THE LATEST NEWS FROM THE MOTLEY FOOL: Put a clamp on the rampers

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Share ramping - by which maverick investors plug small companies in the hope of making a quick profit - is always done at the expense of naive small investors. It is a nasty business. Ramping is a common practice on a number of internet message boards, and would-be censors often cite this as an example of the unruly nature of the internet medium, and make it an excuse for trying to clamp down on the freedom that the free speech of the internet represents.

But ramping isn't the only way for sharks to take advantage of ordinary investors. It is easy to leave doors open for professionals to profit at the expense of unsuspecting amateur investors, and critics would do well to keep their eyes peeled and look closer at the mainstream media, rather than going all out for the internet.

For those who haven't seen it, Show Me The Money on Channel 4 is a share investment game show in which a number of teams are given an imaginary pounds 100,000 to invest in a portfolio of five shares. That certainly sounds like the kind of thing Foolish investors might like to do, doesn't it?

The twist, though, is that every week, each team has to sell one of its five holdings and buy another share with the proceeds. For convenience, and because Show Me The Money is only a game, all brokers' charges, stamp duty and the buy/sell spread charged by the market makers are ignored.

Obviously, as Foolish investors, we would never invest using this kind of strategy because we would have to pay the charges, and they can add up to quite a considerable sum. So let us estimate how much they might be.

The buy/sell spreads are the hardest to estimate as they vary so much from share to share, but let's assume the spreads aren't too onerous. If you trade according to the rules of Show Me The Money, you will probably need to make 50 to 80 per cent just to cover your charges. If you are thinking of playing along with real money, you should think again.

The show also features a slot in which the chief of a company is given 60 seconds to promote his own company as a possible alternative investment, rather than any of the companies on the team's shortlist. This would be a silly way to invest real money, as 60 seconds is nowhere near enough to analyse a company's financial performance, and you only get a rather one-sided view of the company.

But it's only a game, and nobody would ever invest in a company based solely on a 60-second plug by the boss, would they? But they do. On a number of occasions the share price of the featured company has risen quite sharply when the show was on, only to fall back again shortly afterwards.

People really must be investing their hard-earned money in these companies that they know almost nothing about, and are often going on to lose out afterwards. But the really sad part is that professional investors have spotted this trend and have been profiting from the show's viewers by buying shares in the featured companies in advance, and selling them as soon as the price rises because of the demand created by the show. But how do they know which companies are to be featured?

Unfortunately, Channel 4 made a bit of a blunder by releasing the programming schedules, including the names of the companies to be featured, well in advance of the shows. It was a purely innocent slip-up, but nobody realised how this information could be put to use by the professionals.

Having been alerted to the problem by viewers and by the media, Channel 4 has now plugged the hole, and the names of companies to be featured will no longer be published in advance. This example shows just how easy it is to make such a mistake in the first place, but it also shows the power of the investment community. It was feedback that alerted Channel 4 to the problem, and allowed it to rectify it.

And that brings us back to the issue of internet policing. At the Motley Fool we are firm believers in freedom of speech and advancement through education rather than the Draconian regulation and censorship that some people demand.

We believe that the power of the community is the real power behind the internet.

In the Motley Fool online community, every message posted is accompanied by a Good Post/Bad Post button, inviting readers to alert us to anything that does not follow our message board guidelines. That includes deliberate ramping of shares, offensive messages, or just innocent posting of misleading information. Thankfully, we have had very little of any of these, but when it does happen, our army of Foolish followers out there are quick to jump on the offender and bombard us with "Bad Post" alerts. The offending message can then be promptly removed.

At Motley Fool we believe we can build a meaningful online community, which is self-regulated by a combination of published guidelines and free speech. This is the best way to handle internet communication and pool our investment opinions. Read the message boards at www.fool.co.uk and join in the debate.

n www.fool.co.uk

FOOLISH TRIVIA

The first five correct answers out of the hat win a black Fool baseball cap.

Taking up the gauntlet thrown down by an American interloper, a supermarket in the United Kingdom (which released its results last week), announced plans for a new global strategy. Name the two companies.

n Answers by e-mail to: UKColumn@ fool.com or by post to: Motley Fool, 79 Baker Street, London W1.

n Last week's answer: BT and AT&T

ASK THE FOOL

I have a pounds 100,000mortgage, discounted for three more years. By then I should have sufficient capital in PEPs/ISAs to pay it off in full. Historically speaking, is it be better to leave large sums invested in the stock market (especially under a tax free wrapper) or to pay off a mortgage, thereby saving the interest charges? If it is better to pay off the mortgage, the question is when to cash in the investment? I think this should be several years before the money is needed in order to avoid the risk of short-term market corrections.

RW, London

The Fool responds: Historically, the stock market has returned around 12 per cent per year since 1919, which is significantly higher than mortgage interest rates.

If that continues, you would be financially better off keeping your investments going and keeping the mortgage, providing you leave them for the long term.

But it is your home that you are risking, and if the market falls, you might not have enough to cover the mortgage. For this reason, many people would prefer to pay off the mortgage. Only you can decide.

You are right about cashing in your investments well before you need the money. At the Motley Fool, we would not recommend investing money in shares that is needed within the next five years, so you might find that a useful guideline.

n If we publish your question, you'll win a Fool baseball cap. E-mail UKColumn@fool.com or post to Motley Fool, 79 Baker Street, London W1M 1AJ.

MY DUMBEST INVESTMENT

In July 1989 I took out a 10-year investment with Barclays Maximum Investment Plan (MIP), starting 10 policies at pounds 10 per month. After the first year the value had dropped more than 25 per cent so I cancelled any further investment. The pounds 1,200 left in matured in July 1999 with a value of just under pounds 1,400.

TE, Tyne & Wear

The Fool responds: Most managed investments regularly fail to match even the FTSE index, and a large number perform very poorly indeed, as the return from that pounds 1,200 shows.

Stopping that investment early was a very sensible thing to do, and represents a good step on the road to Foolishness. Well done for getting out when you did.

n Send us your smartest or dumbest investment story. If we publish it, you'll get a free copy of our investment guide. E-mail to UKColumn @fool.com or post to Motley Fool, 79 Baker Street, London W1M 1AJ.

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