We are so completely enthralled by information that one could, without exaggeration, say we are addicted to it. The addiction develops under the influence of another neuromodulator, this one called dopamine. Produced by a a group of cells at the top of the brain stem, dopamine targets brain regions controlling rewards and movement. When we receive some valuable piece of information, or perform some act that promotes our health and survival, such as eating, drinking having sex or making large amounts of money, dopamine is released along with what are called the pleasure pathways of the brain, providing us with a rewarding, even euphoric, experience. – John Coates, The Hour Between Wolf and Dog: Risk Taking, Gut Feelings and the Biology of Boom and Bust, p. 147.
If we humans are addicted to information, what is Twitter? Twitter in this light is a the ultimate dopamine dispensary. Open your app, open a browser tab and soon we are flooded with information. One can argue what percentage of that information is novel or interesting but there it is nonetheless.
The blogosphere of late has been batting around the idea of how Twitter has changed the nature of information flows in the investment industry. The banking crisis in Cyprus in particular highlighted the 24/7 nature of Twitter in the face of breaking news. There is now little doubt that the sell-side is getting disrupted by this always-on resource.
Joe Weisenthal at Money Game writes:
This process has been happening for a long time, but for those in finance, the value of Twitter is increasingly equaling or surpassing the value of traditional sell-side research from Wall Street analysts.
Josh Brown at The Reformed Broker writes:
Wall Street’s product is becoming as quaint as the vinyl LP and every bit as modern. There are a handful of exceptions – some major firm strategists and analysts who are using social media to discuss their work and opinions – but again, these are the exceptions. The rest are living in this 1997 world of exclusivity (like it all doesn’t end up online anyway) and seventy-five layers of approval before an opinion can ever see the light of day.
Felix Salmon at Reuters recognizes the value of Twitter for investors:
More generally, if you’re an investor who wants to avoid being blindsided by something huge you were utterly unaware of, Twitter is a great tool for minimizing that risk. That’s thanks in large part to its short attention span: by its nature it flits randomly from topic to topic, making it a fantastically good serendipity engine, better than any other source at showing you stuff you didn’t know you wanted to know.
All of that being said there are some important caveats. The vast majority of investors would do well to keep in mind their time horizons, which are by and large, longer than the current news cycle. For them the never-ending stream of news, rumor and commentary can be a burden. Barry Ritholtz writing at The Washington Post writes:
Good investors must learn to contextualize the daily background noise. That is my phrase for the never-ending proliferation of economic news releases, media broadcasts, technical updates, and cable TV shows that are mostly meaningless time fillers. Television and radio have 24 hours a day to fill — does anyone believe that all of that content is meaningful? The Internet has an infinite number of pages to fill — guess how many are truly valuable?
Twitter is like anything else a tool, a tool that we need to use with care and caution. Investors therefore have to make an important calculation. To what degree are they willing to miss out on certain information in order to avoid the time and energy required to wade through the daily dross? Every investor has to answer this question for themselves, usually through some process of trial and error. What investors need to avoid are the high costs of becoming addicted those dopamine hits that come so easily on Twitter. In the end investing isn’t about the temporary euphoria of novel information but putting into practice a well thought out, long-term investing strategy. Something that rarely gets those dopamine receptors humming.
Items mentioned above:
Twitter just crushed Wall Street after the Cyprus bailout. (Money Game)
Twitter is disrupting sell-side research. (Money Game)
Death by Twitter. (The Reformed Broker)
Must investors be on Twitter? (Felix Salmon)
A crucial investing question: Do you know your time frame? (Washington Post)