Ignore Everybody – Part 2 – Message Boards/Twitter/Emails etc $$

In this section of ignore everybody I will explore some of the other frequently touted sources of penny stock information and how they all approach borderline worthlessness as well.

Message boards:

Stock message boards are all over the internet, the biggest most frequently posted to board would probably be Yahoo Finance. But there are literally thousands and thousands of boards and forums across the internet. While like stock chat you will be occasionally able to extract some useful and tradable info, the potential for finding these diamonds in the rough is borderline impossible.

So why are there so many boards out there? And why do so many people post to them on a regular basis? In my opinion the greatest majority of posts are created by unsure traders looking to reinforce their confirmation bias.

Confirmation bias (also called confirmatory bias or myside bias) is a tendency for people to favor information that confirms their preconceptions or hypotheses regardless of whether the information is true”

So many stock traders particularly penny stock traders, get themselves into the worst and most idiotic trading positions imaginable. Then after rushing into a hot tip they receive from their brother, uncle, or local oil change technician, they soon find themselves under water. What is the next step for this trader? Research of course, while an experienced and profitable trader would know to do this due diligence beforehand, that is hard and time consuming! Penny stock traders prefer the easy way out. And frequently they find message boards the easiest way to find information on their particular ticker. Its much easier to read one sentence posts like “This stock is going to explode”, or “Big contract coming”. Then it is to really dig and research SEC filings, or financial reports, or in my mind one of the strongest ways to evaluate a penny stock, hard and in depth technical analysis.

I’m not sure why but stock message boards are notorious for attempts by traders to create self fulfilling prophecies. While most people would refer to it as “pumping” its pretty difficult for any poster to really make a stock do anything based on message boards posts. Of course there have been examples of this working in isolated circumstances, particularly Jonathan Lebed. But message board posters seem to think that by posting and reposting the same links to 2 year old press releases, or posting rumors and conjecture they can somehow make a bad company turn itself around. Do not do this, do not believe ANYTHING in a message board unless a link is made to a credible news source. Then FOLLOW the link and read the article, do not take the posters opinion or believe he has any idea of what is contained in the linked article.

So should the penny stock trader completely ignore message boards? I reply with a resounding NO! But much like what was detailed in the previous section on stock chat, all postings need to be taken with an enormous grain of salt.

How do I recommend message boards should be utilized? With a contrarian sense of analysis of course! This will be far from the first time that I will mention doing the exact opposite of the herd. Being a contrarian can be effective in all sorts of business ventures and particularly stock trading. But nowhere is contrarianism so powerful as in the realm of penny stocks. Remember penny stock land is populated by three tribes.

The largest is idiots. This tribe makes up roughly 75% of the population. They are by far the largest and most vocal segment of the population. Hence the reason for a heavy dose of contrarianism. I don’t care what venture you are pursuing, if 75% of the segment is driven and populated by idiots, it is a pretty sound strategy to do the opposite. Penny stock traders and lemmings are so similar it is scary.

The second largest portion of the penny stock population is crooks and promoters. While promoters are not always criminals they are close enough to batched together in my book. Yeah there are Level 1 prisons and Level 5 prisons, but they are all still criminals, I see no reason to try and rate their stinkyness for the purpose of this analogy. These bastards make up roughly 20% of the population. The biggest dilemma is trying to spot and locate them. It is near impossible, much like a organized crime syndicate they are very effective at disguising their activities. Although tough to substantiate there is indeed an effective model for tracking them. Just assume that any and all promoters and marketers of penny stocks are shady characters. Sorry to the one out of a million “honest” stock promoters and marketers out there. But if it walks like a duck and talks like a duck, its probably a duck. If you pump penny stocks and send emails and faxes about the latest and greatest 50 cent stock, you are probably already a criminal or about 2 months away from becoming one.

So who makes up the last 5% of the population? And where do I fit in, and where do I hope the reader of this ends up fitting in? The camp that knows penny stocks are corrupt and knows they will never be cleaned up and has decided to profit on that fact! While there are hundreds of trading systems and educational product sellers who will tell you great profits can be reached from buying penny stocks. I have no firm belief in that strategy working out over time. Plus it is simply too hard. Why not profit based on going against 95% of the market who is either foolish or corrupt? I just realized worded that way it almost sounds noble to short promoted and over hyped penny stocks perhaps it is, and this point will be discussed in a later chapter!

So in my mind the best way to work against the heard is to proactively ignore and do the exact opposite of the majority of posts in message boards. If 99 out of 100 posts in a forum recommend buying a stock that has gone from $1 to $4 in a couple days, short it! Will this work all the time, not at all. Will it work more often then not, yes. Of course I have greatly over simplified the process for the sake of this post, but at times it really can be that easy.

I have more or less reached the point I wanted to get across in this section and just realized I did forget to mention twitter. Although all of the above also applies to twitter I would like to point a few things out about twitter being more or less message boards 2.0

You will quite frequently hear that twitter is this great social tool for penny stocks and how the information is “purer” and more real somehow since it is created by real traders and real people. It is entirely baffling to me how anyone could make this argument? Does twitter somehow stop promoters from creating accounts? Can a promoter or pumper not create a bunch of random accounts and post under them? Yes, unlike message boards there is MUCH less anonymity on twitter, since anyone can look at your history of tweets and followers etc. But again most part time traders are not willing to do that due diligence and crooks will always adapt to the latest system, thats why they are crooks!

But here is the ultimate crux of twitter, even if the posters have 100% pure attention, remember the greatest segment of the penny stock population is IDIOTS! Whether or not they mean well, has no bearing on whether you should listen to them. Most have done ZERO research or what DD they have done is borderline worthless and much like the message board posters they are just trying to defend the terrible positions they have gotten themselves into.

In the next section I will detail how to digest the main stream media and whether it is effective to “trade the news”.

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.