Social Media and Investing

For a long time, capital markets relied on analyst firms, information on stock movements, and the press as sources of information. But today, the impact and influence of social media cannot be denied. At first, the internet was able to bring together investors and firms, blurring out national boundaries. Then, forums became platforms for peer-to-peer sources of information created by individual investors. Now, we even have studies on how Google searches can help predict stock prices.

The way that information is disseminated was greatly changed when social media platforms like Twitter gained momentum, where the democratization of content happened. People were able to share their views about stocks with the public. While Twitter’s short format, incredible reach, and ability to share information promptly make it an ideal medium for sharing information on the stock market, it also has its disadvantages. Tweets can sometimes be misleading or uninformed because it is an unregulated platform.

Another advantage of using Twitter for capital markets is using it to study investors’ behaviors. Firms also use Twitter to share corporate announcements like earnings. We also cannot forget the potent role of Big Data in Finance with social media being a tool used to assess consumer satisfaction.

Social media has changed how firms do investor relations. Firms look at social media feeds, check where they are mentioned, and read crowdsourced research and forecasts while complying with the Regulation Fair Disclosure (Reg FD), which requires publicly traded companies to share material and information to all investors simultaneously.

The world was stunned by the GameStop short squeeze where rookie investors inspired by the famous revenge plot on a subreddit drove the spike in the company’s share price which skyrocketed from $40 to $400 in a couple of days. This unravels the structural changes that are happening in financial markets and the vital role of the media and social media platforms in generating information and managing its flow. It proves that social media is growing a broader investing audience more and more.

According to the CNBC/Momentive Invest in You Survey in 2021, 35% of US adults use social media to look for investment ideas. While the Internet has enabled individuals to invest anytime and anywhere, using social media as a source of information can be dangerous if not done with care. With non-experts being able to easily give advice and information, financial experts recommend doing more research and background checks.

You can check out or follow financial advisors with social media presence who host live sessions and create relevant content. You can look for legitimate investment advisors through Securities and Exchange Commission sites and other similar organizations that release public information on the background of certified financial planners.

While people and influencers can share their personal experiences from which you can get advice, people’s situations are different and investments should be customized for individuals. A post or tweet that fuels your desire and enthusiasm for investing can be a good start but it is always best to take the time to do your research and consult with trusted sources and advisors before making financial decisions.

We would like to end with a quote by Peter Lynch that says, “Know what you own, and know why you own it.” as a reminder for investors to re-evaluate their portfolios from time to time and for companies to realize the power of communication to influence financial decisions and connect them to the right investors.