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Bulls, bears and BS

In the Internet Age, the superiority of group intelligence isn't always apparent, says CNET's Charles Cooper.

A lot has been made of the wisdom of the crowd, an intriguing theory to explain how societal knowledge advances.

The idea gets elegantly articulated in James Surowiecki's book by the same name. It's quite a worthwhile read. I'm oversimplifying here but the basic idea is that groups of people are better equipped than individuals to solve problems and make the right decisions.

With a few exceptions--I can nitpick about the lone genius working in splendid isolation--there's much to the argument that the many are nearly always smarter than the few. But in the Internet Age, where news reports--real or concocted--reach tens of millions of computer screens in an instant, the superiority of what Surowiecki calls group intelligence isn't always apparent.

In this era of "Cramerica," where the Internet portals want to exploit our unquenchable thirst to find a way to make the quick buck, the stock and investment chat boards are always among the most popular online venues. I've always been fascinated by what goes on and the people who hang out there (under assumed aliases, naturally).

In this era of "Cramerica," where the Internet portals want to exploit our unquenchable thirst to find a way to make the quick buck, the stock and investment chat boards are always among the most popular online venues.

To be sure, there also are serious board participants who log on to trade investment ideas. Unfortunately, their voices too often get drowned out by short-tempered clowns pushing an agenda. You want to debate the merits of Company A versus Company B? Good luck. It won't be long before that conversation degenerates into a puerile pissing contest between longs and shorts, each spewing more disinformation than a John le Carré spymaster.

And then there are the interminable left-right shouting matches. Why political grudges regularly spill over into financial boards remains a source of wonder. But you find it everywhere. Some of this stuff is so inane and nasty that it makes the likes of CNN's forgettable (and thankfully now defunct) Crossfire seem positively highbrow by comparison. If he were around today, Daniel Patrick Moynihan, who famously warned in the early 1990s about the danger of being tolerant of intolerable behavior, would say it all fits with the dumbed-down age we inhabit.

Maybe so. Then again, there sometimes is a method to the madness. Earlier this week, for example, reported that the Miller Tabak investment house issued a note about an iPhone production cut. That led to a temporary--but rapid--plunge in Apple's share price. The story initially referred to a note reporting unidentified chatter among Goldman Sachs traders. But Miller Tabak never issued the note.

No matter. Once the "news" got published, the bears spread it all over the message boards. Apple never comments on this sort of thing, so we can only speculate about what went on behind the scenes. Was the original source of the story legitimate or was this a sophisticated cyberscam to take down a high-flying stock? If so, it worked to perfection. For the day, Apple's market cap dropped by some $8.4 billion. Unless the Securities and Exchange Commission investigates, we'll likely never know the full story.

The shorts similarly had a field day earlier in the year when Engadget got suckered into posting a bogus report about an Apple product delay. Within minutes, shares of Apple temporarily tanked as the news triggered a massive sell-off.

Not long ago, I participated in a panel discussion titled "Business news: Unsafe at any read?" Maybe not if you're a speed reader. I suppose you can say that the crowd made the right decision each time. The smart ones got out while the going was good, leaving the rest holding the bag. Once the rumors got debunked, the herd reversed course just as quickly, loading up on Apple and profiting when the stock rebounded.

The hard part was knowing when exactly it was the right time to pull the trigger. And that's getting harder all the time.