Social Media for Investors
Technology is advancing rapidly and branching into multiple areas. One area we can see this is social media, which has gone from a means of communication to the most effective news outlet in the world and now, a powerful tool for investors.
Those of you who invest and don’t pay attention to this trend are risking your portfolio’s performance and putting yourself at a disadvantage to all the investors who are paying attention (And there are many!).
While technology is more powerful than it was 20 years ago, that isn’t to say that investors weren’t using it then either. In fact, we can trace the first use cases of investors harnessing the power of social media with the original social media: The humble message boards.
During the mass-adoption of personal computers and the internet, many forums and message boards began to develop around select niches, where suddenly a person could communicate with someone on the other side of the planet about a shared interest.
Many of these message boards were simple and archaic compared to today’s Twitter and Facebook, you would be lucky to be able to post an image, let alone a gif.
One of these niches that took shape was investing. Suddenly people from all around the world were converging on a few sites to discuss stock ideas, fundamental analysis, and general views on the markets. Many investors who would go on to have illustrious careers got started here, such as Michael J. Burry of ‘The Big Short’ fame.
Then came the tech bubble, which shot the forum’s popularity into the stratosphere. Towards the end of the 90s, new tech stocks were popping up every day and an entire class of casual traders emerged to trade them. Many forums were created just for this, with the names being mentioned seeing their prices skyrocket as over-leveraged daytraders piled into their small stocks.
Unfortunately, we all know how the tech bubble ended, and many of the daytraders who believed to have found a secret formula, saw their fortunes go up in smoke overnight. This painful experience highlighted the pitfalls of social media investing – novice investors pouring money they don’t have into stocks they don’t understand. But it also highlighted just how powerful this tool could be. Many of the smaller stocks saw their share price double overnight thanks to viral posts on these boards.
As tech has advanced, so has the uses and offerings open to investors. The humble message board has morphed into a few very large and popular sites similar to Seeking Alpha. These are populated by a mix of posters from your everyday “average” investors to hedge fund managers, who open up their investment thesis’ up to public scrutiny.
Utilizing social media, some investors have created artificial intelligence algorithms that scrape the internet for mentions of a specific stock on famous social media sites like Facebook and Twitter in order to measure interest in the business. Another program scans a list of Google Trend search results related to a specific company to gauge how much popularity a business is garnering, and if there is a longer-term trend emerging.
Others have looked to advance the social media idea with the interactive capabilities granted by modern technology. While I mentioned that the message boards of the 90s could be dangerous, these social-trading platforms reviewed by Doughroller allow you to follow the portfolios of others live in real-time, with the option to buy those stocks in-app if you choose.
With the best social trading platforms, new investors can follow along in a way that is easier than ever. They can closely examine fellow investors and emulate an investing style suitable to their own affinity for risk. Add in a fun competitive element in which users can compete with friends, and you have a powerful tool for idea generation and improvement in investing ability.
These tools are only going to become more common and more powerful in future. With large brokers in a race to copy the features for their own platforms, it has become clear that social media for investors is here to stay.