Memo to online traders: welcome to the rest of the investing world.
Federal regulators over the past several months have made noise about Internet stock communities. More than anything, it's a sign of just how ubiquitous these message boards and chat rooms have become. A few years ago no one cared what was said on Go2Net's Silicon Investor or CMGI's Raging Bull or Yahoo! Finance, except for the people posting on them. Even now, those boards probably don't draw much attention from the wider populace.
But they draw enough eyeballs to move stock prices on rare occasions. That attracts the U.S. Securities and Exchange Commission, which made at least three publicly-reported arrests stemming from phony news posted on stock message boards in the past several months. The latest came yesterday when U.S. attorneys accused a daytrader of slapping up a fake Lucent Technologies (NYSE: LU) release on a Yahoo! Finance board.
Also this week, the Wall Street Journal made note of an SEC scheme to automatically scan Internet postings for scam artists. Securities regulators are considering a search engine-style spiderbot that would flag messages with "Get rich quick" and other common buzzwords.
Privacy advocates issued their predictable outcry over government surveillance, but I don't see what's illegal about scanning a public message board. This is not Abraham Lincoln's suspension of habeas corpus.
Unfortunately, constitutional issues notwithstanding, the SEC's idea is still moronic, because you can fool bots by simply avoiding catch phrases. Until someone comes up with genuine artificial intelligence, a machine will never catch fraudsters. No bot would have flagged fake releases on Lucent or Pairgain Technologies (Nasdaq: PAIR).
Too bad, because Internet is largely an information wasteland. That the government sees the online information morass on its radar screen indicates it isn't merely a harmless novelty anymore and probably hasn't been for at least two years.
Don't expect the government to back off anytime soon. After all, the SEC's entire reason for being is to prevent securities fraud.
Unfortunately, you can't rely on regulators to protect you. In any case, you shouldn't need it -- just take the time and do your own research.
It's not hard. Read the regulatory filings at SEC.gov or FreeEdgar or EdgarOnline. Stop by the company's website if it has one. Peruse news articles. If you see an alarming news release, visit the corporate site again to make sure it's legitimate PR and not the creation of some daytrader in Texas.
And if you don't have the time or desire to do the legwork, put your money into a mutual fund.
None of this is anything more than common sense that any high schooler knows, which is why I'm continually amazed by posts along these lines: "Can someone tell me more about this company? Does (fill in frequent poster's name here) think this is a good opportunity to buy back in?"
That's the last place you should be asking for data. Never trust folks who live on a particular stock's message board, because they're guaranteed to have an agenda. You think a message board long will undermine his own position by telling you the negative truth about a lousy stock?
Sure. And Bill Gates will break up Microsoft (Nasdaq: MSFT) tomorrow and beg for Jim Barksdale's forgiveness.
At least Wall Street analysts have to seem objective -- many of them aren't, but they have to look that way -- because their names and reputations are attached to the research they produce. Presumably they have training and credentials to back it up.
But who holds the anonymous message board legions responsible? You can count on one thing: the SEC can't. It's already stretched thin.
I read stock message boards frequently for laughs. I suppose they're good vehicles for sharing moral support. They're certainly effective for soliciting feedback to editorial pieces, which is why Talkback sections are attached to these columns.
But they've always been terrible sources of information, even moreso now that they're becoming popular. Con artists love a bigger audience.
So be warned: those who rely on message boards heavily for insight -- or invest based on a newspaper or online column -- get what they deserve.
(Nasdaq: INTC) Item # 9488153 in the "Sometimes it's better to stay quiet" file: the Internal Revenue Service pokes its nose into Intel's books and the U.S. government ends up out $600 million.
Can't blame the chip giant for recovering what it rightfully deserves under the law, but you can fault the IRS for opening its trap. Did auditors really think Intel would cheat on its taxes?
Compared to the overall federal budget pool, $600 million is barely a water molecule, let alone a drop. But consider this: it's enough to pay for the entire budget of Head Start child development programs in California and a few other states combined. 22GO>