How To Pump Or Crush Stocks Using Estimize
- Posted by Leigh Drogen
- on January 20th, 2012
Is it possible to use the Estimize platform to pump or crush stocks? The answer is yes….and no.
We get the same general list of questions when talking to just about everyone regarding Estimize, and the fear that someone could (try to) use it to move assets in their favor is definitely one of them. We’ve thought this through from the very beginning, and the community definitely deserves a window into our thought process as the platform grows and more people rely upon its data and analysis.
Let’s consider the first scenario, where a nefarious user attempts to publish a very low estimate in order to push the consensus number down in order that his stock beats the number.
First, we limit the ability to make estimates right off the bat to a certain range based on an algorithm which looks at previous accuracy from Wall Street and the Estimize community. This algorithm isn’t very complex, but it generally does the job and will get better over time.
Second, we have a flagging system which looks at how estimates are made and by who, think of it as an estimate reliability score. The score takes into account many different factors (which we won’t divulge), and produces a flag if it’s too low.
And third, we manually review the data being produced on the platform, just as we did in the early days at StockTwits in order to build a clean community.
This system is still a work in progress, but let’s say that after all of that, the user’s estimate sticks and he is able to bring down the consensus. If you’re trading off of data produced on the Estimize platform, you’re most likely going to be taking a look at some of the individual estimates that make up that consensus before hand, and when you see an outlier, you’re going to ask yourself the question, who is that person.
And when you visit their profile you’re going to see one of two things. Either, this was their first estimate, they have no track record of accuracy, and have not filled out their profile, in which case you shouldn’t trust their estimate as a legitimate outlier. Or, they have a history, have filled out their profile, and this is the first time they’ve made a wildly outlier estimate. But wait, let’s think about this, why would someone who has taken the time to build their track record on the platform throw that away to put one estimate in to influence a consensus number? Doesn’t make much logical sense. We’re not concerned with this taking place, the incentive structure is stacked against this type of behavior.
Much of the reason that pumping or dumping stocks on Estimize doesn’t work is due to the fact that you need credibility in order to make this happen. A consensus number produced by 10 guys who have no track record on the platform is not equal in reliability to an estimate produced by 3 guys with big track records of high accuracy. The community is smart enough to discern between the two.
The market is not going to listen to the Estimize community as a whole, or any one community member, on an asset which they have been very wrong on in the past. So your only real option is to build your accuracy and reliability score, then throw it away on one stupid estimate.
Now, if you really want to know how to pump stocks on the Estimize, here’s my thought. After you’ve been around for 3-4 reporting periods for the same stock and have scored highly on each release, higher than the Wall Street consensus for each and within the top 3 Estimize community members for each release, think about this.
Get in touch with the other 2 or 3 guys who have been very accurate on that stock and collude to bring the estimate down.
Oh wait, that’s what Wall Street does now.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see the Disclaimer page for a full disclaimer.
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Leigh Drogen is the founder and chief investment officer of Surfview Capital, LLC, a New York based investment management firm employing an intermediate term long/short momentum strategy. More »
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