How Twitter is becoming your first source of investment news
By Barry Ritholtz,
Washington Post April 21 2013

 

On Monday afternoon at 2:56 p.m., three hours after the fastest runner of the Boston Marathon crossed the finish line, my Twitter feed lit up. Someone in the office yelled “Two explosions at the Boston Marathon, may be terrorism.” Within seconds, there were first hand reports, photos and even video circulating.

Not on CNN or Reuters or the Associated Press. On Twitter.

There was no other news reports for what seemed like a very long time. Nothing on Google News. Nothing else on the Web. It felt like a full 15 minutes before CNN reported it on cable (NPR seemed to have some early radio coverage). But in the 10 minutes after, Twitter had the only firsthand accounts of the tragedy in real time.

A quick intro: Twitter is a social-networking site where users share short texts limited to 140 characters (the cell phone text limit in the pre-smartphone days). There are now more than 200 million active users who crank out 400 million Tweets a day.

Twitter has become the “new” news wires. It has supplanted AP, Dow Jones and Bloomberg for breaking news. Even the Boston police confirmed “at least 22 injured, two dead” — by Tweeting it at 4:05 p.m.

This “Twitter Effect” is now common. Seal Team Six killing Osama bin Laden broke on Twitter. The uprisings of the Arab Spring were first covered via Twitter. So, too, was the death of former British prime minister Margaret Thatcher.

More and more, it seems that the first word we get about major events comes from the microblogging service.

Consider last week’s story of economics professors Ken Rogoff and Carmen Reinhart. Their studies were the basis of much of the austerity movement in Europe and the United States, based on their claim that debt-to-GDP ratios over 90 percent are linked to much slower economic growth. But an academic study by Thomas Herndon, Michael Ash and Robert Pollin of the University of Massachusetts debunked it — turns out the profs had it backward, and that slower growth leads to more debt. A blog post by Mike Konzcal explaining the significance of this spread, through economists, then to the Wall Street strategist community, all via Twitter.

Are you sensing a pattern here? Getting more and more of our news from the social network is having significant repercussions for markets — and your money.

These sorts of obscure and wonky analyses never used to see the light of the day outside of academia. Today, however, Twitter has created interconnected communities of professionals that encourage these memes to spread fast and wide.

In less than seven years, Twitter has gone mainstream. Companies such as StockTwits have built entire networks on he Twitter platform, populated with several hundred thousand traders. (Disclosure: I am a venture investor in StockTwits.) Even the Bloomberg data service now has curated Twitter feeds on its terminals.

Twitter has become a powerful tool for traders, investors and journalists. Academia has noticed. Sandy Pentland and Yaniv Altshuler of the MIT media lab in Boston are trying to determine how investors are using Twitter to gain an edge in the markets. Traders are incorporating social media into their information consumption, and it is tremendously useful to them.

My thinking has evolved since I wondered in 2009 whether 140 characters might be replaced by even shorter communication services such as Grunter or Grimacer. Fast forward to this time last year, when I was suggesting Apple buy Twitter. That large shift in thinking came about because of how useful Twitter has become to me as an investor.

To put this into context, think back to the 1990s. It seems like a million years ago when people worked on huge trading floors with hundreds of colleagues — analysts, traders, salespeople. That camaraderie allowed for a flow of ideas among various employees. In techland, Steve Jobs even had the new Apple headquarters designed to encourage more accidental meetings among employees to encourage idea exchanges.

But Wall Street has downsized. Giant trading floors are now much smaller; exchange floors are smaller or closed. The professional interaction that was once the hallmark of finance seems to exist less these days as fewer people work on or for the big Wall Street firms.

Into this finance void came social media. It is much more than reconnecting with your long-lost bunkmates from summer sleep-away camp. Social media has allowed all sorts of like-minded people to find each other digitally.

One key factor is that Twitter is a meritocracy. In social media, people cannot build big followings organically unless what they are putting out to the world has value. The more valuable it is over time, the more followers you get. Twitter has become a group conversation of that type that used to take place on trading floors.

Who are you talking to all day? With Twitter, you can build your own virtual trading floor and research department, populated by the smartest people on earth. Almost any subject or sector has you can think of, you can find a few people with an expertise in that area. When Europe is blowing up, you probably cannot read all of the foreign language newspapers — but you can find and follow reporters who cover Cyprus or Greece locally.

Investment banks find they have become outgunned by dynamic, self-forming expert networks on Twitter. All transparent, in public, in real time.

Consider that there are always going to be more smart people outside of your firm than inside. It has to be that way mathematically — whether you are Google or Goldman Sachs, the outside world can create a team that is equal or superior to the best team at any firm.

You can take advantage of this by following the smart, informed experts on Twitter. Create your own research group — whether its in energy research, bio technology, macro economics, or even Cyprus banking. I like to use Twitter’s search function to find people who have an expertise in these areas. It is an instant braintrust of global experts, highly ranked by their peers and Tweeps (Twitter followers).

