Apart from the reason listed here, put simply: Sum Zero.
According to Divya Narenda, its founder, Sum Zero is a “Wikipedia-like” investment idea database structured within a social network dedicated to the buyside. In other words, if you are an analyst, portfolio manager or researcher you can access their system and discuss stocks with other people like you, to the exclusion of the general populace.
This might not sound too bad. After all, it is like a global water cooler where like-minded people can hang out. It can however, cause problems when these people work for competing companies and are all providing similar products to individual investors.
Narenda continues:
It’s fair to say that SumZero members can use the site to spread awareness on companies that they own. I personally do not see this as a bad thing, and many see this as an important signal of the conviction behind an idea [...]
Currently we do not measure the performance of each idea, but all ideas are time stamped and have an associated target price [...]
SumZero does not currently require disclosure of holdings, but members will sometimes voluntarily make disclosure statements within their write-ups.
The problems here are obvious. Combining a Wikipedia-like system with social networks is great, but excluding a swathe of people who may end up buying these products can be disastrous. Basically, members will be talking amongst themselves (I fail to see how this doesn’t amount to collusion and/or insider information) and issuing ideas and proclamations touting what they decide are good stocks.
Members of Sum Zero will apparently issue periodic recommendations of stocks to buy through its site. The performance of the products they promote is not measured, so no accountability has to be taken. It can therefore be safe to say that if you buy these, you are helping Sum Zero members increase value of their products and little else.
“A consortium of independent organizations formed by controlling the production and/or distribution of a product or service and thereby limiting competition” is a safe way to characterize Sum Zero. It is also the dictionary definition of Cartel.
I cannot agree with the thrust of this argument. An on-line stock discussion group merely replicates stock market clubs, where people get together to bounce their ideas off of each other. There already exist a number of similar fora, for example Marketthoughts.com.
SumZero would have to sign up a huge universe of members in order to influence the market more than, say, an analyst’s recommendation on CNBC. And the more members it has, the wider the range of opinions about any particular security. So as membership grows, uniformity of opinion (and market action) declines.
In any case, you are right to avoid trading based on stock tips and others’ recommendations. Any time someone suggests buying or selling a particular security, that person has probably already bought or sold it. So when someone suggests “Buy Apple”, you should add the implied “please”.
The difference between Sum zero and other sites, such as Marketthoughts, is that only “Professional Buyside investors” are privy to the information being floated around in Sum Zero, while Marketthoughts is available to anyone for a (fairly cheap) payment.
Regarding size, since no matter how large it becomes, it is still only comprised of these “Professional Buyside investors”, so it is very easy for them to agree on certain investments and still push them to individual investors like you and me. I assume this happens whenever SumZero (as a whole) recommends a stock to buy, which happens periodically. No one has to disclose what they own nor how their recommendations fair out.
The difference between this and an analyst on CNBC is the analyst hasn’t conferred with all the other analysts from other banks behind closed doors ahead of time to decide on an optimal stock to recommend.
However, I agree about avoiding the analyst’s recommendations as well, since they are just trying to drive up the price of stocks they own.