Why stock chat is like hard liquor, good in moderation, TERRIBLE in excess. $$

First off lets pre qualify by stating I have no problem with booze, hell anyone who knows me will tell you I enjoy a beer quite frequently but in trying to find an analogy for my distaste of stock chat, hard liquor was the most accurate method I could find. I kept wanting to make it analogous to hard drugs, but while stock chat is annoying beyond belief and seldom useful, it is not nearly as insidious as hard drugs. Stock chat has a much more slow and gradual infiltration method that soon brings most unwitting users to their knees and penniless in the gutter. While booze doesn’t have near the completion percentage of creating personal worthlessness that stock chat does I still think its a decent comparison for the sake of a blog post and a chapter in my forth coming ebook.

That’s right I’m writing a “Part Time Pennystocking” ebook. It will probably suck and will probably be late and delayed many times, but it will happen nevertheless. Since there is a very good chance I will be presenting at Tim Sykes Pennystocking conference in Vegas in mid November I have roughly sixteen weeks to completion in order to have it ready for presentation at the conference. Ideally I will write a chapter a week ending up with roughly 10 chapters leaving me five or six weeks of editing.

This is week one and I begin with part one of the chapter “Ignore Everybody”, obviously starting with ignoring stock chat as the first section of the chapter. I may link back to this article frequently since it is the first post and details my plan. So hence the sampling of history and the outline of my “howto” on writing an ebook. Ideally I hope to accomplish two goals, one produce a shippable product, no matter how crappy and two, learn a process to further hone titles going forward, and maybe in twenty years produce something worthwhile. Since I like the idea of “open sourcing” a project like this, I will use my blog to write the book. Each chapter will be published on the blog weekly and open to comments. My thoughts are to use my target audiences comments to refine the work into the editing stage, hopefully using a mild crowd sourcing model to improve the quality of the book. While my blog is pretty low profile I do get occasional comments, and who knows maybe by creating some real content my readership will see value and increase.

Ok enough background and setup, back to the topic at hand.

While the purveyors of stock chat will constantly tell you how incredibly useful their sometimes free and most often pay service is, refuse to believe them. They are like the bottle staring at you from across the room, saying “We won’t get that drunk and hook up with some nasty skank again tonight.” While the skank and the stock chat moderator do serve purposes the lingering effects of their talents are seldom desirable. While I don’t doubt individuals have found the love of their life in the middle of a bender and gone on to live a happy and fruitful life, far more often nothing becomes of the affair but regrets. While you may find a decent alert or stock pick in chat from time to time. You will be constantly assaulted with randomness and useless information. One of my most hated parts of stock information is randomness. There will be a chapter dedicated specifically to the explosion of worthless information that creates nothing but noise and non tradable confusion.

Another disadvantage to stock chat is the “drinking buddies” scenario. This is by far the most evil and diabolical scenario presented to the foolish stock trader who wanders into a chat room. I will be the first to admit this has burned me far more then any other setup in a room. While with a little discipline a trader can ignore most random and useless ideas from individual participants, it is very difficult not to get sucked into ideas that many chat participants all start to gang up on. As in my younger days of drinking with several buddies, it is amazing how group hysteria can make normally rational young men think that standing on the roof of a moving car is a good idea! Or any other countless stupid ideas that “seemed good at the time.” with a belly full of booze and a bunch of yayhoos at your side.

So in summary, I recommend avoiding stock chat altogether except for two situations. Number one, using it simply as a tool to locate breakouts and or breakdowns. Since it is very difficult to watch all stocks with either a HOD list or screening tools, stock chat can be very effective in assisting the momentum trader in locating tickers. Investors Underground is the very best room for this, while it does not suit my style of trading if you are looking for pure momentum setups it is a solid tool for using hundreds of eyes to help you trade. Situation two is using chat to gain information about why stocks are doing what they are doing, of course this needs to be used with an enormous grain of salt, since 99% of participants in chat are fucking idiots. But the remaining 1% and the moderators are usually useful in locating news or the rational behind rapid moves. Since most moderators participate in multiple chatrooms, they can scale out into finding real info quickly. Of course this information may or may not be useful and or tradeable, but the room can find it faster then you can in most situations.

