Eight Golden Rules for using Bulletin Boards
There is no doubt that share prices of smaller companies can be moved by what is posted on bulletin boards such as ADVFN, iii and LSE. But this is very much caveat emptor territory and these rules are often as much about not losing money as actually making it.
- Be wary of boards that seem incredibly busy and incredibly bullish. Assume that those who are bullish already own the stock so if everyone is already long where will the fresh buyers come from. Moreover, there are clearly plenty of potential sellers. Short sellers view such crazy boards as a good sign to go short.
- Be very wary of postings claiming to have inside information. If the poster is genuine then a) why is he not just buying the shares on the cheap rather than sharing the “good news” and b) why is he sharing inside information which is illegal and thus risking criminal sanctions? Almost all such posts are spurious. News rarely breaks on Bulletin boards.
- Ignore those who set incredibly ambitious price targets. They can rarely justify them with any fundamental analysis and are simply talking their own book. A company with such investors on board does not have a quality register.
- Read posts by bears as well as bulls. Often those who question a company, or its valuation, are attacked or other posters choose to block them. Surely you wish to hear both sides of the argument?
- Beware the stale bull. If you check back on past posts of the most bullish commentators on a given stock, you will see that they have been long and wrong for a good while so why should they be right now?
- Accept that while reading a board may give you insights and a range of opinions it is not fundamental analysis. So use it as a starting point but, before you invest, check out RNS statements and historic financials for any particular stock.
- Accept that those who post on boards are amateurs and as such are likely to get it wrong more often than they get it right, especially when they have fallen in love with a given stock and so view it through rose tinted glasses. Having said that, there are some superb contributors to certain boards such as Waseem Shakoor and Jaknife (both bears) who should not be ignored.
- Beware of anyone who claims to have had private conversations with a company’s management giving him a “steer”. He or she is invariably either lying or being played.