invest.
At its best, the Internet is a place where investors help each other find news fast on stocks they
hold. "It's really business as far as I'm concerned," Erven says. "It's entertaining and it's a pastime
of sorts, but really what I'm trying to get is information.
At its worst, the Internet is a lawless place, a kind of medieval village where warm praise for
companies mixes with evil spite. Objective analysis is banished and cults worshipping a company's
stock tolerate no dissent. "The Internet," says Mr. Metals, a Miami investor who changes his
handle each time he is booted from the system for breaking its rules, "is 5% truth and 95%
garbage."
In Etobicoke, Erven's work area shows the signs of a serious investor. The walls are covered with
property maps of mining plays - Lac de Gras, N.W.T.; Voisey's Bay, Lab.; Harp Lake area, Alta.
- with bright-colored squares marking each company's claims. Beside the computers sit binders,
including one on diamonds filled with maps and press releases.
Erven, a balding man in glasses, a sweater and stockinged feet, may also be the future.
He and his Internet pals seek out stock quotes, commodity prices, press releases, annual and
quarterly reports - information that formerly came only from brokers, newspapers and companies.
They share this information online and together form a community. They have a code of honor and
do their best to cross-check any hype and expose "touters" on the Web.
"We're trying to figure out which of the 25 companies prodding the ground in Alberta is going to
come up with a diamond mine," Erven says. "Somebody might, so if you had 10,000 shares at 50›
you're going to be a rich person."
He stays in tough with his "couple dozen" investments - a grabbag including ski hills and nickel
prospects - from a plush brown swivel chair slightly worn on the armrests. On his desk: two
Samsung monitors, one 486 DX 33 computer and one Pentium 120 computer. He has bells on
400 stocks, which chime whenever the stocks go up or down.
On volatile stocks, speed of information is critical. In December, shares in three juniors looking
for nickel at South Voisey's Bay - Donner Minerals Ltd., Northern Abitibi Mining Corp. and
Cypress Minerals Corp. - spiked suddenly on no news. Alberta regulators suspected the spread
of rumors on the Net.
"I just spoke to Donny, the president of CYP," Mr. Metals wrote to Jimsy on SI. "He said to
hang on to my seat. I hope he's right. I just bought 50,000 shares at 31›." The message appeared
one minute after the Alberta and Vancouver stock exchanges halted trading in Donner and
Northern Abitibi - but not in Cypress.
Then, right after the stock market closed, "DanS" posted the following on the Donner thread:
"Rumor has it DML has had another hit on NAI's property; 25 metres of 4% nickel.... No wonder
FALCONBRIDGE wants to meet with PLM [Pallaum Minerals Ltd.] today! Meeting is just
getting under way as I post. It looks like we will have another exciting run in the SVB group of
stocks. Good luck to all."
That rumor came two days before Donner put out a news release about its drilling program. But
Erven argues the times the messages were posted prove the Internet typists don't move stocks -
they're just trying to find out what's going on after stocks move.
"We're trying to protect our shirts. We are basically in competition with the promoters, the
insiders, the underwriting brokers, all of whom are trying to make money of this."
Angela Huxham, director of surveillance at the VSE, said this week a probe of the three juniors
focuses on insider trading, not on the Net.
Every day, thousands of messages posted on SI or other Web sites, like Motley Fool or
Montreal-based Kitco, discuss almost every listed stock. But how much is good information? The
Internet shares the blame for the massive gold hoax of Bre-X Minerals Ltd. A Bre-X thread on SI
counted an incredible 30,000 postings, making it the central clearing house for all gossip about the
firm, which was delisted last summer by the Toronto Stock Exchange.
"The rumor mill," says Robert Cook, the director of market surveillance at the TSE, "has
expanded, maybe exponentially, through the Net. It used to be over the telephone, but now it's
bigger, it's anonymous and it's pretty much public."
