Politics & Policy


Fear and loathing on the money trail

The world of the low-level speculator is a varied and fascinating one. Occasionally, I like to trawl the Yahoo! message boards in the Finance section where one can find millions of posts on thousands of companies on the New York Stock Exchange, the NASDAQ, the American Stock Exchange, and the over-the-counter markets.

Not every company enjoys a message board: I notice that one of my former stocks–inexplicably bought (and sold, for a sweet profit, amazingly) some years ago when it was in the pennies–now languishes at 0.0007 cents and while its average daily volume is an impressive-sounding 17,000,000, that works out as about $12,000 trading back and forth. This kind of garbage doesn’t attract even the most grotesque of bottom-feeders, yet I was saddened to see that no one thought it worthwhile to start a message board. Not a peep. That company is so dead.

It’s also a silent aberration amid a turbulent ocean of craziness, falsehood, and chaos. Other websites, like Raging Bull and Silicon Investor also provide message boards, but these, I find, are calmer than Yahoo!’s (that exclamation mark is really annoying me), either because they have fewer visitors or, at least in Silicon Investor’s case, the discussions are moderated and the freaks get punted.

Now, having read many thousands of these posts from rather more viable companies in my time than the one described above, I detect an ascending level of insanity as one descends from the commanding heights of the big, boring, profitable, predictable corporations (GE, Citigroup, Dupont, Time Warner) to the relatively safe but occasionally exciting companies (Microsoft, Google, Amazon, eBay, InterActive, Kmart–renamed Sears Holdings) to the cult stocks (Apple, Apple, Apple, and until recently, Krispy Kreme) to the volatile techs, bios, and telcos (Nortel, Taser, Elan Pharmaceuticals–down more than 70 percent in a single day recently, which was fun for the shorts–Biogene et al.) and finally, to the troubled microcaps, zerocaps, dead-cat bouncers, and BKs (bankrupts) shorted to hell and back but still attracting buyers squeezing slivers of profit out of every minor uptick. (Disclosure: I own, or have owned, several of the stocks listed above).

One is often told by investment professionals that just two emotions reign in the market: fear and greed. When investors’ fear outweighs their greed, the theory goes, they sell; and vice versa. This is so simplified as to be worthless, rather like the advice one finds in the popular financial mags to “buy-and-hold” or “to buy low and sell high.” A few hours devoted to reading posts on the Yahoo! message boards will disabuse anyone of such notions. Fear and greed are rampant, aye, but so too are self-delusion, gullibility, rage, fantasy, mockery, stupidity, madness, depression, touching innocence, exultant joy, cruelty, sympathy, and paranoia–the entire Shakespearean range of human emotion in all its glory.

The boards, to a newbie, appear to be populated almost exclusively by cranks, losers, and borderline psychopaths with multiple personalities (they’re the ones who write posts IN CAPITAL LETTERS WITH LOTS OF EXCLAMATION MARKS!!!!!!! and use half a dozen e-mail aliases to cover their tracks). There are invariably a few moderates, some of whom know something substantive about the company and submit detailed breakdowns of its 10-Ks and Qs, who occasionally issue a plaintive plea for “serious posts only.” They are ignored. There is a complement of gullibles who, madly, believe the predictions, puffs, and invented figures they read by other posters, and compound the blunder by acting on their advice. Then there are the congenital trash-talkers, the defamers, the braggarts, the ego-trippers, the snake-oil salesmen, the lurkers, the see-ya-later-suckers, the soon-to-be-slaughtered innocents (“Question: Is it a good time to buy XYZ now? Thanx for your help.”). Each company’s board contains a contingent of grizzled long-termers–half are serious, and half like to ridicule them–who grumble whenever their stock suddenly attracts the attention of momentum players (which usually happens because some freebie stock-tip website says it’s in play) who ride in and take over the board with hundreds, if not thousands, of messages either bashing or cheering the stock. When nothing much is happening, though, the regulars chat “OT” (off-topic): One board watching a small biotech that’s been trading in a very narrow band for months conducted a long and fairly civilized, if not particularly incisive, discussion about the Atlanta shootings and the biological differences between men and women (Conclusion: there should have been more deputies, and there are some.)

