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Technology > Tech Investor
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Who called Enron first?
New academic research shows the power of message boards.
May 23, 2002: 2:17 PM EDT
By David Futrelle, CNN/Money Contributing Columnist

NEW YORK (CNN/Money) - Is there more to stock market message boards than bluster, bashing and endless ungrammatical off-topic rants?

Like a lot of people, I've tended to see the message boards more as a source of entertainment than useful information. But maybe I just haven't been looking hard enough.

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Indeed, a recent academic study suggests that the message boards could have provided investors with early warning about Enron's tricky accounting and unhealthy corporate culture -- long before similar questions were ever raised in the press.

For a paper scheduled to appear next fall in The Journal of Investing, James Felton, Associate Professor of Finance at Central Michigan University and Jongchai Kim, Assistant Professor of Finance at Xavier University of Louisiana, examined literally hundreds of thousands of posts on the Enron message boards on Yahoo! Finance.

The two discovered damning and surprisingly detailed allegations about Enron's finances apparently posted by frustrated company insiders. The two conclude that far from being useless sources of misinformation, "stock message boards contain better information than is widely believed."

The true story

The posts the two professors have collected show people not just making broad negative statements, but rather giving pointed -- and prescient -- warnings.

"Look at the lease obligations in the footnotes in the 10K," someone calling himself johnmanfrengenson suggested in October 1999. "There are a lot of liabilities that are not included in the balance sheet numbers."

"Dig deep behind the Enron financials and you'll see a growing mountain of off-balance sheet debt which will eventually swallow this company," arthur86plz warned in March 2000.

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The problem, of course, is that the prescient posts make up but a tiny fraction of the tens of thousands of opinions. There were countless positive ones from Enron employees happily boasting about their plans to retire early off their gains and setting $1,000 price targets for the stock. "Hold and enjoy," wrote a fan in early 2000. "This is a hundred year stock." Others accused the stock's critics of lacking "even the most rudimentary understanding of accounting."

The fact is, warnings appear every day on practically every stock message board out there and, well, there is only one Enron. It's not just a case of the boy who cried wolf; it's the case of a thousand boys screaming "wolf" repeatedly every day for years. If you do a search for the word "scam" on the Yahoo message boards, as I did today, you'll pull up literally thousands of posts taking aim at targets ranging from Apple computer to those of us in the financial media.

If you're looking for real financial shenanigans, not conspiracy theories, you'd do better to devote your time to reading company 10-Ks instead of sifting through the chaff on the message boards -- though, admittedly, the message boards are a lot more fun.


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.