Karl Zetmeir, an investor from Kansas City, suffered a US$5.2-million paper loss on Bre-X, a
stock he'd learned of on the Net. Still, he fumes, in the Bre-X case online chatterers knew as much
as full-service brokerages.
"How can our record be anywhere worse than the hundreds of analysts who went over there for
the smell test and not one came back and said: 'You should sell this puppy?' "
Battered, but unbowed, Zetmeir still posts messages on Canadian resource stock threads. "For
due diligence, the in-depth quality of the investors on the Internet is far superior to what the
brokerage houses are doing." But he adds: "SI should absolutely forbid pseudonyms. If they don't
want to post it with their real name, then don't post it."
Another regular on junior mining threads is Ed Pakstas, who sells cottage country condos for a
living in Collingwood, Ont. He lost $250,000 and his house in the market crash of 1987, "because
of unscrupulous brokers. If I had had the resources I have now, it would never have happened."
These days, he brings a laptop to the model home to monitor and discuss his $40,000 in
investments while waiting for customers.
"Then, I was dependent on brokers' advice, but I'm not going to just go and buy stock based on a
hot tip ever again. I have avenues, via the Internet, that I can make investment decisions based on
my own research. And my research can be discussed with other persons."
Erven, Pakstas and the others "discuss" such matters through SI, a site started two years ago in
San Jose, Calif., by brothers Jeff and Brad Dryer. While the Dryers intended SI for high-tech
stocks discussions, it has mushroomed beyond their wildest dreams. "Seventy percent of all online
financial discussion takes place on SI," the company boasts.
Jill McKinney, the "Webmistress" running SI, says 8,500 messages are posted a day and page
views top 3.5 million. SI has 100,000 registered users, now charged US$125 for a lifetime
membership - the price is set to jump to US$200 at the end of this month. Reading the threads is
free.
"Canadian stock chat threads are an enormous amount of traffic for us," McKinney notes.
"Canadian users make up 15% of our users. These people have a very strong sense of
community."
She is the only cop for this network. "We do not and cannot read every incoming post. Every
now and then we have flame wars, profanity and vulgarity, personal attacks; people bring it to our
attention. I send warnings, issue
three-, five- or seven-day suspensions. I terminate a person once a week."
As for Cook at the TSE, he says: "We can monitor discussion or information on the Internet, but
we cannot police it.
"We have warned at least two of our companies about inappropriate investor relation activity via
the Internet. One was on a Web site and the other on a chat line."
Generally, touters and detractors abound online. Mr. Metals faced wrath when he warned, online,
against investment in the stock of Northrich Pacific Ventures Inc. "I got attacked, threatened,
e-mails, phone calls," he says. "They were attacking me. I had to defend myself and Jill
[McKinney] threw me off the site."
In September, the VSE suspended Northrich Pacific Ventures from trading and is "conducting a
review of the company's affairs, including recent disclosure." In its last press release, the company
had proposed to buy slag heaps in Argentina and resift them for gold.
Mr. Metals notes another hazard: it's addictive. "SI is like a drug; I need it. I'm on that thing all the
time. I lost my girlfriend over this. It was mutual. I said: 'Look, this is what I do.' "
Despite the antics in the chat rooms, Erven notes the Net is packed with objective information. He
uses Power Trader and Chartsmart Software, both produced in Vancouver, plus NetTrader from
Papyrus Technology Inc. and Tradestation from Omega for his satellite feed. He has produced a
manual and works as a consultant to help others build their own systems.
In the summer, Erven packs his satellite dish, high-speed serial ports, monitors and CPUs, loads
them in his station wagon and takes them to his cottage. In his sweater and stockinged feet, he
doesn't exude the glamor of a square-jawed punk in a striped shirt and red suspenders, + la
Traders - but he has what counts in this business: information.
"If you want to play the stock market," he says, "why don't you give yourself the best information
you can have?"
canoe2.canoe.ca
You guys are famous now, Ed. Looks like Donner thread people mostly
......... cheers .................. macros
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