Seeking Alpha has received a surprising amount of media attention recently over pending litigation regarding the StockTalks of a Seeking Alpha contributor last year. I'm not going to comment on that case. But I do feel this is an opportunity to explain how Seeking Alpha's contributor network works, why we allow contributors to write under a pseudonym, and what steps we take to ensure the integrity of our contributors - and perhaps dispel some common misconceptions along the way.
Let's start with the basics: What are we? At its core, Seeking Alpha is a crowd-sourced, contributor-driven research platform for U.S.-focused stock market investors. Because we're contributor driven, all views you read on SA are those of our contributors (we have more than 3,000 active contributors). There is no house opinion.
What is so powerful about crowd-sourced equity research?
We are skeptics about the supposed objectivity of traditional media outlets and research providers. We think that Socratic debate - which gives both sides an equal say and allows the listener/reader to make up his or her own mind - is a far more powerful way for readers to develop an educated opinion. Seeking Alpha takes Socratic debate one step further by allowing not only authors but also readers to have their say using article comments, StockTalks and Instablogs. What emerges is a profound mosaic that frequently outweighs the value of any single piece of research. This idea was underscored in a recent Brunswick Group study which found that blogs such as Seeking Alpha drove 58% of all investors to do further research - double the influence of any other digital information source.
Why does the contributor model wield such influence? Overwhelmingly, SA contributors are not journalists, they are investors. This is a key difference between Seeking Alpha and traditional equity research (also known as sell-side research) - and helps explain why our model is so disruptive.
Traditional equity research is produced by analysts who work for Wall Street brokerage houses. Much of it is quite good. It's thorough, and is useful to investors (the "buy-side") because analysts provide them with financial models and scenarios, and often hook them up with company management. What it's less good at is surfacing great ideas. This is for a couple of reasons. Firstly, a sell-side analyst's job is not to make money for his clients, it's to produce research. There's very little incentive for most brokerage analysts to get it right (except those who hope to get a job working for the buy-side). And analysts' ability to offer their clients access to management of the stocks they cover hinges on them playing nice with those companies, which inevitably influences their ability to be candid.
By contrast, Seeking Alpha contributors are out there looking for opportunities to make money for themselves or for their clients by buying or shorting stocks. Many SA contributors manage portfolios worth hundreds of millions or billions of dollars, and invest a substantial amount of time and money in researching ideas before taking the plunge. That's why, when it comes to idea generation, buy-side research packs a lot of punch. That also explains why we allow contributors to write articles about stocks they own; it is this skin in the game that makes their research so rigorous.
Once they've taken their position, investors publish their research on Seeking Alpha in order to reach a broad audience. Talking their book on Seeking Alpha makes a lot of sense for investors: it can catalyze momentum in an under- or over-valued stock; it positions them as thought-leaders on that stock; it opens up potential relationships with other like-minded investors or with company management; and it's a way for them to stress-test their ideas early on. That's why Seeking Alpha has such fantastic small-cap research: the alpha opportunities investors crave are mostly found in areas not well-covered by traditional brokerage research. (Shameless plug: if you're serious about small- and mid-cap research, you really need to take a look at SA PRO.)
There are a few reasons why investors might prefer to publish their research under pseudonyms, and why we allow and embrace that.
- It is not uncommon for SA contributors to do ground-breaking research on potentially fraudulent or unethical companies that could place them at serious risk. For example, SA contributors were at the forefront of uncovering what came to be known as the "China fraudcaps," and some of them traveled deep into China to set up surveillance of shipping docks or to verify the non-existence of claimed assets.
- Many investors are wary of critiquing company management in public, especially when they're long the stock and don't want to be cut out of future opportunities to engage with management.
- On a personal level, most SA contributors are not journalists and don't have the thick skin that comes with that profession. They're serious investors who often shun publicity, and who wouldn't share their ideas with our readers if they felt it could negatively impact their personal lives.
But none of our contributors are anonymous to us. We maintain an up-to-date database of all contributors' real names and contact information. We're vigilant about ensuring we know contributors' real identities because we value the integrity that brings. Specifically, we take a number of measures to ensure contributor identity integrity, including IP tracking, independent validation of contributor details via a third-party data provider, photo ID, and in most cases banking information (yes, we pay our contributors! - learn more here) - and we're constantly improving our due-diligence process. We do comply with regulators if they have reason to believe a contributor has violated securities law. Our contributors know this, and that's a good thing because it keeps all of us honest.
So, media speculation notwithstanding, we remain committed to allowing pseudonymous contributors to have their say, and to allow investors' ideas to stand or fall on their own merit. We believe you'll find yourself better-educated after having researched a stock on Seeking Alpha, and if you strongly disagree with a contributor's opinion, don't get angry - get even.