When Motley Fool Speaks, (Some) People Listen

The Internet has become such a central part of both the U.S. economy and the American cultural landscape that it's easy to imagine that a real convergence between the offline and online worlds has happened, particularly when it comes to the media world. But the truth seems to be that for a lot of the offline press, and for much of Wall Street, what happens on the Internet is still either something of a mystery or, almost by definition, too sketchy to take seriously.

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Take the case of Celera Genomics, a biotech company that offers information from its genetic databases to drug makers. Since the close of trading on Dec. 16, Celera's share price has risen from 76 to 160, or better than 100 percent. The company's trading volume has skyrocketed as well. Just 110,000 shares traded on the 16^th, while 1.69 million changed hands on the 17^th, and the stock has had volume of a million shares or better every day since then. (Well, technically, on the 23^rd only 997,000 shares traded, but that's pretty close to a million.) The stock leapt 11 points on the 17^th, 15 points on the 20^th, and 23 points on the 21st, fell back a little on the 22^nd, and then bounced further ahead on the next two days.

Even by the standards of this wacky momentum-driven market, that's an impressive and really surprising move, and it did not go unnoticed by either the New York Stock Exchange or, eventually, by the financial press. On Dec. 20, for instance, the NYSE asked Celera itself whether it knew of any reason for the sudden spike in its stock, and the company said, sensibly enough, that it did not comment on its stock price. Three days later, the NYSE had to declare an order imbalance at the open because there were too many buy orders and not enough sell orders on the books. And Bloomberg and Reuters both ran pieces on Celera's ascent.

The odd thing, though, is that no one has actually reported what happened. Bloomberg, for instance, blithely attributed the run-up to "increased enthusiasm for genetic information companies and for incorporating genomic research into drug development." As for why that enthusiasm suddenly hit investors with such force, and why it was so focused on Celera, all Bloomberg could offer was an article that appeared in the New York Times on Dec. 20, which included a one-line reference to Celera. Bloomberg quoted an analyst with Banc Boston Robertson Stephens who confidently said, "The New York Times article would be the trigger today." Reuters, meanwhile, came to the story yesterday, including Celera in a broader piece about a boom in biotech stocks, a boom that, weirdly enough, it suggested began about 10 days ago, on the 17^th.

What everyone appears to have missed is that on the evening of Dec. 16, the Motley Fool, an online investment community with more than 2 million unique visitors a month (and my former employer), announced that it would be adding Celera to its "Rule-Breaker Portfolio" in the next five days. (The Fools announce all their buys in advance of actually making the purchase in order not to front-run the stock.) The very next day, Friday, volume in Celera was 15 times higher than it had been on Thursday, and the stock's dramatic rise was under way. It's probably true that all the stock's rise can't be attributed to the Fool's influence, especially since Celera did announce an important acquisition on Dec. 23. But it's also true that many more investors are now paying attention to Celera than were before the Rule-Breaker buy, and that now includes lots of people who have never even visited the Fool site.

Whether you think this is a good thing or a bad thing probably depends on what you think of the Internet's impact on financial markets. I think a good argument can be made that in this case, what you're looking at is not a speculative bubble but rather an example of potentially valuable information--not the Rule-Breaker Portfolio's decision to buy, but its explanation of why it was buying--being disseminated to a much wider audience than would once have had access to it. But the really interesting thing is the almost complete obliviousness of the offline media to what actually happened, and the forced nature of their explanations for Celera's rise. You didn't even to have to work hard to find out about the addition of Celera to the portfolio, since the Fool put out a news release announcing it. Call it willful blindness, then. Apparently the Net still has a ways to go before the offline press can really take it seriously.

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