Friday, 6 July 2012

Online investment forums: friend or foe?

Given the truly unfathomable amount of information there is online on the topic of investing it is unsurprising that people do not know what and who to trust.  In this post I will cover online forums and communities and the pros, cons and inherent traps associated with them.

There are online communities abed forums dedicated to almost all classes of investment.  They range from country specific stock market forums to property forums to communities that deal with fixed income securities as well as alpha focused forums, communities for mums and dads...the list just keeps on going.

There is a lot of good information to be found on these forums.  The people that post in them tend to have a really good understanding of their market and if you spend the time working out which posters know what they are talking about you can get some really valuable information.

One of the big problems however is the amount of junk you need to sort through to find the gems of information.  It is different to finding a blog or website which are maintained by  those who know what they are taking about.  Those are super hard to find but once you do it is normally a gold mine.  In my experience communities have those who know what they are taking about, those who troll and those who think they are giving good advice but are actually giving bad.  The last are actually the most dangerous because they are hard to spot by those who are learning.

The biggest problem with forums is that even those who know what they are talking about tend to focus so closely on their asset class that they refuse to acknowledge failings or poor prospects within the class.  Property forums are notoriously bad for this!  People who point out downward trends are derided as 'chicken little' and are often called trolls and aked what they are doing on a property forum if they think it is such a bad investment.  These posters, who often have valuable insights, dont stick around for long.  What you end up with is a bunch of posters who are convinced that this one asset class is the road to riches.  This is what all people who are learning from these forums should keep in mind when reading them.

My advice when it comes to forums is as follows:
  1. Take some time reading a forum (especially if it has been recommended) to work out who knows what they are talking about
  2. Then focus on tips and tricks not outlook!
  3. Take everything that is said with a grain of salt - dont forget that the people that post a lot in these forums often have a vested interest in what they are saying and it is a rare person who is able to post all day long on a topic and not be emotionally attached to it in some way
  4. Finally finding a good website or blog on the topic you are interested in is often much better than a forum - you know the information is consistent
  5. The one thing you should never do is trust what anyone has to say online blindly - you should always do your own homework

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