Most people probably missed it because of the company's size, but a small-cap stock was whipsawed on Monday -- its shares fell nearly 20% before closing down just 10% -- because of a murky, super-secret hedge fund operator who wrote some negative comments on the Seeking Alpha website.
Or not. It's possible that the hedge fund operator, "Liam Mulcahy," doesn't work for a hedge fund at all and, in fact, might not even exist. After being contacted by the company, Microvision (Nasdaq: MVIS ) , Seeking Alpha pulled the article, and the stock has regained its former price level. All's well, right? Well, there are a couple of cautionary lessons in this saga.
Don't be gullible. First, like your mother used to tell you, don't believe everything you read. Seeking Alpha is a worthy competitor to The Motley Fool in many respects, and its content can often be engaging. Yet while it says it vets all of its contributors, in this particular instance Liam Mulcahy -- who had submitted one article previously to the site -- hadn't yet served up a bio when the Microvision piece went public.
That's why even here at the Fool, as much fact-checking as goes on with each article we post, we urge you to do your own due diligence. Don't rely upon anyone to make your investment decisions for you. That includes your brother, your coworker, the Fool, Seeking Alpha contributors, and especially cold-calling brokers. Microvision wouldn't be the first company dropped by rumor. RF Micro Devices (Nasdaq: RFMD ) was roiled a few years ago when an analyst spread false rumors while shorting the stock.
Do your homework. Second, don't invest before you think. Microvision makes integrated photonic modules that allow mobile-phone displays to project full-size pictures. The disparaging article apparently said that a rival product made by Texas Instruments (NYSE: TXN ) and Coretronic division Optoma Technology was currently widely available and had beaten Microvision to market by six months.
If you invest in a stock blindly, simply because you like the story someone told you about its potential, you're more likely to be moved by what turn out to be spurious claims. Optoma had said only last week that its Pico projector -- which can hook up to iPods, mobile phones, and other "ultra-portable media devices" -- will be available only in limited distribution in Europe and Asia later this year and won't have a worldwide launch until 2009. There's no need to trade your stock rightthisminute just because everyone else is moving.
Sometimes the shorts are right. The shadowy figure behind the Microvision story disclosed that he was short the stock -- meaning he would profit if the share price fell -- and so it would be natural for him to have a negative opinion about the company. If he's not who he says he is and he can be tracked down, he might have something to answer for, for trying to manipulate the stock for his profit. Short-selling is legal; stock manipulation (up or down) is not.
Yet not everyone who holds a negative opinion is a short-seller or hedge fund operator. Earlier this week I reported that Yahoo! (Nasdaq: YHOO ) had censored freelance stock analyst David Phillips, who runs a blog called 10Q Detective, because of allegedly disparaging remarks he made about Raser Technologies (Nasdaq: RZ ) on the site's message boards. Yet rather than being some anonymous poster, like Liam Mulcahy and many who leave comments on the boards, Phillips has a public record one can follow, having been quoted in publications like The Wall Street Journal, Kiplinger's, BusinessWeek, Investor's Business Daily, and the International Herald Tribune. He currently writes about the energy industry for BNET.com.
While the cases may seem similar -- two analysts writing negative comments about a company -- knowing the downside potential of your investments is every bit as important as knowing the upside.
Final Foolish thoughts
Investing on your own doesn't have to be as complicated as brain surgery, as some high-commission-based brokerages would have you believe. Following a few simple common sense rules ought to be enough to keep you from reacting -- and overreacting -- to innuendo and suggestion while ensuring that when you do place your money with a company, it's not someplace created out of smoke and mirrors.