The Financial Services Authority (FSA), which regulates the financial services industry, is cautioning people not to be misled by share tips placed on internet bulletin boards and chat rooms.
FSA managing director Phillip Thorpe said most of the material about the stock market on bulletin boards and chat rooms is a exchange of news and views.
However, he warns that there is a ‘potential for the unscrupulous to place false or misleading messages to make money for themselves. Following such tips blindly can seriously damage your wealth.’
Thorpe urges investors to do some research on their potential share purchases and sales.
The alert, which appears on the FSA’s consumer website, says there are several steps investors should take before following a tip.
They should look at the company’s website or get hold of its annual report and be aware that one person can create the illusion of widespread interest in a small, thinly-traded stock by posting a series of messages under various aliases. Potential investors should also be suspicious of any invitation which claims to offer privileged information and urges you to act quickly to avoid missing out.
Richard Holway of analyst company Richard Holway said most of the tips on the internet ‘are a load of crap’.
‘The problem is that so many of these companies being tipped have no track record or profit.’
He said the level of investment in high-tech companies is particularly high. ‘Our internet index [which monitors 45 companies whose main activity is internet-based] started on 1 January 1999, and has gone up 1,580 per cent. That is singularly unbelievable.’
While not suggesting that any of these companies’ success can be attributed to bogus tips, he said most of the share tips on the net ‘relate to internet companies’.
‘Largely it is granny and her savings and people’s mortgages which will be left holding the losses when this market comes to its senses and crashes.’
Last December, the FSA issued another internet-related risk alert about investing in smaller high-tech technology companies which can be subject to volatile price movements and are difficult to trade.
The Financial Services and Markets Bill is due to become law later this year. The Bill will make the FSA the single statutory regulator of the financial services industry with a statutory objective to promote public understanding of the financial system. The regulator will also be charged with securing protection for consumers.
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