Investing gets a lot more social

In the US, companies can use social media to announce key information … and it will likely happen here.

Summary: Facebook and Twitter have revolutionised social media. Now, the US Securities and Exchange Commission has deemed companies can announce key information over these and other platforms. Suddenly, business has become a lot more social.
Key take-out: Australian listed companies could soon have new channels to make their official announcements.
Key beneficiaries: General investors. Category: Markets.

Status updates and hashtags might not seem like the stuff of serious investment, but developments in the United States suggest Australian punters shouldn’t ignore the growing influence of market-focussed social media.

Last week the US Securities and Exchange Commission ruled that companies may use Facebook and other unconventional outlets to announce key information, so long as they first tell shareholders where to look. The change follows an investigation into a Facebook post by Netflix chief Reed Hastings, which revealed monthly viewing figures that weren’t available through official disclosure channels.

While the backdown suggests the market regulator is becoming more comfortable with social media, it’s also part of a broader acceptance by investors large and small. And Facebook isn’t the only site in their sights.

Forbes recently highlighted some creative new ways top-tier hedge funds mine the internet for potential material information: the jobs section of a company website might offer a glimpse at its growth roadmap, or an executive updating his or her LinkedIn profile could be a sign they are looking for jobs elsewhere. Many large investment firms will comb the web all day long in search of a possible informational advantage.

For others, though, Twitter has emerged as a treasure trove of free, up-to-date investment insights.

Societe Generale’s head currency strategist Kit Juckes — an avid twitterer — says the microblogging site is enthusiastically filling a gap left by clunky investment banks, which face strict standards and rules when it comes to releasing research. The surprise bailout of Cyprus last month, news of which broke on a Saturday morning, is a prime example.

“A traditional research note on the impact of events in Cyprus this weekend can’t clear compliance much before 9am on Monday morning, too late for markets in search of instant gratification,” Juckes recently wrote, appropriately, on his blog.

He says his clients don’t always want carefully vetted “buy” and “sell” recommendations; they want to know what is happening and what it means — and quickly.  “Whether you are a trader, a salesperson, a fund manager, a Master of the Universe, to indeed an interested by-stander, what you want is information, opinion and debate and Twitter gives it to you.”

The big investment houses, many of which originally banned social media from their computers entirely, are starting to take notice. Last year, Ted Tobiason, Deutsche Bank’s head of equity capital markets for the technology industry, became the first investment banker authorised by the German firm to have a business-related Twitter account. Morgan Stanley now also allows its 17,000 financial advisors to tweet pre-approved messages, and Goldman Sachs received a lot of attention when it advertised for its first “social media community manager” last May.

Closer to home, Australia’s big four banks all have a presence on Twitter, Facebook and more — although the content is largely promotional. Even the usually conservative Reserve Bank regularly tweets links to speeches, chart packs and interest rate announcements.

It’s undeniable that there are benefits to harnessing many of these new information feeds: services are updated in real-time; they grant you unprecedented access to experts on the ground around the world; and they’re largely unrestricted and unbeholden to some of the big bank biases exposed during the global financial crisis. As the investment landscape changes, there’s a growing argument that participants must connect or risk falling behind.

However, services like Twitter are still quite a way from being a necessity for all investors. As influential Reuters blogger Felix Salmon points out, there is still the question of what to do with all this new information. “Some people love it, and get value out of it, and become better investors through it,” he says. “For others it’s a noisy distraction in a world where there’s never enough time to think deeply about complex issues.”

Salmon argues Twitter’s celebrated speeds can also be curse, increasing the pressure to trade quickly. “What’s happening in Cyprus might be very important when it comes to making investment decisions, but that doesn’t mean those decisions need to be made right now.”

One way US investors are filtering out some of the noise is by turning to specialist services like StockTwits. The free website, which is yet to include ASX-listed equities, allows investors, analysts and companies to share ideas, stock tips, news and charts in 140-character bursts that can be aggregated by ticker or contributor (the most followed users include CNBC’s Jim Cramer and legendary hedge fund manager Doug Kass). Think Twitter for traders, and expect something similar on Australia’s shores in the future.

If the US experience is any guide — and when it comes to investing, it generally is — these types of services are set to play a much larger role in the markets of tomorrow. It can’t hurt to get acquainted today.

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