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How to Invest Better By Using Social Media

Advice from the author of 'Social Media Strategies for Investing'


If you’re not using Twitter, LinkedIn and other social media when you invest, you’re making a mistake that could deprive you of potential profits. And older investors are the ones missing out the most.
 
That’s the view of financial analyst Brian D. Egger, author of the new book, Social Media Strategies for Investing: How Twitter and Crowdsourcing Tools Can You Make You a Smarter Investor and founder of BreakingCall.com.
 
“One of the initial inspirations for writing the book was the big demographic disconnect I observed,” Egger told me. “Seventy five percent of stocks and bonds are held by households over 40. Yet these people have a lot less utilization of social media than younger people. The older you get, the lower the level of usage of social media channels, particularly Twitter.”

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Why does that matter? “It’s a problem,” says Egger, “because companies announce developments on Twitter and the people with the most at stake financially aren’t listening.”
 
I asked Egger for his advice on how and why investors should use social media. Highlights from our conversation:
 
Next Avenue: Why should investors use social media?
 
Egger: One big catalyst is that in 2013, the SEC [Securities and Exchange Commission] began allowing companies to use Facebook and Twitter to communicate information with investors. And they have been using social media as a way of releasing earnings information and significant corporate news.

Why else should investors use social media?
 
Financial bloggers and analysts use Twitter to let people know what they’re thinking about stocks and news events. And there are cases where news breaks first for investors on social media. So social media can be a way of becoming aware of what’s happening in real time or before the news becomes stale.

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Is that really necessary for people who aren’t professional investors?
 
Yes. You want to monitor the stocks and industries you have exposure to in your portfolio. Social media is an important way to get this information, whether you’re following columnists or opinion leaders who use social media to get their opinions out or you want to share ideas.
 
It’s another tool in your toolbox. If you’re making a decision about investing, it might not hurt to do a search on Twitter or another social media channel as a source, because others are using it for that same reason.
 
How should investors use Twitter?
 
Follow people whose insights you find useful. There’s also value in using Twitter as a search mechanism, when you want to find out what’s happening about a stock.

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If you own Apple, for instance, and want to find what people are saying about it, type in the search box in Twitter a dollar sign followed by the stock symbol [$AAPL]. Then, you’ll get a reverse chronological stream of all the comments that have been made about the stock on Twitter.

How should people use crowdsourcing tools as investors?
 
One of the challenges of Twitter is that it can be overwhelming and hard to know which tweets are valuable. With crowdsourcing, someone is finding serious insights that could be helpful for you.
 
For example, Stocktwits. It’s a community of 300,000 members who are interested in talking about stocks. With Stocktwits, you can follow a stream of messages for the watchlist of stocks you have exposure to or follow messages in a stream of a newsfeed from individuals recommend to you by Stocktwit management.
 
Can’t you do this with Yahoo Finance message boards?
 
This is better than Yahoo message boards because those are filled with so much gossip and innuendo and inappropriate material. A crowdsourcing service like Stocktwits is somewhat more seriousminded.
 
What about LinkedIn?
 
LinkedIn has a lot of investing interest groups. You find them by searching on LinkedIn using a parameter for the type of stocks you’re interested in; then LinkedIn will suggest groups. I have a group there called Social Media for Investing.
 
How should investors approach investment blogs? And do you have any favorites for amateur investors?

There are a lot out there; I bookmark about four or five on my newsfeed and follow them often. Which ones you’ll want to follow depends on the style of writing you have an affinity towards.
 
Josh Brown of Ritholtz Wealth Management has a popular, snarky investment blog called The Reformed Broker. A lot of people find him entertaining; they like his candor. There’s also Felix Salmon, an excellent online journalist who formerly wrote for Reuters. His blog is Felixsalmon.com.
 
How do you know if the people talking on social media have a vested interest or even if they know what they’re talking about?
 
There’s always a risk, whether with old-school print media or new social media. Everything you receive has to be taken with a grain of salt.
 
If someone has a wide following, that’s probably because he has historically generated information that’s useful and reliable. But you definitely have to know your source.
 
You never want to act on information you receive from one source of insight. That’s true with print media, too.

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