Social media is the latest tool for analyzing trends in real time.Somebody will likely tweet this story, commenting on it for better or worse. That single tweet, a drop of water, will flow into a gushing fire hose of tweets — something like 400 million worldwide each day on every possible subject.
In Chicago, four sharp guys at a little startup company will filter those tweets, each and every one, looking for the drops of water that carry just the right words — buy is nice, but so is dump — from the right folks. Morgan Stanley is excellent; Paris Hilton, not so much.
The men will place the selected tweets in carefully calibrated historic context. Is the Twitter chatter for, say, Home Depot heavier than usual, especially compared to other home-supply stores? How much heavier?
They will measure how deep and wide the chatter is. Is the surge in Home Depot tweets coming from many quality sources or a relative few? They will measure whether the Twitter chatter is positive or negative — again compared to a precisely developed baseline — and by how much. Is the chatter for Home Depot, for example, full of talk about “going long at 50” and “adding to my position” or “dump at the open” and “swoons amid criticism?” In all, they will aggregate and size up selected Twitter chatter on all U.S. stocks in four essential ways and assign scores. And to what end?
To beat the markets, of course.
Social Market Analytics (SMA), run by the four Chicago guys from a loft space full of rock-band equipment but no desks, is a pioneer in the emerging field of analyzing social-media content to give traders a leg up in the capital markets. Trading is the art and science of absorbing relevant information — the sacking of a CEO, the price of oil in the Middle East, a company’s latest earnings report — and acting on it faster than anyone else. SMA slices and dices billions of tweets, which increasingly are the stream of consciousness of the business world, to give traders an information advantage.
Does this stuff work?
Though the very idea of sifting through social media for an edge on Wall Street is but a few years old, some experts predict it one day will be more useful to traders than traditional economic indicators, such as quarterly federal jobs reports. Social-media data is more current, has a broader base and looks forward, not back.
Eighty-seven percent of Fortune 100 companies use social media. Twitter is the most popular, and companies are not just tapping out missives like, “Check out this video of cute kitty riding a bike.” They’re conducting serious business, as reflected in federal regulators’ decision last April to let companies release key information, such as quarterly earnings reports, on social media such as Twitter.
For its part, SMA offers a wealth of evidence that this stuff does indeed work, but its most convincing selling point might simply be that the New York Stock Exchange in February signed on as a distributor. SMA now is available to all New York Stock Exchange (NYSE) clients who want to subscribe to the service.