Do you Trust What You Read?

This blog was mentioned on the Weekly Edge: 10 Dec 2007: Corporate: Trusting 'educated' thoughts and rumblings

• 10 Dec 2007: Corporate: Trusting 'educated' thoughts and rumblings
  By Cindy Yeap
  
  Investors today have a new source to turn to when seeking information or a prognosis on, say, how much Warren Buffett's recent comments on China and South Korea have affected regional market sentiment — weblogs.
  
  More commonly known as blogs, these have evolved into something much more than an online diary in recent times.
  
  Even leading news publications like the Wall Street Journal are paying attention to weblogs, recognising their increasing appeal to an online audience. Many online news sites, including the WSJ's, have begun to tag news articles with links to related blog postings alongside associated write-ups. BusinessWeek, for instance, has an entire section dedicated to blogs on its website, where its editors post investing insights into the latest on Wall Street. The publication also invites experts from other fields to offer their perspective of subjects ranging from automotive to management trends and even the effects of climate change on business.
  But for every blog backed by a named organisation or individual, there are countless others put up by anonymous ones. The situation is probably similar in Malaysia. There is a growing group of individuals here which is well ahead of most, if not all, local news organisations when it comes to capturing an online audience via blogs.
  
  And among them are people who post discussions on the Malaysian stock market — everything from newsbytes and stock rumours to why an entire team of analysts are quitting en masse. Some of these blogs are merely opinions on business news articles and analyst reports, while others take things a step further by offering their own prognosis on the direction of the stock market and making stock picks.
  
  Some of these stock market-related blogs do have some following, going by the feedbacks posted on them. This may be because some of the stock market-related content is contributed by people who claim to be experienced in the capital market.
  
  Also, it is not just retail investors who are paying attention to these blogs. An article by a blogger who goes by the pseudonym S Dali was last week published in a widely circulated local business daily. This anonymous blogger at "Malaysia-Finance" (Malaysiafinance.blogspot.com) describes himself as an ex-analyst and ex-fund manager, with a background in accounting. His more recent blog postings include rumblings on the Chinese government's sovereign wealth fund China Investment Corp, his take on Chinese coal-mining company China Shenhua and his view on the tussle for control at Kian Joo Can Factory Bhd. There are also postings from other blogs, including "Where Is Ze Moolah?" (everything27h.blogspot.com), which Dali credits as among the earliest to highlight the fact that analyst recommendations on MEMS Technology Bhd were overly optimistic.
  
  As it happened, MEMS Tech last month said it could not come up in time with its audited results for the year ended July 31, 2007, because external auditors had raised questions about certain transactions.
  
  Now, is it a good thing that more people are taking blog content seriously, especially the kind that promotes certain stocks? More importantly, should they?
  
  "I don't think it's necessarily bad to read blogs. Blogs can be good as they can be a good forum for discussions, a place for idea generation, but definitely not a place to find out which stocks to buy. Like any other piece of information, blog postings should be read with some measure of scepticism. After all, a blog is someone's opinion. Just like any other type of blog, there will be some that stand out and gain more following with time," says investment director Wong Shou Ning, who helps manage RM500 million in funds at Amara Investment Management Sdn Bhd.
  
  What's important, Wong adds, is how a reader treats the information found on these stock market-related blogs and not so much if people are paying attention.
  
  "Reading blogs is not unlike reading an analyst report from a broker. It's just that the amount of scepticism increases for a blog because you can assume that the broking house is willing to back up its report. It puts its name on the report whereas in the case of most blogs, people have no idea who is behind them. There is no assurance that the blogger has met the management of the company mentioned, or if he has done spreadsheets to analyse the necessary numbers.
  
  "When it comes to investments, you cannot take everything you read or hear at face value. It's up to you to do your own research and investigation. For fund managers, it's critical to have that kind of discipline," Wong says.
  
  An analyst with a local brokerage agrees.
  
  "I think not many licensed people will own up to reading these blogs, but there are definitely people in the industry who read them. Some postings have in the past been circulated in emails, not unlike how one would forward an interesting write-up or joke," he says.
  
  Like any other channel, there will be people who will misuse blogs to spread rumours with the intention of ramping up a stock.
  
