If you follow the stock market or business news, you most likely go to Yahoo! Finance quite often. I usually check it daily. If you go onto Yahoo! Finance, you have probably noticed the little box in the lower right corner called “Community Sentiment”. According to the subtitle, these are the top “Bullish” or “Bearish” stocks creating buzz on Yahoo! Finance message boards. So, in a completely unscientific way, I decided to see if I really could use this buzz to make money. For one month, I followed the stocks I saw that created buzz, and I tracked their results. What I found was pretty surprising!
So, I started this endeavor on January 8, 2011, and the stocks that were trending “Bullish” were: Verizon Communications (VZ), Videolocity International (VCTY.PK), and TiVo (TIVO). The stocks that were trending “Bearish” were: Microsoft (MSFT), Angiotech Pharmaceuticals (ANPI.PK), and Ramtron International (RMTR).
Bullish:
- Verizon: 0.61% Return
- Videolocity: -32.00% Return
- TiVo: 7.33% Return
Bearish:
- Microsoft: -0.70% Return
- Angiotech Pharmaceuticals -91.30% Return
- Ramtron International: -30.00% Return
For reference, the S&P500 returned 4.17% and the Dow Jones Industrial Average returned 4.78% during the same period of time.
So Can You Rely on Yahoo! Finance Community Sentiment?
The biggest lesson I learned from this is that if the community is talking about a stock, it is usually NOT a good thing, and it will most likely decline in price. I never trust online message boards for investing advice to begin with, but I think this reiterates why they should be avoided…UNLESS you are selling short!
From this very unscientific study, I would be generating huge returns if I simply shorted every stock that comes up on community sentiment, regardless of if the community thinks it is “bullish” or “bearish”. Yes, I would sustain some losses, but it appears that most stocks seem to drop a ton.
However, I also noticed that very often the stocks on the community sentiment page are penny stocks or stocks traded on the pink sheets. In fact, Angiotech has been fully delisted and has had trading halted on it since this study began. Videolocity is also a penny stock and only trades on the pink sheets.
Bottom Line
If you are thinking about speculating on stocks based on what the random Yahoo! Finance community is saying, please just send me a check for the amount you would like to invest, I would be glad to take your money instead of you squandering it away.
However, if you genuinely want to invest in stocks, you can start with the basics in my College Student’s Guide to Investing.
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This post was written by...
Robert – who has written 317 posts on The College Investor.
Robert is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances. You can learn more about him here and connect with him on Twitter or Facebook.
{ 10 comments… read them below or add one }
Even more entertaining are the message boards!
Entertaining and a little scary!
Wow, the -91% and -30% seemed appropriately coined as bearish. Didn’t even know about this “community sentiment” interesting stuff.
It makes me wonder whether a company generating buzz is really bearish? Or maybe it is the victim of a pump and dump scheme like from the movie Wall Street.
I wondered about this, glad you actually ran it through a test. Great results and now I know to stay away from using this as an investment guide. Thanks!
Is there any technical tool you would use from Yahoo Finance to assist with your trades?
I would stick with good old fundamental analysis, like using a stock screener based on variables that actually matter: earnings, debt, etc.
Hey, thanks for doing this. I always wonder why they put that on yahoo finance? It’s just a waste of space. Google has winners and loosers section that is similiar to this but atleast I know when someone is down 5-10% and I can keep an eye on it to see if it rebounds. Yahoo needs to take this down. I am always on their site but I have to say I never pay attention to this section anymore.
Update: Once they updated their site earlier this year, they removed the Community Sentiment box. I guess they got the message as well.
I actually very rarely use Yahoo for this reason. The news gets there last and I couldn’t agree more with their message board. I personally use Google Finance, but that’s me.
Wow, I’ve never heard of them carrying the news last. I use Google Finance as well, but I do like how Yahoo Finance is laid out.