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Unscrupulous traders use forums to post misleading or ambiguous information and may even outright lie about a company and its management to influence those investors that use forums as part of the due diligence and monitoring. One of the basic tenets to investing in this industry is to invest in management and that is why these posters immediately attempt to discredit the management team while simultaneously promoting the stock of another company. Returning for a moment to the Monty Hall Problem – when a contestant did choose to trade doors the host often offered a sum of money to the contestant to stay with their original door. The odds of winning the car remain unchanged but there is now a “cost” to do so (the money). We are taught from an early age that our first instincts are usually correct and this is supported by decades of research confirming that when changing answers on a multiple choice test that the first answer was correct more often than the revised answer. The offer of money plays to that instinct because the tendency to stick with the first decision is now rewarded by a guaranteed prize as well as what many believe is a 50/50 chance at winning the car. That instinct to stay with the first selection is irrelevant in a 100% random selection. For the unprepared Retail Investor reading misleading posts on forums, the cost to not follow the advice to sell now and buy the recommended other stock is analogous to the cost to not accept the cash – a collapsing share price and left holding the bag and if they do switch stocks they are led to believe there is a high probability of a strong ROI.
Those using forums for this purpose often have live market information (eg: live level 2) and recognize when a trend is losing support and the stock appears on the cusp of retracement or even a bear period … what if the share price could be given a nudge? If the threads are filled with sour references about management while referencing the 50 day moving average is a “sell” and sprinkled with doom and gloom predictions then for some the cost of buying or holding has increased - the cost is the belief of a falling share price and if enough shares are sold and the price falls enough then the belief becomes fact. But not to worry as by co-incidence there is often a guaranteed solution to this problem because of references to another stock that is about to enter a bull period. Starting to sound familiar right down to a cost associated with the decision to switch doors along with a nudge? This happens repeatedly quite simply because it works – just ask that Prince who wants to share his millions of dollars but first needs a few thousand dollars wired to an offshore account to pay legal fees and back taxes. There are countless articles written on how social media and investment boards are used to manipulate share prices and I encourage you to read the article titled “How short sellers are killing companies - and the market” written by Chris Parry. Thousands of educated professionals fall prey to investment and other scams each year. It is difficult enough for the Retailed Investor to weed out the companies not worth investing in without having to worry about being hustled through schemes such as the old pump and dump. Your own view on this depends on where your moral compass rests as perhaps such Retail Investors falling prey is merely financial Darwinism.