eInformation: a clinical study of investor discussion and sentiment

Financial Management (Financial Management Association), Autumn, 2005 by Sanjiv Das, Asis Martinez-Jerez, Peter Tufano

2. Complementing Professional Analysts

He felt that the professional analysts missed many of the details about firms, and he used the discussion boards to test out his analyses. Glenn did not believe that he, or any of the active members of the Amazon board, had any proprietary or inside information. "I don't think there was any truly inside information ... the whole group had no better idea than the next person." However, they did have the time, experience, and inclination to carefully analyze the fundamental data on Amazon. As he explains, "I was perceiving this firm as a retailer and I was in the retail business. There was no question that the cost of fulfillment was higher than in regular stores. Others didn't understand issues of costs." Although much of this information was in public disclosures, it was buried in footnotes and labor intensive to pull out. This information was "missed by a lot of the analysts."

3. Interaction with Colleagues

The boards provided Glenn with colleagues that he enjoyed. We observed 925 posters on Silicon Investor during our study period, but Glenn estimated that there was a much smaller number (50 or 60) that were relatively active. Of these he came to know five or six personally, through phone calls or in-person meetings. Unlike the "cheerleaders," these people helped each other "see through" the news stories. They discussed stock picks and non-investing business advice off-line.

4. Self-Esteem

The boards provided Glenn with a venue to engage in enjoyable debate and to earn the respect of others. Glenn called this interaction the "entertainment value" of the boards, the ability to engage others in sustained discussion. Moreover, the discussion was self-reinforcing. "I enjoyed putting forth an opinion and then having to justify it." According to Glenn, people who earned positive reputations were those who were able to more accurately predict the short-run stock price or the next earnings numbers, and those who provided superior insights. Glenn was proud to develop a reputation for the latter. "People wanted to know what I thought ... it was a feeling of accomplishment."

In retrospect, Glenn felt that he lost more money as a result of participating on the boards than if he had not. By virtue of having to stake out and argue a position in public, he felt that he probably became more "stubborn" about his opinions, and held onto his positions longer than he might have otherwise. He reports that while he lost money on his Amazon position, he profited on a few other positions that he followed regularly.

This interview gives a new dimension on discussion boards and the investing process. It reminds us that investing is not necessarily a solitary activity, but can be a communal activity (Das and Sisk, 2005). People voluntarily join communities because they perceive some benefits. For Glenn, the benefits included the enjoyment of coming to know other likeminded people, the ability to share ideas, and the ability to develop a reputation for clear thinking. An on-line community focused on a particular stock is no less valuable to its participants than one that revolves around a television show or game.