Reporters have figured this out. They mine Twitter for sources, trends, ideas, information.

In fact, people who are active on Twitter can tell you what is going to be on the evening news before anyone else knows it. My colleague Josh Brown was named by Time magazine as one of the 140 Best Twitter Feeds of 2013. He phrased it thusly: “The evening news has become men in suits and women in pearls reading Twitter to your grandparents. Twitter is faster than print media, more in depth than television, and compared to the traditional newswire, its real time reaction to events news and headlines.”

As always, a few caveats are in order. Simon Ricketts of the Guardian has noted that “Twitter does its best work in the first five minutes after a disaster, and its worst in the twelve hours after that.” (@rolldiggity). Misinformation and error are not uncommon, especially in crisis situations.

Even the Securities and Exchange Commission has recognized the value of social media. It has been okayed for public shareholder announcements. StockTwits.com now releases quarterly earnings reports for many publicly traded companies directly to the followers of the stock tickers.

Twitter has gone mainstream. News and trading may never be the same.

~~~

Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture. On Twitter: @Ritholtz.

Category: Financial Press, Technology, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Twitter: Your First Source of Investment News”

  1. The hacked AP Twitter account is a perfect example of what you SHOULD NOT use Twitter for — instant trading. (For most people, that is a mugs game)

    I use it to find what experts and other intelligent people think is important relative to a broad topic.

  2. theexpertisin says:

    The observation that the best information gathered from Twitter comes five minutes after a disaster and the worst a few hours later is spot on.

  3. BR,

    good on you, for making a simple, clear delineation of your Thesis.

    http://incakolanews.blogspot.com/2013/04/barack-obama-associated-press-twitter.html
    “…….errrr…well…….ok…perhaps….Twitter isn’t the best place to get your fast breaking information after all, Mr Ritholtz?…”

    above, one can see that, even, the further reaches, of the i-net, took ‘notice’..

    too, bad that Rogoff & Reinhart hadn’t learned to be as upstanding..

    http://www.bloomberg.com/news/2013-04-17/reinhart-rogoff-on-debt-and-growth-fake-but-accurate-.html

    as an aside, R&R, now, firmly associated with “Hadley CRU”..
    http://www.google.com/webhp?hl=en&tab=ww#q=Rogoff+Reinhart+Hadley+CRU&hl=en&ei=Oyl8UfK4E8-G0QHE4oHgCg&start=10&sa=N&bav=on.2,or.r_qf.&bvm=bv.45645796,d.dmQ&fp=7bfa033871245053&biw=1024&bih=638

    • I was referencing investing not intra-day-trading

      I also included this:

      As always, a few caveats are in order. Simon Ricketts of the Guardian has noted that “Twitter does its best work in the first five minutes after a disaster, and its worst in the twelve hours after that.” (@rolldiggity). Misinformation and error are not uncommon, especially in crisis situations.

      • TARBIOTECH says:

        Barry,

        I have not been on twitter very long, but I think twitter is the most influential tool to biotech investing ever. I have basically assembled a “research team” of over 250 biotech traders/ analysts for free. This is a game changer. With the volume and speed of medical information moving at such a high rate, it can be overwhelming. My “team” disseminates it faster than ever…….without compensation. The only attribute that you must have is a good filter to separate
        noise from pertinent information…from my experience with biotech, the days of a highly paid bio/pharm analyst working for a large institution will be coming to an end.

  4. V says:

    Still need to be aware of the self-selecting nature of Twitter. ie. media reports “users on twitter are saying x”.
    It is not necessarily a beacon of mainstream opinion on a matter, and thus still vulnerable to groupthink around base assumptions.

  5. Simon says:

    This post reminds me of something I wrote in the comments here maybe two to three years ago. Inspired I think by the idea of stocktwits…I’m not a member but I used to follow Brian Shannon’s youtube video posts. Actually that was how I found this website and began my foray into the world of finance, from about the middle of 2007…seems like a lifetime ago. This is a hopelessly convoluted unsupported way of saying I told you so I must be cleverer than you are so I’ll stop right there.

  6. nav says:

    The timing of the article and the subsequent AP tweet flash crash couldn’t have been more fortuitous. That said kudos to the prescient analysis.

    Agree with the rapid decay of information quality/interest on Twitter after it peaks.

    I do have some reservations on the effectiveness/usability of the twitter search as well as the twitter meritocracy – Barack Obama is the only non-entertainment entity on the top 10 most followed list (the rest are youtube and 8 artists)

    Maybe its just me however when looking at short term stocks earnings/data/technical analysis etc. I have actually been using Stocktwits (a lot more than even twitter) – so I think Stocktwits definitely has carved itself a place in the “real time news” market especially focused on the markets.