Social revolution for savvy investors

By David Coe, managing director of SocialisedInvestors.com

A quiet revolution is under way in global financial markets and savvy retail investors are taking advantage of it.

Unfortunately, if you are not a user of social media, the changes may be invisible. However, if you are, the changes are unmistakable.

Social media is transforming the way companies talk to shareholders – both potential and current – and this in turn is transforming the way investors research the market.

Companies are required by the ASX’s listing rules to announce price-sensitive information to the stock exchange but companies outside the ASX 200 generally see their announcements disappear into a black hole. Brokers and the media, who are interested mainly in members of the ASX 200, ignore announcements from the 1800 other listed companies.

Until recently, few retail holders knew in real time about price sensitive developments.

Companies are now using a variety of social media channels to talk direct to retail and professional investors, SMSFs, wealth advisers, brokers, analysts, fund managers, corporate executives, and even business journalists.

Three landmark developments triggered the change:

  • At the start of year, the ASX announced that companies must be aware of what is being said about them on social media and be able to respond where appropriate
  • In April, the US regulator, the Securities and Exchange Commission, gave its approval for US companies to make earnings announcements on social media
  • Two days later, Bloomberg began pumping Twitter through its machines to the desktops of brokers, analysts and professional investors around the world

With ASX companies using social media to amplify their exchange announcements, investors and their advisers are now being alerted in real time to information they can profit from.

And like professional investors, retail investors are receiving the information on their desktops.

To help them keep track of the information, they are turning to a number of dashboard-like programs such as Hoot Suite and Tweet Deck. These allow investors to monitor at a glance separate information streams from individual companies and commentators, and on their favourite topics.

If you want to follow just the silver price, the RBA, cricket and Rio Tinto, you can. The tools let you filter out the rest of Twitter’s 500 million tweets every day.

As the adoption of social media by both the buy and sell sides of the market gathers pace, research is showing how it is affecting share prices.

A study by Stanford University showed that when companies use social media, their announcements reach more people and that results in tighter spreads and greater market depth.

In the UK, 62% of brokers and heads of trading desks surveyed by Finextra say social media sentiment now influences share prices.

 

Follow David on Twitter @VisualScribe

Follow SocialisedInvestors.com on Twitter @socialised_team

 

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Precious Metals Investment Symposium