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"Open" bandwagon hype stocks?

By fluffy grue in News
Thu Mar 16, 2000 at 10:35:46 AM EST
Tags: etc (all tags)
/etc

Well, at 10:15 AM EST on Thursday, March 16, 2000, Winner-Picks will be posting their latest bandwagon-hype stock tip. The latest financial fad to hit the Internet, short of having an IPO on a company founded on websites which do nothing but point to other websites and emulate Usenet all day long, can be either the biggest financial gain or loss, depending on your timing and luck. I have some thoughts below.


As you may know, this technique of making some quick money is well-known, and of questionable legality and ethics. However, it's been a technique used by the rich bigwigs on Wall Street to get richer, and nowadays it's going even further thanks to the Internet setting up these unofficial, heavily-disclaimed "stock advice" stocks. The way this scam typically works is someone buys a lot of stock in a micro-cap company, and then somehow signals the general investing public (with heavy disclaimers to keep the SEC off their backs) that there is a "really hot stock." Then just before the end of the trading day, when the stock is at its peak, the original investor dumps their stock, laughing all the way to the bank.

This can be very profitable for the people causing the bandwagon hype. Take Winner-Picks' best performer ever, CNLB, with their hype purportedly pushing the stock up by 109%, doubling the money of anyone who got in early, and nearly octupling it for anyone who held it for a week before dumping. They also claim that their worst one, TGBR, "only" went up 33% for the day. What they don't tell you is that the next day, the stock opened up far below its opening price for the hype day, and it's never really recovered.

So a few people get in on what looks like a sweet deal, a possible gravy train, the Winner-Picks people make who knows how much just by saying the right four-letter word one morning, and quite a few people likely lose quite a bit of money on this gamble. It can also ruin the reputations of the companies involved by causing their valuation to unexpectedly fluctuate wildly, causing long-term investors to become incredibly wary of the company's stability.

However, it's also a very interesting look at yet another aspect of the Internet being a global village, allowing anyone to say anything and be heard by anyone. It used to be that bandwagon-hype stocks only worked for the big fatcats, where they would invest in a stock and the buzz and rumors surrounding this new investment would drive up the stock. Now anyone can go to a Yahoo! club and get rich - or shafted - for only $8 a trade on Ameritrade.

Unethical as it is, I'm going to try an experiment. I'm going to see what sorts of exponential growth I can get on, say, $500. (Hey, I could use the money.) I encourage others -- who can afford to lose the money, of course -- to join in on this experiment. Oh, and if anyone wants to help me cut my losses on ETYS, be my guest. :)

Oh, and just to keep the SEC off my (and rusty's) back, I should make a disclaimer: I am not a stock advisor. Any stocks I make a suggestion for I am likely to own holdings in. I am not a stock broker, any claims I make for any stocks are pure opinion and speculation, past performance is not an indicator of future potential, blah blah blah.

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"Open" bandwagon hype stocks? | 15 comments (15 topical, editorial, 0 hidden)
Is the lead-in (and title) to this ... (1.00 / 1) (#1)
by rusty on Thu Mar 16, 2000 at 03:28:45 AM EST

rusty voted 1 on this story.

Is the lead-in (and title) to this story some kind of insider tip on what the "hype" stock will be? Nevertheless, this is one of those unplanned properties of our market which makes me nervous. Remember all those people who told you the market "can't" crash like it did in '29, ever again? Did they expect this sort of pressure? Can anyone out there with real financial know-how report on how hype-rushes like this actually affect the market?

____
Not the real rusty

Re: Is the lead-in (and title) to this ... (5.00 / 1) (#9)
by Anonymous Hero on Thu Mar 16, 2000 at 11:12:15 AM EST

If you're at all interested in such things, read up on the '29 crash; it's extremely interesting. One thing you'll find though, is that a repeat really is very unlikely. It was caused by a short term run-up in stock prices, with a whole lot of people piling into the market after the run-up began (not too dissimilar to stuff we see happening today, except you were talking about a much shorter time frame then).

The big contributor, though, was that banks were giving out short term loans for the express purpose of investing, and they were easy to get. So you had a whole lot of people with no clue jumping into the market (okay, let's be honest, exactly that is happening today), they were jumping in with money that wasn't theirs (I'm sure it happens today, but not nearly to the same degree), and the run-up they were hoping to cash in on was all smoke and mirrors (true for some companies today, but not for the market overall, I don't think). So when it came down, all these formerly middle class people (and there were a lot of them) hadn't just lost their life savings; they were massively in debt.

Another point to make is that in the '29 crash, the market just corrected to the levels it had been at before the run-up; anyone who was a 'real' investor and had been in previous to it, and didn't get caught up in the fever, didn't get hurt.

[ Parent ]

Re: Is the lead-in (and title) to this ... (none / 0) (#13)
by rusty on Thu Mar 16, 2000 at 05:46:23 PM EST

And all that sounds a lot like the situation today, to my (admittedly underinformed) ear. Massive growth, spurred mainly by novice traders who are likely not buying on actual cash (margin order anyone?), and also who likely don't really know what they're doing, and/or have never seen the down side of all this wonderful growth, and what can happen when it all goes to hell in a handbag.

