One need not look far for the influence of social media these days. The value of the primary social networking companies these days (Facebook, Twitter) seems to climb ever higher. Fortunately for investor these are real businesses with real profits. More so it highlights the belief that these companies will be central to the way we communicate now and in the future.
However useful those main social media sites are they are not particularly accomplished in helping users find relevant and personalized. Mahendra Palsue writing at TechCrunch highlights the evolution of this space over time and how companies are trying to highlight more relevant content for users. Palsue writes:
Social media may lose its obsession with follower numbers and traffic, evolving to context-driven reputation systems and algorithms.
What is clear from this is that we are also entering an age of more specialized social networking. One area in which this is particularly relevant is in investing. In addition to StockTwits there are other sites like SumZero, the Distressed Debt Investors Club and the Value Investors Club that specifically appeal to professional, fundamental investors.*
A recent paper by Gray and Kern entitled “Talking Your Book: Social Networks and Price Discovery“** takes a closer look at the Value Investing Club. They find that the recommendations at that site tend to outperform the market over a twenty-day window. In addition they note why it is that investors are interested in “talking their book” in this sort of setting. In this sort of setting all the parties involved tend to benefit.
The broader point is that we have always sought out other people and information that is relevant to each of us. In a financial world these connections can have a real impact on one’s profits. These connections are all the more important as the hierarchical nature of pre-Internet information flows has given way to far more chaotic patterns. Given the power of connection we should expect to see this space grow and rapidly evolve as individuals realize the potential that these network effects can have on their own profits (and losses).
The bottom line is that people want to connect with other people and with information they seek. In that light we are likely in the early stages of the social media revolution. However the precise form that social media takes is less relevant than the connections it generates. Om Malik writing at GigaOM probably says it best:
(T)he medium — a blog, Twitter, the Kindle, even the Internet itself — isn’t the important thing. It’s just a way of connecting people with things that matter to them, and with other people who matter to them. That is the real power, regardless of the medium.
Recent insider trading charges show the downside of connecting individuals with information. In the age of social media these connections are open and public. In that respect they offer the opportunity for a more level playing field for all market participants.
*We are likely missing some others, please leave a comment with any other sites you have come across.
**Hat tip: CXO Advisory Group