Saturday, July 14, 2007

Stockpuppets

by Tanta on 7/14/2007 09:00:00 AM

I don't know if you all have been following the story of Whole Foods CEO John Mackey, who has apparently been frittering away his free time posting comments on Yahoo! Finance message boards under the handle "rahodeb." The burden of wisdom of "rahodeb" appears to have been to talk up Whole Foods and talk down Wild Oats Markets, a competitor and recent acquisition target. "Rahodeb" is, apparently, an anagram of Deborah, Mackey's wife's first name. There's some stunning creativity.

Herb Greenberg has been a little disappointed in his blog commenters, who haven't shown enough moral outrage over this, so do let me officially register moral outrage. Mackey's behavior shows what the great Molly Ivins once called "the ethical sensitivity of a walnut," and I for one hope the SEC cleans his clock but good. The fact that the SEC occasionally displays the regulatory sensitivity of a peanut cluster is neither here nor there. A girl can dream.

That said, I have to admit that my moral outrage over Mackey's dishonesty is rather tempered by my inability to take seriously the forum in which this behavior was displayed. I have, on a few occasions, descended into the cesspool of Yahoo! Finance message boards, in a more or less ethnomethodological mood, and my unscientific findings--I couldn't possibly read enough of that semi-literate flaming nonsense to achieve anything like respectable sampling--echo Obi Wan Kenobe's assessment of Mos Eisley: you will never find a more wretched hive of scum and villainy. While of course Mackey has no business playing stockpuppet, on the other hand I can't think of a better place for him to do it. Anyone who trades with real money based on anything gleaned from these boards probably deserves to be fleeced by an insider.

Those of you who have been hanging around this site for a while may remember that I got a bit severe in the comments a few months ago with our resident short-sellers. Anyone who trades short is of course welcome to read and participate in this blog, and any reader and participant is welcome to short, if that's what you want to do with your money. However--and this will probably become relevant again as Q2 earnings releases are upon us again--no one is welcome to try to turn this blog into a short forum.

More particularly, no one is invited to take anything that CR or I might say about homebuilders or mortgage originators or any other publically-traded party as investment advice. We can't stop you from doing that; we can only warn you that neither of us invests our own money based on the ramblings of anonymous internet posters, and we therefore wouldn't recommend the strategy to anyone else. If you are not treating what you read on this blog with the same critical thinking skills and fact-checking habits that you would use for any other part of the internet (not to mention the daily papers), then you aren't calculating your risk.

My own take on the Yahoo! boards is that they're generally a recreational form. So is this blog. The difference, by and large, involves what you find amusing. I'm personally enough of a libertarian to be unperturbed by other people's tastes in recreation, as long as all parties are of the age of consent and the decibel level stays under control, particularly on those days when it's cool enough for us to have our windows open (hint, Tanta's neighbors). So people who wish to spend their time on message boards in which flames, insults, and merely asinine comments way outnumber anything that could be called information or intelligent analysis are free to do that, as far as I'm concerned.

Readers of this blog tend to want something else, and we try to maintain an environment in which they'll get something else. There are any number of ways one can do that, and we are perfectly willing to use the delete key in the comment section when we need to. Mostly, though, we just keep posting on the things we find interesting--many of which are guaranteed to bore the pants off the Yahoo! crowd--and relying on our regular commenters to help us set standards of discourse that discourage long threads composed entirely of "this stock sux."

We have, however, occasionally had someone pop up in the comments who claims to be an insider or a high-roller investor who, out of perfectly altruistic motives, wants to tell us all about some great long or short opportunity. We are not, on the whole, kind to such people, although I like to think we are unkind with more grace, wit, and literacy than you'll find in other parts of the net. Broad-minded as we are, we believe that Calculated Risk is not a public accommodation: sockpuppets and stockpuppets and astroturfers (and garden-variety flamers) have plenty of places to play on this big world wide web--Yahoo! comes to mind as an example--and so we are not under any first amendment obligation to allow them to play here.

We are, as a community, so sensitive to this matter that we have, I think, gone rather overboard on one or two occasions in tossing around accusations of "shilling" or "talking up one's book" to posters who are simply making their case with too much enthusiasm and too little self-consciousness. That's unfortunate; there is always the danger of confusing skeptical-minded caution with mere contempt for difference of opinion. I was, personally, rather disgusted a few months ago by some of the comments about Freddie Mac's economist Frank Nothaft, regarding whose projections for home sales CR had posted some critical comments. Like CR, I think Nothaft's projections were too optimistic. Like CR, I also think rational, informed, highly-skilled people can be wrong--it's happened to me once or twice, you know--and I was highly put off by comments branding the man a "shill."

