The Breakfast Table

Destroying Tokyo Joe To Save Motley Fool


We’re getting into semantics. Naturally, when we’re talking about investing, “wise” means “lucrative.” So when I asked if you thought buying whatever is going up was “wise,” I meant, do you think that is a sound way to try to make money? As for those who manage to do so without any information edge, I’m with you–hats off. Good luck keeping it up.

I know I sound sanctimonious, but making money doesn’t seem to need any cheerleading from us. My point is that there are two distinct questions here. You seem interested in the question, What is a good way to make money? I like money as much as the next guy, and if you have any good advice, I’m all ears. But the question I meant to bring up is: Are the markets well organized and regulated to operate efficiently and fairly? The latter question comes up when you talk about what causes so much volatility in the markets. And it is particularly relevant when Congress and the SEC are debating ways to restructure the markets.

I tried to get us started on the slightly counterintuitive suggestion that the 1996 market reforms have actually lead to a more volatile market. Less coordinating by market makers. More fragmentation among market makers paying for orders, brokers internalizing, and alternative trading systems. But I am beginning to suspect that dog won’t hunt here.

That New York Post story you mentioned reminded me of Tokyo Joe, the famous online stock picker who recently found himself in trouble with the SEC. His racket was pumping and dumping: touting stocks to his followers and then selling out to them as their buying pushed up the price, enriching himself at his investors’ expense.

We both suspect that mutual funds and the big securities firms want to discourage competition from operations like the Motley Fool via the Internet. But I bet they would say that it is the Tokyo Joes they want to stamp out, and they have a point. Tokyo Joe’s defense is part First Amendment, part caveat emptor. He never made any secret that he trades in and out of the stocks that he touts. But, as it turns out, he also inflated his performance on the background page of his Web site, misleading investors about his success.

We might think knuckleheads who freely choose to follow blindly the advice of Tokyo Joe deserve what they get. But selling securities has been a regulated industry for decades, so the law takes a negative view.

Should the Internet be considered different? I don’t think so. If people come to think of online investment advice as a Wild West where would-be stock gurus can abuse other investors without consequence, it can only have a chilling effect on the efforts of legitimate, well-intentioned stock-market discussion sites.

I guess I am up first tomorrow, too, huh?


P.S.: My New York magazine colleague Bob Kolker adds: James Cramer went to from New York magazine, and we, too, are very proud of our offspring.