We recently held a member social at Lyons Pub on April 17 where we informally discussed if social networks such as Twitter serve a purpose for investment research and if so how is it used? Here are some of the key points that were gleaned from our discussion.
- Twitter and other social networks work well if you follow a wide variety of opinions and markets.
- You should attempt to follow a variety of investment worlds, such as equities, fixed income, alternative investments, and the like.
- However, larger firms usually are not a good repository for information—it’s overly scripted and regulatory considerations dilutes the voice and therefore the impact.
- Are social networks a serious part of the due diligence process or is it just a way to delineate short-term trends?
- It actually does both, but where you often get good information are from the links various posters provide.
- Others mentioned that it can be used to challenge your investment thesis and keep you from investing in something you will later regret.
- Sites that do a good job of curating links and information were popular with the group.
- Twitter and other social networking sites are great for timeliness of information.
- It works for finding out about a security that is moving strongly, as Twitter usually has the information well before the mainstream press.
- For example one person found out why a biotech stock was moving because of a publication in a relatively obscure German scientific journal that was referenced on Twitter.
- Many people in the conversation watched how many followers a person or company has and look at the trend analysis—are they getting more or less followers. However be careful of sponsored sites (i.e. sponsored sites usually get revenue if you “follow” them or visit their site), they are not as useful and their trend analysis is less meaningful.
- One person thought that it was interesting that more sell-side analysts follow Twitter closely, but often are not followed as much for their opinions themselves.
- Regulatory issues with Twitter and others?
- Legally one can talk about general investing issues but not anything specific, like opinions on companies—especially on the sell side. Investment managers need to be very careful to avoid advertising issues with their firms.
- One could be tempted to use a pseudonym, but firms do check cell phones, computers, etc. Investment managers should assume that all correspondence and communication can be monitored by their compliance department or securities regulators.
- Can people tweet about their participation as a patient in a clinical trial? This concept is being discussed legally. The concern being that a sponsor of a clinical trial would not want participants leaking information about the trial before the sponsor could publish or announce the results to the entire market or scientific community. Leaks of results could create insider trading issues.
- The key is knowing if the person is being paid for this information or not
- Social sites might be difficulty to regulate in practice.
- Higher level executives usually know when they are in possession of material nonpublic information and know not to tip such information to parties who might trade or tip such information to others who might trade or engage in social media or chatroom commentary. Lower level employees of organizations might not know that they possess material nonpublic information and might not know that they have a duty not to disclose company information on social media sites. .
- One person said there are some that use Twitter as a weapon against companies but many thought that at times it is easy to determine where those tweets are coming from, decreasing their impact.
- There are even social network sites that have aggregated company estimates from users, such as estimize.com.
- Someone mentioned that Twitter and other sites would be better for option investors as these sites do a good job in assessing volatility, which could translate into assessing option volatility.
Here’s a list of people and organizations that some follow on Twitter:
Stocktwits, Zerohedge, SeekingAlpha, NotableCalls, and here’s a good site listing interesting Twitter feeds.