I suppose shilling, like beauty, is in the eye of the beholder, but I am willing to flat-out assert that not everybody with an institutional affiliation is a shill, and that overuse of that epithet doesn't get us anywhere. Real shills should be exposed whenever one can do so--we've devoted a fair amount of time to laying into David Lereah, formerly of NAR--when they appear to be getting enough attention or taken seriously enough by the mainstream press or financial community that exposure of them matters. But, for this blog at least, "exposure" means going after the details and facts presented with analytical rigor; you need to do your homework before you earn the right to brand someone as dishonest.

Mackey, of course, deserves heaps of contempt not just for being dishonest, but for contributing to the cynicism about the internet as a form of information sharing within the financial community. Had he posted to message boards--or even something as respectable as this blog--under his own name, declaring clearly his interest in the matter and staying on the right side of Reg FD, among other things, he would undoubtedly have been welcomed into the community as a participant (subject to the same critical standards as anyone else is). Having shown himself to be just another shill trying to manipulate small-time retail investors unwary enough to rely on Yahoo! messages for investment advice, of course, he simply provides more reason for us to think that corporate America still considers the internet to be just one more space that can be polluted with ugly marketing strategems and milked for enough chatter to boost value of the executives' stock options.

I still think the best possible response to that is to fail to fall into the trap, or to make it easier for the likes of Mackey (or his smaller-time fellow puppets) to manipulate us. That requires that we keep our bullshit detectors functioning at all times, and also that we refuse to become so cynical that we trust no one. My own strategy is to focus not on identities--we're mostly all anonymous here--but on the words on the screen. Anonymity can, of course, open the door to Mackey-style dishonesty, but it can also force us to stop giving an idea or an analysis too much or too little credit based on the identity of the writer, and force us to engage directly with the ideas and facts themselves. Certainly one always wants to ask of anyone--me, CR, our commenters--why we're taking the time and energy to do this. What do we gain?

In our particular case, what we gain is a kind of intellectual pleasure (and a few generous tips to keep us in coffee and hiking boots, as the case may be). Speaking for myself, there is no intellectual pleasure in arriving at the conclusion that everyone else in the world is either a shill or an idiot, and then repeating that bit of wisdom endlessly. Frankly, when one does encounter shills and idiots, it's rather more a chore than a lark to have to drag them into the light of day, although that's a chore we're willing to perform when it seems important to do so. It's a chore because you need some good hard facts behind you before you make such accusations, if you're going to be something other than a Yahoo! board.

Both CR and I write anonymously, but we do it in a certain way: we write as if we were writing under our own names. In other words, we think of our online identities as having a reputation, as much as our personal identities do, and all reputations have to be maintained by a consistency of approach. It takes time and painstaking effort to build an online reputation, since of course the normal cues people rely on--your resume, as it were--are absent. In short, insofar as people decide CR and I know what we're talking about, it's because people analyze what we say, compare it to other sources, subject it to fact-checking, and come to a more or less rational assessment of it. It's absolutely worthless to try to hide the fact that both of us have a number of years of experience in corporations, but the point for our readers remains what we're doing with that experience right now--what we have to say, today, on the blog--not whether some past title at some company or another gives us some kind of authority to which anyone should appeal.

Mackey is simply a predator: someone who decided that the anonymity of the internet provided a great cover under which he could disseminate information that would put money in his pocket. Undoubtedly everyone on the Yahoo! boards is trying to make a buck--more or less successfully, of course. But I also don't doubt that most of the posters on Yahoo! are, in fact, the amateurs they sound like. Many of our commenters are the professionals they sound like, which is one reason why we are so vigilant in our comments about problems of insider dissemination or degeneration of discussions into stock tips. (Stock tips seem to be the problem; I can't get anyone interested enough in coupon-clipping to have problems with bond tips.) Of course, we have a few yahoos too.

All we can do is remain vigilant, and remind each other that online communities can be very fragile: too little skepticism and the trolls and flamers and true shills take over, too much and the thing becomes another Church of the Paranoid, where every post and every comment is just another bit of preaching to that section of the choir that spends its days being consumed by its own need to believe the worst about the world and everyone in it.

All that was probably more than a thousand words--I do natter on--so here, for those of you who made it all the way to the end, is something worth more, courtesy of a dear commenter of ours who will be given credit for it if he so requests. I think it sums up our approach to blogging rather well: