To New Investors, Stay Away From Message Boards!

Published 11/7/07 (Modified 3/9/11)
By MoneyBlueBook

To my fellow stock market investors, heed my warning as someone who has foolishly traded before on things he read about in an online discussion board. I regrettably did this when I was an investing novice back in college and got hammered big time. If you are a new investor, you should absolutely stay away from stock related discussion boards like the ones you find on Yahoo or Google Finance. Google Finance is not as bad as Yahoo, but both should be avoided like the plague.

It Is All Too Easy To Get Influenced, Especially If You Are a New Investor

If you are a newbie to the stock market, you will likely be more prone to investment temptation and more easily influenced by what you read on these finance discussion boards. But diving deeper into the substance, you will find nothing of redeeming value in these unregulated forums. All you will find are misleading, self motivated comments made by individuals who have a hidden and vested interest to influence the gullible.

On these boards you will find that the vast majority of posters are what the investing community commonly refer to as pumpers and dumpers. Pumpers are people who own shares in the stock being discussed in a particular message board. Their deceptive mission is to spread rumors and fill your head with greed-driven motivation to buy shares in the company to help drive up prices. The more people that fall prey and buy shares, the more long volume there is to force share prices upwards, thereby benefiting the stock portfolios of those who spread the rumors initially. The increase in share price will often be short lived, and you may ultimately find yourself on the losing end.

Oftentimes, the news and commentary posted by the pumpers will sound very real and plausible. Trust your own judgment and don't fall for it. Just a quick glance at the Yahoo Finance message board of an interesting speculative stock that I've been tracking for a long time reveals tabloid trashy subject titles like:

• "Deal with China imminent, Buy more before it doubles next week!"
• "My broker at Charles Schwab told me to buy and hold before positive earnings report comes out Monday!"
• "$20/share coming soon CNNfn analysts say!"

None of these statements were made by professional financial analysts and all of the provided information was fabricated and made up by pumpers. They were all made by unknown individuals in the shadows who post misleading financial information in complete anonymity to spur on irrational buy orders by naive investors.

On the flip side are the dumpers, who are usually short sellers who stand to profit greatly when prices go down. They are the opposite of the pumpers and their mission is to spread falsehood and incorrect facts and speculation to drive up selling pressure. They will post things like:

• "Analysts say recession will drive the company to the ground!"
• "Level 2 stock quotes indicate heavy short selling volume - prices to plummet 30% by the end of trading!"
• "Chinese government to reject certification - company will go bankrupt!"

I guarantee you, even if you are a seasoned investor, reading information like this will likely influence you, even if it's only by a little bit. It will place irrational and greedy thoughts into your head that you don't need. You should stay away from the finance message boards altogether. Stick to reputable and transparent financial sites that offer objective information with a traceable track record. Always remember to conduct your own research and due diligence before acting.