Who do you trust in the Internet age?

Every company, stock and product has a story and everybody tells it from their own perspective. In the Internet age, everybody's famous; how do you know who to trust? Here are five tips for determining who to believe.

My last post - Don't be a sucker when it comes to stocks - ruffled quite a few feathers among investors of a certain stock. There were comments and emails - mostly calling into question my journalistic integrity - but a few of them also told detailed stories about the company's situation. That's today's topic.

Just like people, every company, every stock, has a story, and everybody tells it differently. In each story there are facts, an anecdote or two, and of course, opinions. Some of them are so fascinating that people write articles, entire blogs, or even books about them.

But when you're considering joining or investing in a company, or buying a product, how do you know which stories to believe? Everybody's famous in the Internet age, so how do you know what information to base your decision on. It's harder than you think.

In a past life I was a marketing executive. As such, I told stories for a living. It was my job, among other things, to tell my company's story so its unique value proposition was crystal clear. That was never easy, but I learned a lot doing it.

One thing I learned is that you can find stories that are positive and stories that are negative about every company out there. For every poor performing company, there are marketers that will tell you why its prospects will improve. For every underperforming stock, there are investors that will tell you why the market has it all wrong.

Moreover, for every product, there will be positive reviews and negative reviews. Again I ask, how do you know who to believe?

When I worked for Rambus, in addition to telling the company's story, I had the pleasure of reading those of some of the most astute and aggressive investors on the planet. Just check out this prior post or the RMBS message board at investorvillage.com and you'll see what I mean. They make the folks with the ruffled feathers from a few days ago seem tame by comparison.

In a past post I told folks not to believe everything they read . Now I'm going to give you five things to consider when evaluating a story about any product, company, or stock. While simple, these tips will help you weed through the seemingly endless stories you're bombarded with every day. They'll make your decision-making a breeze:

Consider the source. This seems obvious but few people really do it. If the source has a vested interest in a particular viewpoint, then you should of course be skeptical. If they're trying to sell you something, well, do I really need to say it? Don't believe it. And just because you saw it on TV or read it on the Internet, doesn't mean a darn thing.

Does it pass the smell test? That means do your own reality or reasonability check. If it sounds too good to be true, it probably is. If it walks like a duck and quacks like a duck, it's probably a duck. If something strikes you as odd, or out of place, that's called a red flag. Pay attention to it.

Do your own due diligence. If you're making an important decision - like joining a company or buying a stock - find one or more objective viewpoints or sources of information that you feel comfortable with before making a decision. Play devil's advocate, if you have to. And again, discount or flat-out ignore those with a vested interest.

Try using logic. For example, if a company or stock is supposed to be the next Google, or if a product is supposed to be the next big thing, consider the probability of that statement being true and act accordingly. If a product is supposed to cure cancer or grow hair, consider the magnitude of the discovery if the claims were somehow true. You wouldn't be hearing about it in an infomercial, would you?

Take your time. Everybody who's trying to sell you something, talk you into a job, or get you to buy a stock, will pressure you. Not only that, but you may even pressure yourself. Don't succumb to it. Take a deep breath, take a step back, look around, get some sleep, check other sources, whatever, just take your time. Everything looks different in the morning, or in the light of reason.

Sure, these tips seem obvious, but you'd be surprised how many decisions supposedly intelligent people make every day without considering them. All it takes is for one person to tell them a story and they're hooked. Why are people so gullible? Sorry to say, but I really have no idea.

 

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