What’s a “paid stock basher”, you ask. A new cross between NASCAR and the Demolition Derby?
A paid stock basher is a largely mythical creature said to dwell on internet stock message boards, paid by those seeking to artificially push the price of the stock down via publication of bad news, so that they can either a) make money on short sales, or b) drive the price lower so that they can purchase shares at lower prices.
Perhaps the nearest relevant case is that of Whole Food’s John Mackey, a sordid tale of bashing a stock to drive the price down prior to acquisition. Still, Mackey’s anonymous posts prior to Whole Foods acquisition of Wild Oats didn’t seem to have a material impact on the actual market performance of Wild Oats, and certainly wasn’t enough for the FTC to block the merger, or for the SEC to bring charges against Mackey.
If you spend any time at all on internet stock boards (and you should, for the sheer entertainment value of economic ignorance, unfounded rumors, and name calling, they can hardly be beat), there are two essential camps, each defined by their opposing side. Folks bullish on the stock call those who have negative views “bashers”. Folks with bearish views call the optimists “pumpers”. Both sides are quick to accuse each other of lying, rather than simply being crummy stock analysts. By general consensus, it seems to be an unwritten rule that if you post more than three negative comments about a stock, someone will accuse you of being a “paid basher”*.
Skeptical? You should be. All the nibs tell us that the Efficient Markets Hypthosis (EMH) holding that all current information is reflected in the stock price is generally applicable most of the time. So, how could someone posting on an internet message board – something completely ignored by 90+% of investors and the financial press, generate enough impact to result in a measurable movement in the price per share?
Bashing, as a concept, is really only applicable under a very specific, and limited set of circumstances:
- Stocks listed on any of the major exchanges trade in volumes too great to be easily manipulated by internet rumor. These firms are also widely covered in the press, so any investor with even an ounce of sense has a pretty good idea about the company’s current expectations and recent earnings.
- The average price per share has to be minimal – in the penny stock range – where minor fluctuations can generate significant percentage changes in value.
- News on the stock has to be thin, and the stock has to have a history of volatility.
- A big supply of stupid investors with current stock holdings. OK, so we can check this one off the objection list…. .
So, what’s the payoff? According to bogus internet posting #1, $12 per hour**, plus bonuses for additional posts (allowing for inflation since 2005 or so, about $14.00 assuming 3% increases over 5 years). :
“I was paid a base wage of $12 an hour for my services. I was given a $1 bonus for every post over 100 per day as well as a monthly bonus of $100 for every penny the stock had dropped from the previous month. I was also paid a bonus for bashing on weekends.”
A hundred buck bonus for the stock being down a penny? Over a month? For a “service” that can really only influence the most ignorant of day traders? On what can only be described as random variations? Seriously?
Here’s another source, from the appropriately named “messageboardfools” site**:
“… learn how professional Bashers are paid: When you REPLY to Bashers you give them an opportunity to earn appox. 5-7 dollars.”
Let’s total up what we have: at $14 per hour, that’s just a tad under $30,000 annually. Plus the alleged “bonuses”. Seems like pretty thin beer to me – the SEC takes a justifiably dim view of stock manipulation, so if this were prevalent, we probably would have heard of some prosecutions, exemplary stays in Le Hotel Greybar, etc.
One supposes that there may be additional profit opportunities blackmailing whoever is paying you to bash a stock, since one would assume that that’s where the money is, but both of these sources seem like substantial risk for very little reward.
Keeping in mind that the most that rumors can do is temporarily push the stock down, why pay for someone to bash it? Overall market trends, industry trends, announcements by the FED, and the company’s own quarterly release of financials all carry more weight than a stock board ignored by the masses.
This leads us to formulate what we’ll call “Stewarts Second Law of Investing”***:
Sooner, rather than later, the address of anyone consistently investing on the basis of internet stock board chatter is Penury, Ohio.
* Another unwritten rule is that if negative commenter A has a similar writing style to commenter B, say, because they both make use of vowels and consonants, commenter a will be accused of using the commenter B alias as a sock puppet.
** Both the “confessions of a paid basher” and the “basher’s handbook” are widely regarded as fakes. If you believe otherwise, I have a significant investment opportunity for you in a partnership venture with some Nigerian oil widows involving refilling ink jet cartridge with male enhancement products.
*** Stewart’s First Law of Investing is that “Prices move both ways”; the unfortunate result of buying silver just after the Nelson Bunker Hunt debacle of the ’80′s. Anytime you think ‘at this point, it can only go up’, you are probably wrong.