A few weeks ago Robin Hanson over at Overcoming Bias pointed out that, as he put it, "pundits are moles" Political commentators and columnists spend a long career achieving and maintaining credibility; "they may even usually give thoughtful reasoned commentary on issues of moderate importance"; but every now and again, notably in election years and moments of significant crisis, they close ranks, stop pretending to be moderate or objective and come in to bat for "their side". The pundits cash in their reputation when push comes to shove - as Michael Porter might say, they harvest it.
I mention this because the latest share plunge occasioned by an inaccurate bit of financial journalism - the brief Apple plunge caused by the rumour that Steve Jobs had been carted off to hospital - comes hard on the heels of a very similar plunge at United Airlines. As Jeff rightly says - again - this isn't a failure of "citizen journalism" (though it might be a failure of open systems). Personally I have no sympathy for people who lose money because they trade shares on the say-so of one rumour they found on the Internet but let's face it, something isn't working when a guy with ten minutes on his hands can slam Apple stock by making stuff up about the CEO's health on a single website.
The Apple and United Airlines crashes point to a very obvious way of making money from blogging. Here's my four-point guide that you can cut out and keep.
Step one. Start a blog that talks about technology, media companies and economics (a bit like this one, in fact, by a funny coincidence. Or here are some better-known examples.)
Step two. Do...you know, the things that make a blog successful. We all know what they are by now. You don't need another TechCrunch or Gawker for this to work. Just a credible third-rank blog in the right space read by the right people.
Step 3. After let's say a couple of years, once you've built up enough readers and credibility that your company-specific posts get picked up by the main blog aggregators, by Seeking Alpha, by Yahoo Finance, by the New York Times etc et al, harvest that work and reputation by shorting the hell out of Google stock and ten minutes later posting the headline that Sergey and Larry have flown their plane into a mountain with Eric on board. Or whatever works in your own section of the blogosphere. Pharma bloggers can pull the same trick with Glaxo Smithkline.
Step 4. Close out the short position at the right moment, which will be once the markets have responded to the rumour by hammering Google stock but before the mess has been cleared up and everyone realises it was just another error/hoax/scam.
There is a window of perhaps another couple of years where this will work, probably as many times as anyone can be bothered to do it. While this feedback loop between the remains of mainstream media and content created by the former audience is in place; while news organisations cut sub-editors to the point that pretty much anything can end up on the homepage; while an increasingly understaffed Wall Street continues to rely on under-developed trading programmes that respond semi-autonomously to newsflow; while no-one's quite finished rolling out the authentication tools that would prevent it; there's a system just sitting there waiting to be gamed. What we saw happen with United and Apple doesn't look to have been gaming, but the principle has been tested twice in a couple of months. It's so simple to work it's practically trivial.
Sounds like a lot of work? It sounds to me like a lot less work than most ways of making money. It sounds like something you could do in less than a couple of years in your spare time (I started this blog in 2006; I write it when I get an odd moment; if I mention Google in the title of a post various aggregation systems seem to ensure that it ends up on the relevant page of Google Finance and the New York Times). And when it seems more and more people are just burning out when they've been blogging for a few years, you could even argue that one last big shorting hoax is pretty much the best use you've got for a blog you've given up writing anyway. In a global recession people are going to be scraping around for ways of making money, and some of them are going to be desperate. So watch out for the next one. People who know how to take a short position are going to be cashing out their blogs with one big company-specific disaster story, and soon.
This seems so unethical yet it seems like it might actally work.
Posted by: Kevin | 09 October 2008 at 02:31