Seeking Alpha Pro: Create Your Own Catalyst?

by JT McGee

Seeking Alpha has a mixed reputation among investors.

On one end, there are very qualified, very astute investors writing excellent articles. On the other hand, there are writers who do little more than calculate financial ratios that can be found readily on MorningStar and compare them to competitors.

It’s hit or miss. A Seeking Alpha article is either exceptional, or terrible – there’s no middle ground.

Until Now?

So Seeking Alpha recently changed its format, offering authors a minimum amount of compensation for articles they deem worthy of their paid “Pro” service. That payment is $100 for regular “Pro” articles, and $500 for “alpha-rich Pro” articles.

To qualify, writers usually have to write an excellent piece on an undiscovered company.

People who pay for “Pro” get these articles direct to their inbox one day earlier than the rest of Seeking Alpha. After 30 days, the article goes back under a paywall. Unless you pay for Pro membership, you’ll have to catch a “Pro” article within the 29 day period that free users can see it.

The Pro service is obviously a way for Seeking Alpha to make more money on its content. There’s nothing wrong with that. But it’s also becoming a way for high-quality ideas to get immediate attention and investor interest.

Basically, it’s a good way to pitch a good idea to investors who are willing to pay for it. And because they’re willing to pay for a Pro membership, one would think they’re also throwing around a fair bit of investment capital.

The point

Investing circles around some kind of chicken and egg problem.

Is investing about being right, or is it about being first?

You could have been first in and out of Enron and made killer money, even though they cooked the books. Likewise, plenty of high-quality companies sell for well below their value to a private owner for years without a catalyst. Being “right” about valuing either firm won’t pay off for either of these two example investments.

Investors have to be wise to look for a stock with a catalyst – something that will force an undervalued stock to rise higher. A stock can only rise in value if other people perceive that it is worth more. You can find high CROIC, low EV/EBITDA names all you want, but without a catalyst, you’ll just own another dog.

Stocks only rise if others see that value in the stock.

Case in point: A stock pick for 2013 rallied quickly after a recent article about it on Seeking Alpha. While I won’t say that the author was the only reason for a high-flying stock price, the fact that the idea was distributed to Pro members certainly couldn’t have hurt. An article that gets pushed out to thousands of serious investors can absolutely drive a stock price higher.

Seeking Alpha just became that way to broadcast a good idea to investors. It’s a create-your-own catalyst service now. And I can get behind that!

{ 1 comment… read it below or add one }

PK April 10, 2013 at 10:35

And a way to release hit pieces anonymously!

I can point to one on a stock in the Financial Uproar contest which got hit with a dubious-quality research report from a company with 0 posts, and directors who strangely shared names with characters in Batman. SA has a good side, but at its worst, it’s a sophisticated version of the Yahoo message boards.

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