Speculate to accumulate? - 10th August 2010
From rumours about David Beckham and Posh Spice’s sister, to tall tales of stolen kidneys and the world’s most expensive cookie recipe, the internet continues to provide a forum for falsehoods to spread like wildfire. However, it is not just the world of celebrity that can be adversely affected; internet rumours and speculation can also negatively impact the business community.
The so called ‘pumping and dumping’ of shares, hyping potential gains based on inaccurate information, has been ongoing from time immemorial. The internet has provided a new and highly effective opportunity for unscrupulous investors to attempt to manipulate share prices by spreading rumours to turn a quick profit. With thousands of pounds to be made in an instant from spread betting on equities, the temptation to influence share prices to move up or down by spreading falsehoods online is greater than ever before.
What is interesting is in an age where investors can so easily access business intelligence about the real-time performance of a company that so many are prepared to believe speculators on an internet forum. One has to wonder what kind of investor believes a selfless, evangelist would go onto a forum to give others insight into their hot stock picks.
Two small British oil firms are allegedly considering launching legal action against individuals they believe maliciously spread false rumours about them on private investor websites. Nighthawk Energy and Nostra Terra Oil and Gas claim to have uncovered the identities of people who used pseudonyms to post untrue and damaging claims about them online and may sue for defamation.
From the gold rush to the internet bubble there will always be people hoping to strike it rich and make a quick buck. What is worrying is that when claims can so easily be verified that people still follow the fool and blindly accept investment advice from anonymous sources on the internet.
Some would argue that the impact of private investors is nothing compared to the influence hedge funds can wield over a share price, particularly when it comes to the practice of short selling. While this may be true, the impact of rumours on share prices particularly amongst AIM listed stocks and penny shares should not be underestimated. Simply look at the volatility of the share prices of AIM listed stocks even when the company has released no recent news updates or RNS announcements for evidence that pumping and dumping is alive and well.
Do you believe investment forums should be more tightly regulated to prevent the artificial inflation of share prices?
To comment on this blog visit www.creditsafeblog.com