The add to that the fact that the balloon is based on many companies that have never even considered making a profit, and where does that get you? I'm just worried, it all...

Can you recommend any good books on the '29 crash for non-Wall St. geeks? Something light on economic theory and heavy on understandable explanations would be best. :-)

____
Not the real rusty
[ Parent ]

Re: Is the lead-in (and title) to this ... (none / 0) (#14)
by locutus074 on Fri Mar 17, 2000 at 04:17:12 AM EST

Was it then that Rockefeller (I believe; not sure) got out of the market because a shoe-shine boy gave him a stock tip? Reminds me of something he (or someone else) once said: {paraphrase type=rough}"When the man on the street starts talking about stocks, that's when you know it's time to get out."{/paraphrase} :)
--
"If you haven't gotten where you're going,
you aren't there yet." --George Carlin
[ Parent ]
I highly recommend the movie "Boile... (none / 0) (#5)
by Philipp on Thu Mar 16, 2000 at 04:32:15 AM EST

Philipp voted 1 on this story.

I highly recommend the movie "Boiler room", which explores the criminal end of this type of business. A quote of the movie "With the Dow at these levels nowadays, people will buy everything" still rings in my head... It's a wicked world, and I doubt most people know what they are getting into.

alias kn 'killall -9 netscape-communicator'

I almost voted 1, but this post is ... (none / 0) (#4)
by derick on Thu Mar 16, 2000 at 07:10:25 AM EST

derick voted 0 on this story.

I almost voted 1, but this post is not quite what I would expect to see on the front page. I agree with your points, and I wish that I had some money to play with.

Re: I almost voted 1, but this post is ... (none / 0) (#7)
by fluffy grue on Thu Mar 16, 2000 at 10:54:20 AM EST

Well, I thought it has a great deal to do with technology and culture, and I don't exactly see any non-front-page places to post it other than features, which this certainly isn't... maybe we do need Slashdot-style sections after all, hm?
--
"Is not a quine" is not a quine.
I have a master's degree in science!

[ Hug Your Trikuare ]
[ Parent ]

My first thought was "What does thi... (none / 0) (#6)
by eann on Thu Mar 16, 2000 at 10:07:24 AM EST

eann voted 1 on this story.

My first thought was "What does this have to do with anything we talk about here?" Guh. It's technology and culture. From the trenches, even. I don't have $500 to blow today, though. You're on your own for that part.

Our scientific power has outrun our spiritual power. We have guided missiles and misguided men. —MLK

$email =~ s/0/o/; # The K5 cabal is out to get you.


The BBC have an article today about... (none / 0) (#3)
by Fish on Thu Mar 16, 2000 at 10:35:46 AM EST

Fish voted 1 on this story.

The BBC have an article today about IPO hype, referencing the website itulip.com ... boom bust, boom bust (a fairly common pattern in history) ... and a bust always follows after people start investing money in nothing ... watch out, ye all of us!

Current state (none / 0) (#8)
by fluffy grue on Thu Mar 16, 2000 at 11:07:13 AM EST

Well, the hype tip for INRB was only posted half an hour ago. It started out wildly fluctuating, and I managed to get in when it had taken a little dip from 2.25 to 1.875 (lucky me - and I'm actually pleased with the Schwab brokers waiting a couple minutes to fill the order for once). Seems the "slashdot effect" hasn't quite taken hold yet, though that's good - as of this second, its asking price is 2.375 for anyone else who wants to get in on it. :)

Yeah, it's a gamble. Don't do it if you can't afford to lose whatever money you put in. $500 either way won't make or break me right now. I can't reiterate that enough. I'm investing in this stock mostly as an experiment with some potential cash rewards. Hey, it's a saner investment than spending all your spare cash to build a Beowulf to get a higher rc5 keyrate, right? :) (And I do know people who spend all their money on computer hardware just for that purpose. What a weird way to boost your ego.)

In any case, it might be interesting to subvert the population of Slashdot, which includes a lot of rich geeks with e-trade accounts (even though they were crying foul at e-trade's practices before they opened the accounts) into the teeming millions who will make us rich, right? ;) I can see setting up 'geek-stocks.net' or something which does the same thing as winner-picks except without looking ugly, and instead use that damned "gangsta" font which every "hip" "open-source" site seems to use these days.

By the way, someone commented that nobody in their right mind would buy stocks based on advice from such an ugly website. I think this follows the same adage postulated by Robert Aspirin in one of the MYTH books: If a small restaurant is spotless, you don't want to eat there, since they're spending all their effort on cleaning what you see instead of cooking, and more importantly, cleaning what you don't see (such as, oh, the kitchen).
--
"Is not a quine" is not a quine.
I have a master's degree in science!

