Wall Street, meet Chat Street

Marketplace Staff May 4, 2007

Wall Street, meet Chat Street

Marketplace Staff May 4, 2007

TESS VIGELAND: So now you know how to start an investment club. But let’s say you’re looking for something a little less formal, without the legal contracts and dues. Somewhere you can just toss around ideas about stocks, chat with other investors.

Marketplace’s Alisa Roth looks at a new portfolio of social networking sites.

ALISA ROTH: Mark Coker is a Silicon Valley entrepreneur and a regular on Yahoo Finance’s stock message boards. Coker uses the Web the way fans of obscure science fiction novels, or collectors of Santa Claus figurines might.

MARK COKER: The people who share my interest in stocks only represent a small slice of society. The Internet allows me to remove geographic barriers.

But investing has real consequences that Santa Claus collections probably don’t have. So for investing websites to be useful, they have to be more than just places for investors to spout opinions.

As with any review – whether a newspaper’s movie critic or a friend’s suggestion of a restaurant – it helps to know the person’s taste. Or in this case, their investment style and track record.

COKER: The key is to form your opinions not on the basis of a single post or a single comment, but on the sum total of that person’s posts over history. The longer you participate in these boards, the better sense you’ll get for which posters are credible, which posters are providing good information and which posters are full of it.

I might ultimately hate the roast chicken that restaurant reviewer swooned over. Or I might love the movie everyone else hated. But with stock picks, there’s empirical proof about whether someone made the right choice or not.

That’s precisely what Weiting Lu is counting on with his site, SocialPicks.com. It allows users to follow their own stock picks – and look at the track records of other users and non-users, like Warren Buffett.

WEITING LU: We want to give people who deserve credibility for them to believe, even though they are not professional money managers. Or even though they are professionals, but they don’t have a chance to appear on TV like some other people do.

SOUND: Excerpts from “Mad Money with Jim Cramer”

Lu points out that even “experts,” like CNBC commentator Jim Cramer, get it right only about half the time.

LU: Statistically and theoretically, a person out of nowhere can really know what he is talking about and can be an expert on a specific domain, but because he’s not a TV celebrity, he couldn’t have his voices heard.

And there are other plenty of other investing sites. Yahoo finance boards are company-specific. Others, such as Bullpoo.com and the Motley Fool, let you track a fantasy portfolio.

Not everyone is taken with the idea.

Maria Crawford Scott is with the American Association of Individual Investors. She thinks serious investors would be better off spending their time using more tried-and-true research methods.

MARIA CRAWFORD SCOTT: You have limited resources as an individual investor, you’ve got limited time and you ought to spend it looking for things that match your own needs.

She worries that even well-established sites don’t have enough history to be useful tools for investors. And, she says, it’s impossible to know if a poster is pushing a particular stock for a reason – to short it, say.

Social Picks’s Wu says that doesn’t matter, since he imagines tracking his site’s users over very long stretches – like several years. He’s so sure about what the data will prove, he says, he pictures the day when promising young MBA students list their Social Picks track record on their resumes.

In New York, I’m Alisa Roth for Marketplace Money.

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