When it comes to the world of finance, timing is absolutely critical. Making effective investments involves staying a step ahead of the competition and the rest of the market.
Historically, investors made their decisions based on trade publications, tip offs from contacts and more traditional media. However, in the digital age, these are becoming redundant due to the rise of social media, and investors can now obtain information more quickly, easily and efficiently than ever before.
Twitter, for example, has overtaken both traditional and online press to become the most up-to-date news source on the planet, with a plethora of massive, worldwide stories breaking on the platform before any other media source.
In an industry where even the slightest delay can cost millions of dollars, this level of immediacy is crucial.
With this in mind, there are three main ways investors can utilise social media:
- Predicting future market movements
- Gauging public sentiment
- Connecting to obtain further industry insight
Predicting future market movements
Firstly, social media is a fantastic tool for predicting financial movements before the rest of the market. When obtaining breaking news and observing developing trends ahead of the competition is so critically important, social media offers investors a significant advantage.
The reason for this is the insight into trending stories that social media provides. Twitter is one of the best tools in the world for spotting upcoming developments, with a constantly updating Worldwide Trends tab on the homepage and multiple accounts about trending topics set up.
These tools allow shrewd investors to predict changes in their markets and invest appropriately to ensure they benefit. One of the best case studies of this involves Lions Gate, the film studio behind the worldwide Hunger Games franchise.
Before the release of the first movie, several investors noticed that there was a massive increase in interest in Hunger Games relevant hashtags. Seeing the potential of a Harry Potter-esque phenomenon, these investors bought stocks in Lions Gate, which were trading on the NYSE at the time at 14.53.
Now, with the fourth film in the wildly successful series imminent, Lions Gate shares are at 38.12, representing a 162% increase since the first movie’s release in March 2012. The franchise is now one of the top twenty highest grossing in the history of cinema, which is something these investors forecast and profited from, solely as a result of social media.
Gauging public sentiment
Public sentiment is a crucial factor for investors to consider; if there is excitement, anger or even apathy about an upcoming event that will affect share prices, they need to know about it.
Tammy Poon, from financial services provider Spread Co, says, “Those in the industry should pay close attention to how a story is perceived – has it got shares or favourites?” These additional social metrics can provide insight into how markets will develop.
In fact, according to research from Arthur O’Connor, a post-doctoral student from Pace University, almost 100% of share price changes can be explained by social media sentiment. He examined share prices of top brands over ten months, then cross-referenced them with their number of Facebook Likes, Twitter followers and YouTube views across that time period.
What O’Connor found was that 99.95% of positive or negative stock movements were an accurate reflection of positive or negative changes in these social measurements.
He says, “Brand following as expressed by fan counts on social media networks might serve as predictor of increased revenues, earnings and (thus) stock prices of brand companies. The results [of the research] offer considerable significance in the fundamental analysis and forecasting of brand companies and their stock prices.”
Data Sift carried out similar research looking into public sentiment at a more granular level, this time focusing specifically on the Facebook IPO.
They looked into how public sentiment, either positive or negative, on Twitter affected the initial Facebook stock price. Data Sift found that there was between a four and twenty-five minute delay, followed by a change in stock price that was very much in line with any major shifts in sentiment.
Both of these experiments show that public sentiment displayed on social media platforms is an extremely important factor for determining stock market prices. This is quantifiable proof of the importance of using social media in the finance world; those investors who choose to continue to shun it are now putting themselves at a severe disadvantage.
Connecting to obtain further industry insight
One of the oldest and most relied-upon techniques for stock market success is building a diverse and robust network of contacts. Connecting with influential and knowledgeable people in various industries gives investors an enormous head start and this is really where social media comes into its element.
Platforms like LinkedIn and Google+ allow professionals to connect and network in a way that is faster and more efficient than ever before in business. In fact, LinkedIn has proved itself so useful in this field that 73% of investors now use it to broaden their networks and research future deals.
With the option to group connections with specific tags, LinkedIn affords fantastic opportunities to organize contacts. Zak Mir, editor at leading trading publication Spreadbet Magazine, says that if investors connect with “the right twenty to thirty people in the trading and financial markets area, then they should be fully informed in terms of what to think, what to trade, and when to trade it”.
In addition to connecting with industry big hitters to receive the most up-to-date insight and tips, LinkedIn is also a good tool for investors interested in particular markets. The best brands on the platform publish a stream of regular, high quality professional content, which can further increase awareness of future market movements.
Overall, social media has become an invaluable tool for investors. It has overtaken traditional media to become the most instantaneous news source on the planet, proved to be an accurate predictor of stock market movement, and evolved into the fastest and most efficient way to organise robust networks of influencers.
Put simply, it gives investors the edge and has made itself impossible to ignore.
from Darlene Milligan http://ift.tt/1Z4G914 via transformational marketing
from Tumblr http://ift.tt/1VArxY3
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