Dealing with Internet Stock Chat Rooms
Internet stock chat rooms have added a whole new dimension to investing in speculative shares over the last 10 years. Internet hype is great if you know how to play it, just DO NOT get caught up in it. Stick to your own research, and use internet forums only to gauge sentiment of other holders and find leads to research, no matter what people on the internet tell you to do.
Chat rooms are also useful to gauge the general sentiment around a stock and whether there is too much hype around a stock. If there are way too many posts on a stock, chances are the smart money may have already left.
There are 11 main types of internet chat room poster to look out for, and I will discuss them in detail in this article. Once you know what to look out for, you will be easily able to identify exactly what you are dealing with.
Sometimes chat rooms can erupt in overly positive hype, and give the inexperienced investor the impression that the stock price is going to increase significantly at any moment, and they will miss out by not buying. Every poster is predicting massive price rises at any moment, very articulate and convincing posts start coming out. The feeling of missing out is very difficult to resist, and many will invest based on chat room hype alone. NEVER invest on information from a chat room.
The best strategy if you find yourself caught up in a period of hype, is to go against the herd and sell some of your stock at a profit during the hysteria. The price will generally creep back down after everyone comes to their senses, and this can provide a great opportunity to buy back in. Selling when the whole chat room is in hysterics about a huge imminent price rise is hard to do, but once you get used to it, it is quite fun to watch the confused discussion when the rise never eventuates, and you get to take some profit or get some more stock.
You will find all sorts of characters on stock chat forums when hype is in full swing, but there is generally a few key types to look out for, learn to identify them and you will be able to see the true agendas of posts with an amazing new clarity, and be able to avoid getting caught in the hype, and hopefully play it for profit.
A Lurker will not contribute any information to a internet stock forum, but rather observe the activities of all other poster types. This is the Next Oil Rush recommended behaviour to engage in when attempting to gain information from internet chat rooms. Lurkers are by far the most common type of chat room participant.
The Mysterious Insider
This poster will give an air of inside knowledge and can influence a lot of readers. Conveying their message is usually done using implication, or providing information in a form that will encourage the reader to infer a message that could be construed as inside information if spelt out directly. Expect unrealistic price predictions from this poster. DO NOT listen to this poster.
Desperado\Clearly in Over Their Head
This poster has clearly invested too much money with no research, and usually is the last one to come to the party. They will desperately beg for information from the perceived insiders, often resorting to tactics like setting a deadline when they have to sell (wedding, credit card bill etc) to try and gain information. The information they get form the insider will be a complete guess.
If this poster type has somehow found out about and invested in your stock, It is a pretty good indication that the level of hype is too high around your stock, it may be time to consider getting out.
The Dumb Attack Dog
This poster will aggressively defend their stock to the death by attacking and aggressively ridiculing any perceived negativity. They will NOT constructively argue the point. Avoid engaging this poster at all costs
The Smart Attack Dog
This poster will defend their stock to the death by aggressively defending any perceived negativity. They will however constructively argue their point, but with an overly optimistic base and unrealistic expectations. It is also advised not to engage this poster type.
The Dangerous Influencer
The Dangerous Influencer is a pro-active version of the “Smart Attack Dog”. The dangerous influencer generally has above average intelligence, and will have been successful in a field other than speculative investing, their day job for instance.
The Dangerous Influencer is very articulate and convincing, and will post seemingly well researched content as to why the stock is a good investment. The problem is that they are “in love” with the stock, and the written research created is generally an attempt to convince themselves as to why they have invested, and then shared in the chat room.
Their well researched posts will be extremely optimistic, and come with extreme valuations based on flawed, over optimistic logic, but presented very articulately. Because of their above average intellect, the Dangerous Influencer is very confident, and truly believes their investment decision is correct and will work very hard to convince themselves and others.
Their behaviour is not malicious or devious in any way, they truly believe in their mind what they are writing, and it is unfortunate that many get convinced.
After a period of declining stock price, the Dangerous Influencer will generally realise that their investment is not working and turn into a basher. The time it takes to fall out of love with the stock varies from a few months to years, and the degree of subsequent bashing will vary.
Head of the Cheer Squad
This poster will somehow take any negative information and paint it as a positive for the company. Some posters will proudly state they are in love with the stock, that they are invested 100% in the stock. They are not capable of seeing any downside to a stock – this is very dangerous. Use this poster as an example of exactly how NOT to invest.
The Influencer Basher is will post overly negative analysis on a stock, thinking that their actions will somehow cause a drop in the stock price. This may be because they are trying to purchase stock and want to buy in cheaper, or that they have sold out and want to validate their decision by seeing the share price drop.
It is extremely unlikely that overly negative or positive posts on the internet will have any effect on a stock price, unless the stock is highly illiquid.
The Troll Basher posts overly negative information in order to get a reaction from other posters. This is usually done purely for amusement purposes. The most prone to react to the Troll Basher’s posts are the “Dumb Attack Dog” or the “Leader of the Cheer Squad”.
I suggest you sit back and enjoy the fireworks.
In some rare instances, a person will be paid to go onto a stock forum to post negatively about a stock. This is unlikely in most cases, but the accusation gets thrown around by “Dumb attack dogs” and “Leaders of the cheer squad” at the “Influencer Bashers” and “Troll Bashers”.
Conspiracy Theory Nut
The Conspiracy Theory Nut is so convinced that the stock price should go up, that they try to explain why the stock price is NOT going up using a number of different conspiracy theories, usually blaming the stagnant share price on “stock price manipulation” by brokers or institutions.
Although manipulation has been known to happen occasionally, there is very little chance that a share is not going up due to being held down deliberately, especially not for months on end. Share price manipulation usually starts being proposed after a few months of poor share price performance, and is happily accepted as the truth by all manner of poster, as it conveniently explains to them why their predictions of massive stock price rises have not come true, rather then admitting to themselves that they got it wrong.
If you go on any board where there is a significant amount of posting activity, and the stock price hasn’t moved for a few months, nine times out of ten the cheer squad will be shouting about manipulation to justify the poor performance.
Now that you know the different types of chat room citizens, see if you can categorise the local posters on your favourite stock chat room. Make sure you never ever trust anyone on a chat room, or get caught up in the hype. If you spot chat room hype – pick a point and top slice as soon as you see a decent profit. You can then chuckle to yourself as all the above poster types scratch their heads and claim manipulation when the hysteria subsides and the price goes back down.
Good luck with your Investments