Here is the Greenberg piece on 'CPQ boards'...
John
The Danger Lurking in
Investor Message Boards
Against the Grain
Herb Greenberg
Don't get me started on the subject of investment
message boards. These online financial hootenannies
are dangerous at best, and at worst the investment
version of poisoned Kool-Aid. Pity the poor suckers
(er, neophytes) who scrolled through Yahoo's Boston
Market message boards after the restaurant chain's
recent bankruptcy filing. With the stock trading at a
few pennies per share, someone known only as
"elysse1kittycat" posted a message announcing she
had "bought 2000 shares of Boston Chicken last week
at .47" because she likes the restaurants and the food,
and has a gut feeling the company will "emerge from
Chapter 11 within a year and will go back to $5-$10."
Never mind that the original stock of nearly every
company that has ever filed for bankruptcy has been
extinguished. Comments like elysse1kittycat's, aided
by unfounded online chatter that Boston Market
would be acquired by McDonald's, caused the stock
to fly back to $1, much the way a similar spurt of
message-board bravado caused the stock of the
then-bankrupt Discovery Zone to bounce before it
eventually went to zero. That's the way life is on
message boards, where everybody's an expert, and
nobody's too bullish.
My first introduction to the boards, as I wrote here
recently, was back in the highflying days of Iomega,
when I was routinely attacked on America Online's
Motley Fool for questioning the stock's rapid rise.
That was a mere three years ago. Today message
boards have flourished with the rise of sites like
Silicon Investor, which is devoted to tech stocks, and
the all-purpose investment message boards on Yahoo.
Message boards play off the interactive nature of the
Internet, and in theory, at least, they're a good idea:
They're supposed to level the playing field by giving
the little guys a place to congregate. Rather than rely
on brokers, analysts, and the news media, investors
can compare notes and, if all goes well, beat Wall
Street at its own game. Some posts can be well written
and informative. On small stocks it's not uncommon for
them to break news before Dow Jones, Bloomberg, or
Reuters. And if you're lucky, corporate insiders
(anonymously, of course) will post confidential inside
information.
So why am I such a grump? Because in practice, rather
than leveling the playing field, the most active
message boards generally turn into giant cheerleading
sessions that have little tolerance for anybody who
dares to suggest that a company might be facing
trouble. Because I've seen one too many gullible
first-time investors panic and plead, "Will somebody
please tell me why this stock is falling?" Because
anonymity is a hallmark of the message boards, which
means there's no accountability. (Made a bad call? No
problem, just post under a different name.) Because
even when the posts aren't anonymous, you have to
be on the lookout for misinformation. For example, two
years ago, when I was writing aggressively about a
possible slowdown at heavily hyped C-Cube
Microsystems, Connecticut money manager Robert
Gintel waged a public campaign against me on the
boards in an effort to convince investors that the
chipmaker's stock was headed higher. Gintel wrote that
I was "a complete investment dilettante with no real
investment research acumen or knowledge whatsoever
... caring very little about the factual correctness of the
information" I passed on. That, of course, was before
C-Cube's earnings, and stock, went the route of every
other chip company in its space and tumbled.
Then there was the online reaction to my recent
column that suggested that Galoob Toys was in talks
to be acquired by Hasbro. One reason for the sale, I
had written, was that Galoob didn't have the cash to
cover future obligations. In response, one influential
genius known as "bkinvest" wrote, "Now, I realize that
even the most ill informed on this board know more
than Greenberg on Galoob. Galoob does not need to
sell out to Hasbro because of cash-flow issues."
Within days, Galoob announced that it would sell
itself to Hasbro.
More recently the online flaming has turned to
questions my column has raised regarding Compaq
Computer, whose message boards, with their
overzealous, passionate postings, are throwbacks to
the days of Iomega.
In the past year or two, as investors have grown tired
of small-cap stocks, activity on the boards of large
companies like Compaq has picked up. I know one
money manager who makes a living shorting the
stocks touted on the most active boards because they
create momentum that takes the stocks well beyond
their fundamentals. "On the smaller boards you may
have had 50 or 100 active posters who were
vehemently opinionated about a company," he says.
"When you get to a Compaq, you might have 5,000." I
can only imagine what that herd will say about this
column.
Herb Greenberg is senior columnist for The Street.com.
His E-mail address is herb@thestreet.com.
Issue date: November 23, 1998
Vol. 138, No. 10
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