Andy Yates is Director of Operations at Digital Look, the leading UK and international company research and news alerts service. He was formerly a senior financial journalist with the Investors Chronicle , The Independent and the BBC.
Digital Look's market-leading e-mail service offers the latest customised information about share portfolios. Its service currently covers six countries including the major European and US markets, and is expanding to create a global share research service.
Online bulletin boards allow investors to swap ideas, information and share tips. They have expanded hugely in recent years to become a major force in the internet investment world. Tens of thousands of bulletin board messages are posted every day about companies. As well as investors, they are beginning to attract close scrutiny from market regulators.
Although it's easy to dismiss the chat in online forums as uninformed gossip, a study commissioned by Bloomberg found that while on average earnings forecasts on amateur online forums were out by 21 percent from the actual figures, those from Wall Street professionals were out on average by 44 percent.
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Lurk and learn.
Bulletin boards can be a daunting prospect for the uninitiated. Before jumping in at the deep end, get familiar with the contributors and the style of the bulletin board. Sit back and watch before you start posting on the boards, or 'lurk' as the online lingo goes. You will soon be able to distinguish between the popular posters and those unscrupulous posters determined to make a quick buck out of you.
Use bulletin board search engines to build up an historical track record of regular contributors so that you know who has proved to be reliable in the past.
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No exaggeration.
You need to see bulletin boards for what they are - a useful and interactive way to gauge the latest sentiment about your portfolio or prospective investments. They are a hotbed of useful ideas and opinions, but also a great way for you to confirm the suspicions or opinions you have about the next potential hot shot in your portfolio.
So long as you take spurious comments with a healthy pinch of salt you can make money from the boards. As a general rule most comments are useful in some form or another but exuberant investors always tend to exaggerate the good and bad points about a company and often put two and two together to make five.
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Watch out for 'wise men' bearing gifts.
Beware of contributors who claim to be top executives with inside information. At the height of the internet boom a poster claimed to be the chief executive of UK internet tiddler Pacific Media and unveiled plans for a major deal. The comments were even picked up by a national newspaper before the hoax became apparent. Companies announce things to the Stock Exchange - not to stock pickers on bulletin boards.
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Don't believe in fairy tales.
Extracts of news reports or official Stock Exchange announcements are always posted on the boards. But it only takes a second to change a few vital facts and create a very different story.
A falsified article on US quoted group Emulex created havoc for the share price and led to the prosecution of a share-manipulating hoaxer. If in doubt, check it out. If a story appears just too good to be true, check the original source or the company's official web site.
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Try not to get hooked.
For the regular investor, bulletin boards can be dangerously addictive and those that are hooked cannot miss their fix of daily gossip and innuendo. Apart from a pasty, bleary-eyed look, a bulletin board addict will also display the potential wealth-worrying symptoms of believing everything they read and a sheep-like ability to follow the herd. If you find that you are already displaying these symptoms - just say no and take a bulletin board break.
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Bulletin boards can seriously damage your wealth.
Bulletin boards are full of the next 'hot' buy tip - the company whose shares are bound to rocket into the stratosphere. Ask yourself why contributors are so keen to give away their top secrets to the world. 'Pumping and dumping' is all too common. Make sure you are not the one dumped upon.
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Go for quality not quantity.
Many of the top boards have rooted out the online hoi palloi by charging a subscription or policing their boards to ban online hooligans. While this can never be an exact science, it does give the board a mark of quality. You only have to compare the quality of posts on Yahoo! - which attracts the good, the bad and the very ugly - to, say, Motley Fool which doesn't suffer bulletin board fools gladly.
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Open your eyes to the risks.
Digital Look's research has shown that the companies investors just cannot stop talking about tend to be more volatile in term of share price performance. On the one hand, bulletin board contributors tend to rabbit on about the more speculative and technology-focused stocks on the market - in other words, companies whose shares could double or halve in value, which makes them a great talking point. On the other hand bulletin board sentiment can itself have a big effect on these small to medium size firms, wreaking havoc on the market valuations. Whatever the reason - look before you leap into stocks that may not be the best investment for widows or orphans.
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Keep yourself posted.
Whether you think bulletin boards are a force of good or the devil 's spawn they do have an impact in today's helter-skelter online investment world. A seemingly inexplicable price movement can be explained by a bulletin board. Corporates, too, need to keep a close eye on them. Mega-mergers such as that between Reckitt-Benkiser and Glaxo Smithkline were revealed on the bulletin boards, suggesting that those in the know could not resist letting others know. And damaging and sensitive documents have a habit of popping up where you least expect them - a problem suffered by online directories group Scoot which was forced to hire private detectives to try and hunt down the culprits.
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Don't get carried away with the hype and hope.
Buy tips far outweigh sell tips on bulletin boards - a trait that has remained even throughout the prolonged market slump we have had to endure recently. That tells its own story - over optimism means you are unlikely to end up with the optimum portfolio.
