Leveraging social media to gain an investment edge
Social media is swiftly becoming an essential tool for investors. Carrying some of the fastest news and wisest opinions, it’s widely used by savvy investors. But as with all information on social media, you need to avoid becoming overwhelmed by information and careful how you use it.
In 1815, so popular legend has it, one of Europe’s premier banking families made a fortune by using its network of carrier pigeons to get early information about the outcome of the Battle of Waterloo. Learning in advance of the British victory, they traded heavily and made a substantial profit.
Fast forward 200 years and social media channels such as Twitter, LinkedIn and Facebook have outpaced the carrier pigeon as the fastest purveyors of information. Since the US Securities and Exchange Commission allowed companies to report price sensitive information on social media in 2013, they have blossomed as sources of financial intelligence.
In investing, information is vital. It makes for better buying and selling decisions. This truism applies whether you are an expert trader seeking to gain an edge on the rest of the market, or a private professional investor wanting to follow the views of leading experts on a stock, bond, commodity or currency.
Both the beauty and the difficulty of social media is its random unstructured nature. It’s a vast, living information source that often has more up-to-date news and keener insights than anywhere else. But finding the information you want, and sorting what’s valuable from unreliable gossip, is a difficult task.
Valued by the savviest investors
The potential of social media has not been lost on the world’s savviest investors, although its use is still in its infancy. In interviews with 250 institutional investors in 2015, the US research firm Greenwich Associates found that four out of five frequently use social media platforms as part of their work.
Most of the major channels – including LinkedIn, Twitter and YouTube – are rich sources of information. The information they carry ranges from company news announcements, to blogs by insightful experts, opinion forums and news about specific stocks.
Access expert opinions
For example, with just over 41 000 followers, Julius Baer’s LinkedIn channel broadcasts regular views from our experts on topics that have recently ranged from Chinese equities, to the global economy and the Turkish lira. If you are interested in specific asset classes, some leading asset managers write blogs on dedicated web sites, updating them several times a week with their insights.
On Twitter, you can follow the daily views of famous economists or financial news columnists as they tweet their opinions. For example, Robert Shiller, the Yale University economist and 2013 Nobel Laureate, broadcasts his views most weeks to over 133 000 followers. But Twitter can become overwhelming, so crowdsourcing can help by showing you what other investors are finding useful. For example, StockTwits is a US investment crowdfunding site that can be followed on Instagram.
Follow your favourite stocks
When it comes to following individual stocks, you can follow their fortunes on a variety of social media platforms, sourcing both official news and the comments of platform users. For example, #appleshares gives you regular tweets about the tech giant’s progress. Turning to other platforms, a search for ‘investing in Alibaba’ on YouTube turns up a range of videos with insights about the giant Chinese ecommerce platform, ranked by views that might number from a few hundred to over 5 000.
Three things to consider
All of this said, social media is a self-policing space and so you would be wise to judge their trustworthiness with care, following the following three guidelines:
- Opinions from big companies such as large asset management companies will be subject to rigorous quality control and scrupulously objective.
- Similarly, you should be able to trust the views and information from well-known people or news outlets.
- However, just as non-financial information on the internet should be treated with care, the same is true of financial information. Some of the opinions carried may be gossipy and ill-informed, while the motives of some lesser known pundits might be unclear.
Social media is fast becoming a valuable information source for investors. Often it may be first to deliver breaking financial news and give first-rate access to some of the investing world’s brightest minds. You need to have your wits about you due to the unregulated nature of the forum, but you can be sure that the savviest investors of our age are making intelligent use of these networks to gain an invaluable investment edge.