  "Yes, some people do buy on talk (speculation) and sell on news, but it is essentially up to the reader to decide whether he can trust any information he gets. It's like the talk you hear on the street, newspaper articles quoting anonymous sources or overly bullish statements made to reporters by the management (of a company). It's just that they're now posted on someone's blog. Investors should know the distinction between fact and rumour. If they put money into a stock after reading a blog and lose money, they well deserve it. That's the consequence of not doing their homework," the analyst adds.
  
  When asked for its comments, the Securities Commission (SC) reminds investors that they should only seek investment advice and services from investment professionals who are qualified and licensed. The full list of people licensed to give investment advice is available on the SC's website, its spokesperson says.
  
  "The SC continuously conducts surveillance, monitoring and enforcement of the capital market to ensure appropriate conduct by market participants and the highest standards of investor protection. The SC takes action where there is evidence of wrongdoing," the spokesperson adds.
  
  So, essentially, there will be no shortage of information and prognosis on the Internet. The commentaries posted on the anonymous stock-market or financial blogs could well offer good insights, on top of being an entertaining read. But when it comes to putting good money into stocks, investors should always first check the facts.

Back in Jan 14th 2006, there was an article posted on Star Biz.

• Blogging about Bursa
  
  ACCOMPANYING the proliferation of online financial and investment portals is the steady accumulation of blogs and online forums that discuss the same subject, namely counters traded on Bursa Malaysia.
  
  Short for web log, a blog is essentially a website on which journal entries are posted. Both blogs and forums allow swift, unfettered discussion on a variety of subjects. Undoubtedly, the anonymity afforded by the Internet is part of its appeal, but this anonymity can easily become a two-edged sword.
  
  Perhaps the single greatest obstacle preventing many blogs or online forums from achieving credibility is the fact that their administrators conceal their identity from the public. Many observers feel that even on the odd occasion they make a point, the use of a pseudonym counts against them.
  
  “For most blogs and forums, I think the sophistication in terms of depth is lacking. I've come across many instances in which investors recommend buying certain stocks for highly personal reasons – to them it's not so much of a forum, but more of an opportunity to promote a vested interest,” says Yeoh Keat Seng, CIMB Bhd's head of private client services.
  
  He isn’t alone. The overwhelming majority of those polled by BizWeek were either unaware or dismissive of the local blogging community’s discussions about the stock market.
  
  “How reliable are they?” asks Tan Teng Boo, iCapital.biz’s managing director. It’s a good question, and is probably the one that’s on everyone’s lips.
  
  A sampling of some blogs on offer reveals that many bloggers go about their business in an orderly manner, with many collating and making available research reports from a variety of local and international research houses.
  
  However, there are a number that throw their weight behind certain stocks, either relating a personal experience or a closely-held belief that the counter’s price trend will soon see an upswing.
  
  But do they truly reflect investors’ mentality in Malaysia?
  
  “Many Malaysians are inherently suspicious of anything that comes for free,” comes one dissenting voice. “There is no harm in being aware of the information provided by such sites. I feel that most investors may use it as one of the factors in choosing to buy or sell a stock, but probably not the sole reason.”
  
  Just like so many other things, it looks like the Bursa Malaysia-related blogosphere needs to be regarded with discretion by the potential investor. Look at it as caveat emptor for the digital age.
  
  Illegal advice
  
  People may often be suspicious of freebies, but the old get-rich-quick schemes seem to be as popular as ever amongst Malaysians. Slapped with a fresh coat of paint for their Internet incarnation, these schemes run the gamut from high-return, low-risk plans, to an invitation to invest in an exotic commodity or currency.
  
  In collaboration with agencies such as the Malaysian Communication and Multimedia Commission (MCMC), the Securities Commission (SC) has also stepped up its surveillance and enforcement activities with regards to online capital markets.
  
  Last year, the SC shut down four websites that were illegally offering investment advice, following which it issued a press statement warning the public to be extremely careful when seeking investment advice and services on the Internet, as such services may be illegal and unlicensed.
  
  In a press release, the SC provided a number of warnings, including the fact that some websites may be professionally designed to resemble a legitimate business, and may even be equipped with real-time stock prices, market commentary, news, and links to other financial websites.
  
  All investment advisers require a license to operate. This point is doubly important, for despite the protection afforded by the SC with regards to securities-related laws, this protection is only available when dealing with licensed parties.

How now my dearest Brown Cow? How do you rate our local financial weblogs?