[ Hug Your Trikuare ]

Re: Current state (none / 0) (#12)
by rongen on Thu Mar 16, 2000 at 04:55:10 PM EST

If a small restaurant is spotless, you don't want to eat there, since they're spending all their effort on cleaning what you see instead of cooking, and more importantly, cleaning what you don't see (such as, oh, the kitchen).

Hey! :) It was me who posted that one-liner about having no confidence in them (it isn't that hard to make a clean website)... I just meant that I'd rather see a bare bones site than one that looked like it might have been flashy in 1996. know what I mean!?

Your point is well taken though, it's not like these guys are web-developers. If they could afford to PAY a web-developer I would have some more confidence though. :) Also, I think it's cool that you are doing this stock experiment. Reports on it are pretty interesting!

Finally, permit me to say that I was a chef before embarking on my illustrious career as a Computer Science undergraduate, so I feel confident when I assure you that if the front of the house isn't clean, the kitchen isn't either...
read/write http://www.prosebush.com
[ Parent ]

Chart of today's stock tip (none / 0) (#10)
by Philipp on Thu Mar 16, 2000 at 02:29:05 PM EST

Anybody who still believes that markets are rational should take a hard look at the chart of today's stock tip. Up to almost $4 from $1.50, now back to $2.75 and falling. You can't say you haven't been warned.

Before you place limit orders $2/buy, $3/sell on such a stock please be very well aware that you might get severely burnt.

alias kn 'killall -9 netscape-communicator'

Re: Chart of today's stock tip (none / 0) (#11)
by fluffy grue on Thu Mar 16, 2000 at 02:57:13 PM EST

Yeah, I saw that. I was originally thinking that the stock would keep rising throughout the day, and so I didn't put in a limit of $3.5. Oh well, no big loss. It's not exactly *falling* per se right now, it's just not much higher than when it started. This stock looks like it'll probably be decent in the long-term as well anyway. For now I have a sell limit at $5.

As far as other experiments go, I also put $250 into ESOL, which has a lot of long-term growth potential (the stock is currently valued at a paltry 7/8 due to some temporary bad circumstances).

Other stocks which I think have good long-term potential: ETYS (I won't say it can't get any lower, because every time I do so it gets lower :) due to its seasonal, cyclic nature (hint: sell in December), UNH (a post-HMO healthcare group with some good ideas for the future of health care), and HSY (everyone loves chocolate, and in particular, Easter is coming up soon).

On the very long-term front, I have some mutual fund recommendations. WWWFX (Internet Fund) has had some decent past performance and, although it's in a lull right now, the cyclic nature of Internet stocks will eventually catch up and boost it forward. FTCHX (Invesco Technology II fund) is similar, with a shallower curve but also a lot more stability.

SEC-compliant Disclaimer: I own holdings in all stocks mentioned above, and so this information is not impartial. In addition, it must not be construed as professional or sound advice. Listen to me at your own risk.
--
"Is not a quine" is not a quine.
I have a master's degree in science!

[ Hug Your Trikuare ]
[ Parent ]

Results of the Experiment (none / 0) (#15)
by fluffy grue on Sat Mar 18, 2000 at 12:58:19 AM EST

Well, I didn't lose any money. In fact, I made a whole whopping $84 over two days (hey, that's a lot for a grad student :) though it'd have been nice if I'd had the foresight to put in a limit sell at, say, $3.875, in which case I'd have made substantially more than that. I'm going to hold on to INBR for a while, in any case, as it seems like a potentially-good long-term investment anyway.

Oh, and winner-picks has now updated their schedule. Now they'll do this twice a week, once on Monday and once on Thursday. As a prolonged experiment I'll put in $500 on each pick with a limit sell for a few points above my buy price. I estimate that I can make perhaps $1000/week that way, luck permitting. $52k/year is more than I was making at the shitty startup I was working at in the DC area, and this doesn't require any real WORK on my part. Works for me.
--
"Is not a quine" is not a quine.
I have a master's degree in science!

[ Hug Your Trikuare ]

Re: Results of the Experiment (none / 0) (#16)
by fluffy grue on Sat Mar 18, 2000 at 01:02:33 AM EST

Oh, one other thing I forgot to mention... winner-picks has decided to now disclose ALL their past picks as they come in, rather than just their best and worst performers. It'd be nice if they'd disclose all of them in the past (come on, they should know better than to just delete the information when they're done with it), and they're still being a bit Orwellian by only giving the open and peak price (rather than open, peak and close), but anyone who's verifying their claims would be able to easily see about where it closed the next day (or at least make a guesstimate based on the trend and next day's range).

We'll see how long it takes for this experiment to cause me to break even overall, in any case. We'll also see how badly it fucks up my taxes next year. :) (At least it'll all be on a single 1099-INT/1099-DIV combined form which my brokerage puts out, rather than requiring me to gather up a billion W-2s and state returns and special part-year-resident forms like I need to get around to finishing for 1999.)
--
"Is not a quine" is not a quine.
I have a master's degree in science!

[ Hug Your Trikuare ]
[ Parent ]

"Open" bandwagon hype stocks? | 15 comments (15 topical, 0 editorial, 0 hidden)
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