The Schadenfreude at others’ losses, especially when one’s online bugbear has been caught on the wrong side of a price movement, tends to be balanced by Pearls of Wisdom (“We all have down days;” “It’s only money”) and tips about other momentum stocks (95 percent of these are junk, but the occasional nugget does come to light). All in all, it is the camaraderie of a band of brothers who loathe each other. What all have in common is the terrible, nagging fear that instead of winning the fabled ten-bagger, one will be that most pathetic of creatures, a bagholder, the loser who’s sticking around after the smart money’s cut and run. Nobody wants to be the dumb money.

The mindset of the boards is firmly Rooseveltian (as in Teddy–or Frank, I guess): Corporate Interests stick it to the little guy, who’s just trying to make an honest living. When a company is doing poorly, the posts assume a Skull-’n’-Bones, conspiratorial hue. Insiders always look after themselves, senior executives are always conmen, and the company’s claims and products are always fraudulent. For that reason, the moment some obscure vice-president files a declaration that he’s selling a portion of his stock–no matter how insignificant that portion is compared to his total holdings–the boards go nuts with predictions of the Rapture, for, after all, insiders know things the ordinary punter doesn’t.

Now, I think one would have to be living in Candy Land not to believe that good old egalitarian American financial capitalism is rigged, to a moderate and subtle degree, by the wealthy, the connected, and yes, Wall Street and corporate insiders (oops, I think I’ve been reading too many posts). Let’s face it, Martha got busted doing something pretty routine–you think she’s the only one trading in secrets?–so maybe some of the posters have it right. But their mood can turn darker. One common theory is that hedge funds hire bashers to hit particular stocks hard in order to scare legitimate investors into dumping the stock. I imagine this has been done before, but it would have to be a real nickel-and-dime “hedge fund” that thinks it worthwhile to manipulate some distressed microcap’s stock price using Yahoo! posts. These “hedge funds,” I suspect are nothing more than small-time stock operators working cooperatively to defraud others.

You can also pump junk-stocks, of course. Check out Steven Muth, for example, some broker-type who submitted “an offer of settlement” to the SEC after it heard complaints that he, “in concert with others,” had “fraudulently manipulated Creative Host’s stock price from $0.78 to $29.00 between November 17, 1999 and June 15, 2000, a gain of 3,618%, even though Creative Host operated at a net loss during this time period.” How did he do this (allegedly, of course)? One method was to hire “promoters to tout the shares on the Internet.” He made (again, allegedly, for Steve did not admit or deny the charges as part of his settlement) about a million bucks from these maneuvers, which may or may not have happened.

Despite their silliness and the worthlessness of their advice, there are several useful life lessons one can learn from the boards. First, one realizes that a stock’s intrinsic worth or its fundamentals have little to do with its price in periods of stress, and that short-term, volatile markets are not efficient or rational but emotion-driven–no matter what economists say. Thus, the sober divinations of analysts, investment professionals, and financial columnists that you find online or in the newspaper, while useful if you want to know Wall Street’s Official Opinion on any given company, are about as relevant to profit-making as the untutored vaporings found on the boards. If you don’t pay through the nose for private investment advice, discount everything you hear or read down to roughly zero.

Second, lest we over-romanticize the Market, we should understand that stock-market speculation is essentially high-stakes gambling (or “gaming,” as the Vegas casinos like to euphemize it) and insider trading is its form of card-counting. Always has been, always will. Like those guys who devour blackjack-strategy manuals, you can read as many investment books as you want, but in the end, you just have to be lucky and have an instinct for knowing when to cash out, even when it means leaving potential upside on the table. “Pigs get slaughtered,” as the immortal stock-market addict James Cramer likes to say.

Third, after one has witnessed the madness of the crowd stampeding across a board after some adverse bit of news (real or not), the virtues of the true investor become apparent: Patience, Unflappability, Judgment, Temperance, Contrarianism, and Calculated Risk-Taking. Know Thyself, as the Delphic Oracle used to put it. And lastly, if I may end on a less cynical note, there are great little companies out there actually doing something worthwhile. Go find them yourself, ignore the slings and arrows of the posters, hope the Street analysts haven’t noticed them yet, and you’ll do fine. You might even get a ten-bagger. But probably not.

Members of the National Review editorial and operational teams are included under the umbrella “NR Staff.”


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