This is part 1 of a 2-part blog series on the imminent future of stock market investing and the way socially active investors and traders can make the most of it
Def: Stockal Media = (Stock Market + Social) Media
We define “Social”, here, as a combination of popular platforms like Twitter, StockTwits, eToro, Facebook, discussion forums like SeekingAlpha, commenting platforms like Disqus and LiveFyre, and blogging platforms like Tumblr, WordPress and Blogger. Over the past 2 years it’s has been proven, with a fair degree of certainty, that things (news, opinions etc.) reported on social media impact stock prices. The crucial thing here, as a trader, is to be able to spot whenever such information emerges.
In order to understand this better, let’s look at a few factors which tend to impact stock prices and see how information for each can be discovered on social media.
Index movement: Movement of any stock index is a representation of the movement of the underlying stocks. So if you hear enough times, from enough or highly credible social sources that the index is likely go up (or down) – making the sentiment bullish, assume that the stocks that make up the index, and similar stocks, by extension, are equally likely to move up (or down) as well. In order for you to discover such info, you need to be following credible social media handles, forum threads and blogs that talk about the index.
Company’s Financial Health: Most seasoned investors, before making a decision to buy a stock, look at the financial health of the company the stock represents. Did the last earnings call set a positive mood? Does the sales pipeline or potential customer acquisition look strong? Has the company been able to pay regular dividends? OR Is a successful CEO going to move out? Is a potential law suit brewing against the company? Is it in discussions to make a large acquisition? These are just some of the questions you need answers to – constantly.
So, how do you track? Well, determine who the key executives of the company are and follow their social handles. See if someone hints at a new customer meeting. Track what the investor relations team of the company is telling traders on platforms like Linkedin or StockTwits. Track the customer sentiment and chatter for the company’s products by looking at Twitter interactions between customers and the company’s social media support handles. Track what the company’s representatives in technology or industry events are saying.
Industry Outlook: A company’s stock price may go up or down depending on whether investors and analysts think its industry is expanding or contracting. So if a company’s financial health is fine but the industry is not growing then there’s reason to believe that the company may not be able to sustain its growth. This is likely to lead to a fall in stock price over a medium-term period.
So how do you know which way an industry is headed? Best is follow industry analysts, wherever their social presence. You are most likely to find them on SeekingAlpha and Twitter. But interestingly, a number of them blog quite heavily – such folks may not be accredited analysts from large organizations, but they have a history of making correct estimates when it comes to industry performances. These can be discovered through blogging platforms, comment threads and discussion forums. It’s almost certain that they have a reasonable Twitter presence as well.