Perspective: Bulls, bears and BS

A lot has been made of the wisdom of the crowd, an intriguing theory to explain how societal knowledge advances.

The idea gets elegantly articulated in James Surowiecki's book by the same name. It's quite a worthwhile read. I'm oversimplifying here but the basic idea is that groups of people are better equipped than individuals to solve problems and make the right decisions.

With a few exceptions--I can nitpick about the lone genius working in splendid isolation--there's much to the argument that the many are nearly always smarter than the few. But in the Internet Age, where news reports--real or concocted--reach tens of millions of computer screens in an instant, the superiority of what Surowiecki calls group intelligence isn't always apparent.

In this era of "Cramerica," where the Internet portals want to exploit our unquenchable thirst to find a way to make the quick buck, the stock and investment chat boards are always among the most popular online venues. I've always been fascinated by what goes on and the people who hang out there (under assumed aliases, naturally).

In this era of "Cramerica," where the Internet portals want to exploit our unquenchable thirst to find a way to make the quick buck, the stock and investment chat boards are always among the most popular online venues.

To be sure, there also are serious board participants who log on to trade investment ideas. Unfortunately, their voices too often get drowned out by short-tempered clowns pushing an agenda. You want to debate the merits of Company A versus Company B? Good luck. It won't be long before that conversation degenerates into a puerile pissing contest between longs and shorts, each spewing more disinformation than a John le Carré spymaster.

And then there are the interminable left-right shouting matches. Why political grudges regularly spill over into financial boards remains a source of wonder. But you find it everywhere. Some of this stuff is so inane and nasty that it makes the likes of CNN's forgettable (and thankfully now defunct) Crossfire seem positively highbrow by comparison. If he were around today, Daniel Patrick Moynihan, who famously warned in the early 1990s about the danger of being tolerant of intolerable behavior, would say it all fits with the dumbed-down age we inhabit.

Maybe so. Then again, there sometimes is a method to the madness. Earlier this week, for example, TheStreet.com reported that the Miller Tabak investment house issued a note about an iPhone production cut. That led to a temporary--but rapid--plunge in Apple's share price. The story initially referred to a note reporting unidentified chatter among Goldman Sachs traders. But Miller Tabak never issued the note.

No matter. Once the "news" got published, the bears spread it all over the message boards. Apple never comments on this sort of thing, so we can only speculate about what went on behind the scenes. Was the original source of the story legitimate or was this a sophisticated cyberscam to take down a high-flying stock? If so, it worked to perfection. For the day, Apple's market cap dropped by some $8.4 billion. Unless the Securities and Exchange Commission investigates, we'll likely never know the full story.

The shorts similarly had a field day earlier in the year when Engadget got suckered into posting a bogus report about an Apple product delay. Within minutes, shares of Apple temporarily tanked as the news triggered a massive sell-off.

Not long ago, I participated in a panel discussion titled "Business news: Unsafe at any read?" Maybe not if you're a speed reader. I suppose you can say that the crowd made the right decision each time. The smart ones got out while the going was good, leaving the rest holding the bag. Once the rumors got debunked, the herd reversed course just as quickly, loading up on Apple and profiting when the stock rebounded.

The hard part was knowing when exactly it was the right time to pull the trigger. And that's getting harder all the time.

Biography
Charles Cooper is CNET News.com's executive editor of commentary.

More Perspectives

[edgedesign]

Excellent

Excellent article/observation.

I've witnessed the ridiculous message board phenomena myself
several times when trying to maintain a respectable debate
regarding a company, product or political position. Seems like the
'trolls' are always waiting in the shadows.

[hdubya]

Sounds like a CNET talkback thread..

Microsoft is the source of all evil! Oh, wait this isn't about Microsoft is it...

[sjkx]

trolls in the shadows

How are people handling the "ridiculous message board
phenomena", with its easily recognizable symptoms, that seems
increasingly rampant and difficult to avoid?

Sadly, CNET TalkBack is often the victim of the kind of bickering
that's frustrating to anyone hoping to have more civil discussions.

[wylbur]

Extraordinary Popular Delusions and

The Madness of Crowds-- by Mackay-Smith, it is a classic on the
subject and everyone should read it. Remember, the crowds
believed that Enron and Worldcom were great. The crowds followed
Hitler and Musolini. Crowds are dumb, dumb, dumb and
dangerous. Crowds riot. Crowds lynch. Crowds fell for Ponzi and
his scheme. Or as the Beatles said, "Think for yourself because I
won't be there for you."

[kadad]

Market rumors ....

Really good comment on the whole market talk situation. I think there is a wonderful justice in the fact that anyone who gives this kind of talk credence, pretty much gets what he deserves. You would think that folks had learned by now that trying rely on 'questionable' info gets you nowhere at best and broke at worst.

Cheers,

Tony

[xcgeek]

Stopping trolls

I run a message board similar in style to cnet and trolls are a common problem. Trolls are motivated by impulsion and instant gratification making them easy to scare off though. I delete their message and block the IP address, and make them think the site is broken (or they see a different looking page without messages), they loose interest and go away. Trolls aren't often persistent or patient, they want a "fast" method of venting or causing trouble. I noticed other sites that will monitor and review your posts until they are satisfied you are there to contribute positively. Again, no troll is going to bother with the hassle. The only outstanding problem is how to deal with that little bit of troll in all of us ;)

[willydee]

The Many The Few

If the many are so smart, why isn't everything run by committee?
The "Skunk Workds" have most often produced the best ideas and products. Einstein, Edison, Gates, Jobs, etc. have done better than IBM labs, Bell labs and many others.
The fellow can sell a book but not a fallacy. The many produce rare insights and ideas --- they just react.
Bill

[nbitinfo]

no memory

I wonder why people have forgotten Nikola Tesla, they do remember Edison...always...
:-)

Good luck everyone !

[Stating]

As Opposed to Official Rumors

What I think is even more laughable is mainstream business reporting that tries to explain with a straight face every day why the market went up or down. Down -- profit taking. Like, what do they do with their money AFTER they make a profit -- run away to The Caymans? Who made those profits? Why are they always anonymous? Who didn't get out and take a profit? Why not? How come we never hear about loss taking? Surely mixed in with the profit takers are loss takers. What if there were 51% loss takers and 49% profit takers -- shouldn't the press have said "loss takers"? Oh, that's right, we all drink the same Kool-Aid. It's not a down market, it's just a "nervous" market. Or an "uncertain" market. Or a "jittery" market.

[virtualdrummer]

Opinion requires diversification...

.... but too much diversification, and you just end up a member of the crowd.

I recently wrote about this on the SteamStreet blog (http://blog.steamstreet.com). The problem is that the market _is_ the crowd. So you have to figure out how to do better than the crowd. And to do this, you have to find those members of the crowd that know better. You don't want to rely on too few members (thus leaving you open to a single mistake hurting you), nor do you want to rely on too many people (thus ending up performing just as well as the market).

SteamStreet (http://www.steamstreet.com) is designed to help with this, to allow you to manage your portfolios and notes, and find people who you trust to give you advice and discuss. It seems that sites that just ask visitors to rate stocks will inevitably end up mirroring the market - that doesn't seem to be very valuable.

[Mister C]

If you don't already know . .

Find out about the Harvard dartboard experiment and a little group called LTCM (long term capital management). It's RANDOM!

Baaaaa!