Stock Tips From a Millionaire Clique

U.S. News & World Report: Katy Marquardt, 6.5.2008

Some investors, frustrated by the rants, sales pitches, and absurd posts that muck up popular stock boards, have turned to more exclusive online forums to swap tips and analysis. One such is ValueForum, a fee-based investing community that keeps out the riff-raff with a $220 annual membership fee and monitored discussion boards. The site's focus is value and income investing, and the average member portfolio hovers around $1 million. But ValueForum doesn't track members' investment accounts; it's more of a place to socialize and kick around stock ideas with a group of serious investors, says David White, a 34-year-old member from Kennesaw, Ga., who manages investments for a few family members. I asked White to talk about life inside the forum. Excerpts:

What's the vibe of ValueForum, and who uses it?

It's like any other message board where like-minded individuals get together and bounce ideas off of each other. While there are some professionals on the board, most of the investors are retirees from nonfinancial backgrounds that want to avoid the usual BS. Since there's no one trying to sell products or services, you don't feel like you have to be on guard. We generally get along (although we can also be as cliquish as any high school) enough to hold national meetings once a year, which we call "InvestFest." About 300 people will show up, some from overseas. Members will frequently post, "I'll be traveling to XXX if anyone wants to meet and get together." Can you imagine wanting to meet people in person that you talk with on the Internet?

Give me a few pointers on forum etiquette.

We discourage hateful posts, we're pretty vigilant about not discussing politics, and we try to keep it limited to investing. We've learned what kind of topics create hurt feelings, and we try not to go down those roads too often. Because then, you're reading posts about hurt feelings and not learning how to make money. We discourage spammer-type posts like "BUY XXX NOW! IT'S GOING TO THE MOON!" because we want to know why to buy and why you think it's going to the moon. We blast people for trying to bring up shady companies, and we tend to prefer thoughtful, fact-based posts. Opinions are fine, as long as you can lay out your case for what your opinion is based on.

Do you have any advice for newcomers to an investing forum?

Don't feel like you have to contribute right away, unless you have something you are an absolute expert on. My dad describes getting info off of ValueForum as trying to get a drink from a fire hose. Not only is there a lot of info here, but there's also an unspoken culture and style to the posting. If you don't understand the culture and style and lingo, you may get discounted as a poster. However, if you can write with authority in a style that matches the culture, you'll be accepted.

One of the bad things about ValueForum is that we're kind of cliquish. Like any place, there are some sacred cows, and I've seen more than one newcomer try to take on a sacred cow and get beaten up. Also, the more senior members get a lot more respect. If you want to post often and get taken seriously, you have to spend time building up the "respect bank."

Everyone has their eyes on a different corner of the market, so the forum makes for a virtual smorgasbord of good ideas. People there are good at debating finer points of different aspects of companies. Once I posted an idea, and the rest of the board ripped it to shreds. While it wasn't pleasant to be on the receiving end of the trashing, it helped me avoid a bad investment.

How do you gain clout as a member?

You can mark every post with a green dollar sign [adds value] or a red minus sign. If you collect a lot of thumbs, you get stars. Prolific posters have a lot of stars. Our most prolific poster has more than 4,000 stars. I'm No. 19 on the list with 636 stars, and the mean is around 50 (a lot of lurkers don't post). You tend to get more attention if you have more stars. Guys with 300 or more stars can post weather reports and get 10 thumbs, and guys with one star can post a brilliant stock pick and get ignored. It isn't always right, but it's the way it is.

Sometimes, a low-star guy will pick a fight with a high-star guy. Pretty soon, a lot of the forum rushes to defend the high-star guy because that guy has posted a lot and made them a bunch of money. The high-star guy may be in the wrong, but he seems to usually get more vigorously defended, based on past contributions.

What are examples of hot topics bouncing around the forum now?

Commodity plays are big, alternate energy, and some financials. Ideas seem to show up here about three to six months before they show up on CNBC, the Wall Street Journal, or Barron's. I hate to go into too much detail; it feels a bit like I'm violating the trust of guys doing hard work bringing good ideas to the board. In the past, we loved Canadian Royalty Trusts, we started discussing fertilizers around late 2006, and we started discussing dry bulk shipping in early 2007. Some members have been discussing gold since it was $400 an ounce. We started discussing real estate issues in 2006, so early that some gave up on the idea that real estate would ever crash.

What types of stocks do you invest in?

Right now, I'm heavily into commodity stocks, but because that's what's working now. I have a fairly short-term outlook and am willing to completely roll my portfolio over every three months or sooner. My current holdings have been in my portfolio for quite a while, but that's merely a testament to how well they're working.

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