TIME OUT - “Dear Fellow Investors,” By Tracy Johnson, Canada-iNvest.com

“I would like to start off by saying that any CEO of a Public Company would give his right arm to have a loyal and informed shareholder base such as Plaintree has. We have had many a good chuckle over your chat line comments regarding your thoughts on Taurus.” — David Watson, CEO Plaintree Systems , August 31, 2000.

Thursday might have been the day that financial message boards finally got taken seriously. Many, more conservative investors would expire at the thought, but it was the day that the CEO of Plaintree Systems (LAN) , the most actively traded stock on the TSE last Monday, went to a message board to talk to (or appease) its investors.

Plaintree has received a burst of attention in recent weeks, after it announced a change in business plan from local area networks to wireless optical networking. After it spiked on the TSE, it started to attract a lot of attention on the stockhouse.ca message boards. Then last Wednesday, Taurus Capital released a research report that reputedly questioned the valuation of Plaintree. The stock price suffered either from that or profit taking, but immediately after Watson posted a response to report, volume jumped and the price ticked up about 10%.

Do financial message boards move stocks? Is there any question? Let’s take a look at some recent examples. A trio in Massachusetts is accused of posting thousands of negative messages about two U.S. biotechnology companies. During the bashing period, the stock price in one of the companies dropped from $35 to $21.

Even the big boys aren’t safe. Last fall, bankruptcy rumours were swirling about New York-based investment bank Lehman Brothers. The rumours didn’t turn out to be true, but were widespread enough that Richard Fuld, Lehman’s chairman had to hit the media circuit to discourage the talk. Where did it all start? The company said that at the very least the message boards helped spread the gossip.

On the bright side though, there’s no place to access investors quite as democratically as a message board. In less than 24 hours, David Watson’s open letter had been viewed more than a thousand times. And that’s why he posted it there. “It seemed a logical way to get our message out. We will only do this in situations where it’s critical that we get news to the investment community in a less formal manner than a press release.”

So there’s no questioning their power, but it’s not as certain that posters can influence stock on a daily basis. Alan Poole is a long time, active message board guru of sorts. He runs www.ForumWatch.com, a site that keeps track of all things message board. He says there’s no question that posters can move the market. “Yes they can, but there are certain conditions that need to be met. The stock needs to be in flux with a large audience watching the board.”

“There again, the formula does not always dictate that the audience has to be massive. Smaller groups will do if they have enough buying power.”

John Wood, the editor of Canada Stockwatch, a site that hosts some message boards forums, agrees with Poole. “I think there’s plenty of evidence that if you populate enough chat rooms with enough nonsense, there’s a never-ending supply of suckers that will spend some money. It’s just a different way of touting stocks. It’s been going on via the phone in boiler rooms since time began, but its plenty more efficient, you can reach many, many more people. Even if the sucker rate is less than half a per cent, it’s still highly efficient.”

So it’s a case of investor-beware. Poole says there are huge benefits to keeping track of messages, but he has some advice. “The majority of the time, you just have to make sure there's no wool over your eyes. Read quickly and scan for the points that really interest you. It is just a matter of cross referencing them with the actual security commission filings or going directly to the company itself. Always verify all your findings with the company. You can even find information about companies on message boards you can find no where else, like who the CEO golfs with or who has sued the company.”

Woods has a slightly more cynical, but valid point about the benefit of the chat boards. “ I think there’s quite a few benefits. One thing is that it gives the investor insight into the kind of people who are boosting the stock. In the short term anything is possible, but in the longer term that sort of harebrained jabber really can serve as a wonderful warning to investors. If these are the sort of investors that are keeping the price of this thing up, when it’s obvious that it’s a promotion, you don’t want to be the last one holding the bag.”