Twitter and other social media sites clearly have exploded in popularity, being the preferred method of communication for teenagers–even more than talking or sudden random acts of incredible drama. However, are social media sites such as Twitter good for investment research?

Certainly many think so as there are many websites that are specifically geared to the investment community, such as stocktwits.com, tweettrader.net, and SeekingAlpha.com. Additionally investors have used Twitter, Facebook, and other mainstream social media sites for years now. These sites and others have become so ubiquitous that the SEC has OK’d the use of social media sites for disclosure under Reg FD, if companies meet certain guidelines. Often times these social sites get news disseminated faster than traditional news outlets, which add to their appeal. Social media sites are also a great repository for usually anecdotal data on companies, people, events, etc. Therefore mainstream media sources have taken note and incorporated sites such as Twitter into their news services. For instance, last year Bloomberg incorporated tweets into its terminals so investors could see if companies they are interested in are trending strongly on Twitter.

However, is this investable data or just more noise? There are firms that have developed computer algorithms to track social media sites in order to help make investment decisions in real time. Not all have been successful, however.

The bigger question, in my opinion, is how should investors use the unstructured data these sites produce? There are a lot of impactful insights one can glean off of sites like Twitter, but do most investors have the time to peruse yards of data or have the millions of dollars likely needed to develop effective artificial intelligence algorithms? Probably not. Are Twitter and other social media sites something investors should totally ignore? Probably not, and sites like this are not exactly new to investing. Back in the day when people actually wore “The Rachel” haircut in force me and countless others would peruse stock chat boards, such as Yahoo’s, for data nuggets. Was this the primary basis of any of my investment decisions? No, but it did occasionally make me think of a stock differently than I otherwise would have and I continue to use sites like this as part of the due diligence process. This is especially true with small cap companies that have a limited amount of tweets and other data one has to wade through.

If you want to tell us your opinion live, join us at the CFA “Monthly Social with a Twist” this Thursday April 17 where we will be discussing social media and investing in an informal atmosphere. Click on this link for more information if you are interested in joining us.