Get an investing edge with social networks
Social media is all the rage. From Facebook to Twitter we're seemingly all at it. Fortunes are being made for those investors prescient enough to have got in on the ground floor of fast-growing social networking companies or to have spotted the minnows such as Instagram, the photo-sharing mobile app recently picked up by Facebook for $1 billion (£615 million).
Getting close to venture capitalist outfits in California's Silicon Valley would be a smart move, but is not available to everyone.
However, can the 'wisdom of crowds' - as James Surowiecki argues in his influential book The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations - be harnessed beneficially by investors through using the tools of the new breed of social media companies?
The oft-quoted Warren Buffett once commented that the clever person was not the one who predicted rain but rather the one that built the ark.
Today the ability to intelligently mine the huge amounts of data being generated by individuals and organisations offers up the possibility of predicting those prescient trends, providing an investor with a competitive edge.
How plausible that might be is debatable but there is no doubt that the internet, and social media specifically, has brought real-time financial news and information within easy grasp of private investors.
In social media, Facebook aside, they don't come much bigger than the micro-blogging phenomenon that is Twitter (www.twitter.com) and it should be an investor's first port of call in this brave new socially-networked world.
On Twitter you post messages - or tweets - up to a maximum of 140 characters long on anything that takes your fancy, including links to articles and pictures or retweeting the posts of others.
Many companies now have accounts they use to communicate with their customers, but increasingly also with investors. Traders too are taking to the platform in their thousands.
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For investors Twitter really comes into its own as a place where you can discover news and information in real-time about a company that interests you, and discover what other investors are saying about it as well as sharing your own thoughts.
Keep ahead of the game
To search for a company, put a hashtag (#) before the company name and every tweet mentioning your search will be listed in the 'stream' of posts that appears. Alternatively, if you wish to find, for instance, BP's account on Twitter or to send a tweet direct to BP use the @ prefix sign.
I searched #BP on 20 April, and found tweets complaining about the price of petrol at the pump, others on the company facing a court case over oil spills in Russia and many more highlighting the deformities afflicting sea life in the Gulf of Mexico and blaming it on the Deepwater Horizon disaster of 2010.
I didn't see anything about BP's share price, although it was probably there somewhere, but how many hundreds of tweets would I need to trawl through before I found one?
Thankfully, Twitter has provided a way for investors to usefully refine their searches. If you put a dollar or 'cash' ($) symbol in front of BP you will find a mass of financial comment and news relating to it.
I discover that a US judge is pondering BP's oil spill settlement with Gulf residents, that share-trading volumes are down 5%, and that the 10-day moving average for the share price is also shifting lower.
Now, taken as a whole, I had something to work with. The judge's preliminary approval of BP's $7.8 billion settlement had previously been considered a formality but would the tumours growing on shrimp throw a spanner in the works?
Angus Campbell, head of market analysis at Capital Spreads, thinks the speed at which stories spread on Twitter has proven the micro-blogging platform's worth to investors: "Twitter is now playing an important role in trading, as it is a quicker medium of communicating than blogs and emails."
The rise of StockTwits
However, there is clearly a problem with relying on Twitter alone for your information: the two Cs of curation and credibility. Wouldn't it be useful if there were a service that brought some order to all these tweets?
This is where the fast-expanding service StockTwits (stocktwits.com) is making its name. Built on Twitter, it aggregates and sorts all those $ tweets so, for example, on its homepage you are presented with the 'trending' tickers of what's hot in the market in real-time, admittedly from a US perspective.
This time when you search for BP you get a similar stream to the one on Twitter but with differences. A gold star appears on tweets from StockTwits users that have been 'suggested' by the service's curation team as being useful to the community.
On the same page as the tweet stream are the share price, a 'follow' button, related tickers (other oil companies in this case), top headlines, and charts posted by StockTwits users.
To help users home in on what interests them and to contribute more easily to a focused conversation, StockTwits has a feature called, wait for it, conversations. Clicking on a little bubble in the corner of the post brings up the users' conversation thread.
StockTwits began in 2008 as the idea of founder and chief executive Howard Lindzon, and he hired ex-Twitter employee and engineer Soren MacBeth, the creator of the cash tag to build it.
Paul Pearlman, the site's executive editor, says they noticed there were "20 to 30 smart people talking stocks on Twitter", as Pearlman puts it, and after running streams through Tumblr, one of the first sharing sites, they knew they were on to something.
Today StockTwits has 150,000 users and up to a third don't have Twitter accounts, meaning a large number are using it primarily as an information service.
Many post comments to StockTwits first and then send that to Twitter. Pearlman is especially proud of the charting: 'Anyone can upload a chart. Because technical analysis is about pattern recognition it means you can learn from experts just by looking at charts over and over again.
"Also, all the streams on StockTwits are moderated. We filter the information for you,' he continues, 'so people can't just come along and pump and spam stocks."
Pearlman describes the way StockTwits works as a natural meritocracy where traders and private investors 'pick up followers because they're good'.
From the telegraph to the telephone, investors have always been rapid adopters of technologies that help to make the market as near 'perfect' as possible. Social media is close to making perfect market information - equal and rapid transmission of data to all market participants - a reality.
This article was written for our sister website Money Observer