Death threats, politics, allegations of insider trading…
Historically the mysterious world of online stock forums is awash with allegations of dark and sinister goings-on and while many today claim to have stamped out practices such as “ramping” and multi-niccing” the reality is that a cloud will continue to hang over all of them until the Australian Securities and Investment Commission (ASIC) takes tighter control.
Regulation of the industry under ASIC is the only solution, says a co-administrator of the 13,000-plus member forum, ShareScene, requesting anonymity for security reasons.
Claiming he has been the subject of “serious threats” due to ShareScene’s “strong stance against the manipulation of forums for personal gain”, ShareScene’s spokesman says the largely unregulated industry has given rise to conflict of interest, membership numbers taking precedence over quality and shares being exchanged for advertising.
Yet despite these accusations and the rivalry that prevails between the respective forums membership flourishes and thousands of traders access them daily to source information.
Joseph Eiby of Aussie Stock Forums maintains that there’s been a boom in their popularity and attributes this to the increasing number of solo traders.
“Trading is often a solo pursuit and people who spend a lot of time alone in front of their computers are attracted to forums,” he says. “We get a diverse mix. Young and old, rich and poor, left and right wing: it’s all revealed in the threads.”
Describing forums as “faceless communities” Eiby says that even though members hide behind weird and wonderful names such as Skunk Monkey, Black Tie and Ivan the Iron Worker forums and those who populate them “are just a microcosm of the world in which we live”.
High drama on stock forums is rife as heated exchanges reveal obvious agendas but most draw the line at abuse and moderators tip off administrators if policy lines are crossed.
Yet regardless of the self-policing and high-tech wizardry that website stgelopers have set in place forums are still considered high risk for investors.
Both ShareScene’s administrator and TopStocks’ founder, John Christian challenge anyone to create multiple accounts on their systems but concede that no system will ever be foolproof.
“A stock discussion forum is not designed to be a licensed arena for financial advice where people can trust everything that’s being said,” argues ShareScene’s spokesman equating the concept of a forum to “talking to your neighbour over the fence” and suggesting that it can be riskier accepting the advice of a single broker than taking into account the varied opinions of five or six people on a share forum.
Christian, a former victim of ramping who established TopStocks off the back of his own experience, maintains that forums are a great way of getting market consensus but admits that they are also the biggest avenue to ramp stock.
Agreeing that ASIC needs to implement a set of enforceable regulatory directives he says he would like to see the government body consulting with forums on how regulation can be applied.
“I think the way to go is dual moderation where forums moderate the sites but ASIC has equal administrative access and moderation powers. The last thing I would want is someone watching over my shoulder.”
Austin Hui, who runs the relatively tiny 300-member Traders & Investors Network and claims he established Australia’s first forum, Stock Central, in 1997/98 prior to the launch of the controversial HotCopper, believes that the pitfalls with investor forums are that beginners frequently fall into the trap of blindly following stock tips, often to their financial demise, that moderation of content is sometimes compromised for the sake of maximising advertising dollars and that moderators abuse their role to further their own interests, such as censoring posts that do not concur with their own investment view.
Hui’s advice to investors:
1. Invest by listening to stock tips on forums, newspapers and magazines is a sure way to financial ruins. Everything you read has to be taken with a pinch of salt.
2. Build up your investment analytical skills – in both fundamental and technical analysis FIRST.
3. Use forums intelligently. Ask questions. There is no such thing as stupid question. Only the stupid chooses to be stupid by NOT asking questions.
4. Some free things (like free tips) actually cost a lot in the end. You need to spend money to get educated first – through books or courses.
As a member of a forum, you can play a part in increasing the level of accountability of stock forums by posing the following questions:
– Does your investor forum accept script (shares in a company) in payment for stock promotion or advertising?
– Do any of the owners of your forum run or work for a stock brokerage or financial advisory firm?
– What is your policy on people registering more than one account and what technology and processes do you have in place to prevent this means of manipulating the share market?