My weekly deadline for this project will be Sunday evening, while I think I got the gist across I also feel this post was greatly rushed. I will do better next time, due to an ENORMOUS project at my day job this week I was unable to get started writing until Sunday evening. And even then I was rushed due to other commitments. This will also be the last time excuses are offered up. But hey I showed the fuck up and got it done at least, what did YOU do towards your book or other creative project this week?

Please post any criticism or ideas for this post, and or suggestions for future posts. I will continue with part two of the “Ignore Everybody” chapter in the next two days. Then post part three over the weekend thereby wrapping up the entire chapter for week one.

7 thoughts on “Why stock chat is like hard liquor, good in moderation, TERRIBLE in excess. $$”

  1. Stock chat can be very useful as long as you ignore others. Heck, I ignore most of what I alert in stock chat (I am the moderator of Tim Sykes’ chat room). Most stocks at most times are not worth trading. That being said, watching a chat is a good way to alert you to interesting stocks that you might otherwise miss. In Sykes’ chat a good recent example was the unhalt after FDA new on MNTA … it is something most people would have missed if it hadn’t been alerted in chat. Some people made some nice money on it. That being said, even though I was the one who alerted it, I didn’t trade it because it isn’t my thing. Those who have a hard time overtrading should probably avoid chat altogether.

    Even though I am in Sykes’ chat, I still occasionally benefit from the InvestorsUnderground Chat (that I’ve been in since mid-2008) when they find something that myself and the people in Sykes’ chat miss. An exmaple of that is the $1k profit I made shorting AEHI when it spiked wildly: http://profit.ly/1Mm04m

    So yeah, I agree with some of your points. But a chat can be very useful, provided that you aren’t prone to following others or overtrading.

  2. Awesome reply to my blatantly one sided tirade Michael!! I was hoping you would provide a solid counter argument and you came through as expected!!

  3. I was a member of a paid-for chatroom for two years, and your post is a good reminiscence of my time there. I definitely recall all of the emotions you try to express- groupthink, digital companionship, information overload, gambling-inducing alerts, etc. I met several five- and six-figure profitable traders who eventually went consistently in the red, in part due to the chatroom. Personally, I feel like chatrooms can be revealing of your discipline – ie. if you are a fortress of discipline it won’t matter what temptations come – but I also feel like chatrooms reveal your discipline in the same way that many other pointless temptations reveal your discipline (like hard liquor). Just because it reveals your character doesn’t mean that it is good to use. To the contrary, an important part of building a strong character of discipline is developing positive habits, like avoiding stupid temptations.

    Thanks for the post. Michael has good thoughts, too. Chatrooms are a tool, and if the temptation and chaos doesn’t bother you, then it can be a great tool. Even though the post was written telegraphically nothing wrong with that- I definitely remember all of those emotions. For my part, I am glad to have moved on to my strengths in research, rather than trading.

  4. “To the contrary, an important part of building a strong character of discipline is developing positive habits, like avoiding stupid temptations.”

    Good point. I’m sure plenty of humble, celibate, pious priests would not last long if they lived in a harem with a bunch of willing women. So it is important to not needlessly tempt ourselves. That principle is why I have been able to lose about 10% of my body weight in the last 18 months despite having no self-control. I just keep away from the temptations.

  5. I used chat rooms as a tool to be alerted of stocks on the move and that is it. With that being said I’ve taken this tool out of my tool bag. I no longer subscribe to the chat rooms and this is cause I feel that I know how the game works and I now know how to spot the movers throughout the day. The chat rooms I used were Tim’s chat room and investor underground. Both great place to learn and find out about stocks on the move and once you’ve been in these chat rooms long enough you’ll know who to pay attention to and who the morons are its pretty simple to do.

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