Internet Investing: Level Playing Field or Information Overload?
Over the last four years the internet has changed the way people communicate and share information. What once
took a phone call or a face to face visit now can be accomplished via email, chat rooms, newsgroups, or posting
messages on electronic bulletin boards. What once took a trip to the library, the archives, or a fact-finding mission,
now can be accomplished in minutes with a PC and a modem. Information on almost anything is now widely available,
usually free, with almost instant access. How can all this information best be put to use? Investing. What is the
biggest potential for misuse of this information? Investing.
Studies show that with all the great websites and sources of investment information out there, the vast majority
of investors use the internet solely to obtain stock quotes on a frequent basis.
However, for those more interested in the business behind the jiggling stock prices, there is a vast storehouse
of knowledge that just a few years ago was only available to the big Wall Street firms. Come with me on a whirlwind
tour of some of the best free websites for investors.
A Wealth of Company Information
The first place to look when interested in a company is its own website. You can learn about the company's products
or services, its markets and customers, or read up on management, and obtain investor information including archived
press releases, news articles, SEC filings, and annual reports.
I've even seen websites with audio replays of quarterly analysts conference calls. In many cases corporations
provide email addresses of their investor relations people, which can be used to obtain answers to specific questions.
To find the website address, first try just typing in the most obvious choice, such as www.IBM.com.
If that doesn't work after a few trys, go to a good search engine, such as www.altavista.com
and let it find the website for you. Another choice is to go to www.hoovers.com
and use their corporate website search engine.
The next stop on your research tour should be www.whowhere.com/EDGAR,
which is a free service that organizes and archives the SEC filings of all publicly traded companies. While reading
through all the old filings made by a company may not be your idea of a good time, it can give you insight into
the company history, when and how much stock has been offered to the public, and whether the big investors in the
company are buying or selling the stock.
|This site also has a free email service that will send you an email alert whenever a company you are interested
in submits a new filing to the SEC. You can get it just as quickly as a big Wall Street firm.
Company news is available through a variety of sources. Several investment websites that carry up to a year or
more of company specific news include, www.marketwatch.newsalert.com,
www.biz.yahoo.com, or www.fast.quote.com/fq/excite/
. Reading through old news items can again give historical perspective on a company you have only recently become
interested in. Bear in mind that not all news services are created equal, some are quicker to get the stories out
than others and some provide more comprehensive articles than others.
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There are also several free email alert services, such as www.infobeat.com,
that will email you news on the company of your choice on a daily basis.
Finally, you might want to see how your company stacks up against its competitors and industry. Check out these
sites: www.stocksmart.com/industrys.html or www.wsrn.com/home/dataset/indcomp.html
There are also many industry-specific on-line newsletters and publications that report on the intricacies and workings
of a particular business segment.
Stock valuations, estimates and analysis
Many "pay" sites offer basic analysis and data for free as an enticement to sign up for the full service.
The persistent web surfer can access enough free portions of various sites to obtain the full view of a stock,
what most single sites would charge a fee to view. It depends on whether time or money is your more precious commodity.
For $10-25 per month you can save yourself visiting a dozen sites by subscribing to a single site.
Another problem is that you will find a useful free section of a site only to discover a few months later that
the site has gotten you hooked on the free information, but now intends to charge you for the same access. The
following sites all have good free access, although some require minimal registration:
Earnings estimates and brokerage recommendations:
Financial ratios and valuations:
Insider trader SEC filings:
NASDAQ Short Sale ratios
Stock message boards and newsgroups
Although outdated information is occasionally found on some of the sites discussed up to this point (especially
for the smaller stocks), most of the information can be assumed to be fairly accurate and presenting just the facts.
This is not always the case for stock message boards and newsgroups. What you get is a mixed group of individuals
and pros giving their anonymous opinions on your company of choice. One has to be very, very careful about filtering
out the opinions (which are mostly wrong) and gleaning the sometimes useful facts that are posted. About 75% of
the postings are completely useless, name-calling contests between anonymous parties, with an occasional time-out
to bash the management of the company under consideration. Exaggeration is the name of the game, with optimists
|case for the stock to triple within a few weeks and the pessimists predicting bankruptcy within the same amount
On top of this, most participants are short-term investors that are followers of technical analysis (looking for
meaning in the patterns of prices) which has proven to be pretty much without merit.
So why bother with message boards at all? Because if you can wade through all the garbage, you will occasionally
find a useful treasure. Many of the board participants are industry insiders with great technical knowledge of
the industry, the products or service, and personally know people and management in the company under consideration.
These insiders opinions on investing are mediocre at best, but their knowledge of the company and its environment
can be very useful. Insiders will often post links to publications with a timely article on your company, or industry
scuttlebutt that you couldn't otherwise find out without working in that industry, and hold heated debates on the
merits of the future of a company's products or services.
Can't attend that annual meeting of your company on the east coast? Chances are that someone else did and will
post their impressions on a message board. Don't have access to the CFO of the high tech company you own? Someone
in the Silicon Valley had lunch with the guy this week and is sharing his discussion on the message boards.
Investors must also be careful of outright fraud contained in some of these messages. Small stocks that have their
price easily manipulated may find shady operators hyping the stock on these boards to unload them on naïve
investors. On the flip side, negative opinion can come from investors holding a short position on your company
who are desperately trying to talk the stock price down.
For long-term investors, a good rule of thumb is that the more negative the messages on a company, the closer that
stock is to a bottom, and the more positive messages on a company, the closer it is to a top.
There are two ways you can interact with message boards. You can usually be a "lurker", one who doesn't
join the bulletin board (it costs to join) but just reads what others write. If you feel a need to enter the debate
you usually have to join in order to post your own messages and replies. This also allows you to ask questions
of other participants, but remember that you learn more when you listen than when you talk.
The first two boards listed below are general stock message boards and the third is a very popular board specializing
in high tech stocks.
Motley Fool on America On-Line has a message board available to AOL subscribers
13160 SW Butner Road
Beaverton, OR 97005
|How you react to all this information is much more important than obtaining the actual information itself. If you
fear that knowing all the details of what is going on with your investments is going to make you want to constantly
do something, you may be better off hiring someone to do this for you. But if you are the type that can let all
the white noise wash over you while you keep an eagle eye on your businesses, you may be better suited to take
advantage of the new level playing field of investment information. You need to be prepared to act if you have
to, but you also have to know that most of the time there is no action required, just a vigilant monitoring.
The internet provides a great way for investors to monitor their businesses, using it to monitor stock prices several
times a day can turn the internet from a tool to a self-destructive weapon.
Speaking of websites, check out our new website at www.sharpinvestments.com.
Besides archives of past newsletters, the site offers other educational articles on value investing, as well as
upcoming seminars and events, and write-ups on current market conditions. Let us know what you think!