Needle in a Haystack: Stock Message Boards

Stock message boards give investors an opportunity to connect with other investors at all levels of expertise and learn more about profitable investing strategies. Although the communication methods on the Internet can be wide in range—from newsletters to podcasts to blogs—messages boards that focus on investing and personal finance continue to be one of the most popular ways for traders to interact on the Internet and share information.

However, it's the accuracy and credibility of the content producer that determines the legitimacy of the content itself, and this is certainly an important factor when considering whether to participate in any stock message board. While the information available on these forums can be beneficial to investors, we have to remember to consider the sources. Not all sources are legitimate, and not all have your best interests in mind.

In this article, you'll discover how to spot and avoid fraudsters lurking in online forums while still benefitting from those credible stock message boards worthy of your time and attention.

Stock Message Boards 101

Many message boards focus on a specific topic or group of topics, such as investing in options, precious metals, exchange traded funds (ETFs), or commodities. These boards allow readers to interact with people who share similar interests or have specialized knowledge in a particular field. The main function is to provide a forum where readers and users can share their thoughts.

Finance message boards are often flush with hot stock ideas and valuable tips and information. However, when considering the source—and understanding that many message boards are hosted by, maintained by, and receive content from private citizens—ulterior motives can often come into play.

Much like insider trading, erroneous message board information can have an effect on stock prices, and weeding through the misleading "tips" can be daunting.

Digging for the Gems

There are some common factors to watch out for when analyzing message board information and its source. Look for individuals who are blind to opposing views. Such "posters" can seem to have insight into stock patterns but may be up to little more than attempting to skew opinions for personal gain. Also, message board posters with an ulterior motive may make calculated appearances at a critical juncture.

By glossing over facts and citing other questionable sources, these posters can attempt to divert attention from the real issues at hand. They may provide misleading facts to bolster their arguments, throwing out impressive statistics and inaccurately citing a company's numbers, such as price-to-earnings ratio (P/E ratio), return on investment (ROI), or dividend yield.

Before investing in a stock based on someone else's analysis, be sure to confirm the numbers yourself.

What Makes a Poster Believable?

Obviously, it can be difficult to confirm credentials and legitimacy on the Internet. But it can be done. Credible posters often make their identities known and provide links to their personal websites, business websites, or personal resumes.

Also, legitimate posters will often focus on facts or provide unbiased sources to back up their comments or information. (Remember, you can aim to turn frustrating hours into profit-turning minutes by managing your investing time properly.)

Negative Impact

It's also vital to understand that there are frequently naysayers on message boards—individuals who will take an opposing position to other posters. These people may become quite hostile in trying to sway others' opinions.

For example, message boards that revolve around investment strategies or stock trading ideas sometimes include individuals who will put down a company, regardless of how well it performs.

Conversely, some individuals tout the qualities of a certain company, regardless of how dubious that company's outlook might appear.

Also, while message boards can be a terrific resource and a great educational tool, they should not be the only tool that's utilized. If an individual were to pick up stock ideas or tax advice, it probably makes sense to talk those ideas over with a professional before acting on them.

The Bottom Line

The Internet is filled with message boards that cater to general discussions and those that cater to topic-specific subjects. Both have the potential to enlighten or entertain readers and posters. However, participants on such sites should understand that erroneous information may be hidden in even the most credible of sources.

Carefully weeding out the legitimate opinions and analysis of investing and trading sites can be a task in itself, but that's the job at hand when trying to get the most value from stock message boards.