some good advice

Beware of investor chat sites

By Cameron England December 27, 2007 12:00am



* Online chats can degenerate into slanging matches
* Consider what's motivating a post before taking adviceli>
* More personal finance news in our Money section

ONE of the attractions of investing in speculative resources stocks, is the possibility of doubling or tripling your money in a short time when a company releases some spectacular news.

While trying to consistently pick out the companies which will produce these kind of returns is a fool's errand, it does happen.

And if you believe some of the pundits on stock chat sites such as Hotcopper and Share#cene.com, they can tell you exactly where and when to invest your money.

In reality however, the information on these sites ranges from the useful to the ridiculous, with a fair bit of personal acrimony mixed in to keep it interesting.

Take for example the recent share price run experienced by Adelaide company Flinders Diamonds.

Flinders has been a hot topic of discussion on Hotcopper since it released an iron ore target in the Pilbara last month.

The shares ran up 790 per cent cent in one day and have garnered a lot of interest since.

Discussion has ranged around what the real value of the announcement was, and hence, where the shares should be.

With equal vehemence, posters have predicted the stock will "definately (sic) be two dollars next year'' (note: if they can't spell, think twice about taking their stock advice), and that it would plunge back to the 1c levels it had previously floated around.

Often when a stock is the subject of such wild conjecture, the debate devolves into a slanging match, with posters playing the man rather than the ball.

Despite the noise surrounding in-favour stocks, these sites also have their fair share of posters who generate well-considered critiques of companies, and help others to understand company valuations and prospects.

The key, as with all other areas of investing, is to understand the risk you are taking and whether it is a risk you can afford and are comfortable with.

Anonymous share tips posted on a website, claiming to have identified the next big thing, should start the alarm bells ringing.

How many of these will be traders looking to "ramp'' stocks they own, and how many will be selfless individuals willing to risk being prosecuted for releasing market-sensitive information, just for your enrichment? I'll leave you to decide.