Blaschak was beating the market. Better yet for SMA, its best data continues to beat the market. From December 2011 through June 2013, any Wall Street trader who had bought or sold on the basis of SMA’s “high positive” scores for stocks — those that were at least two standard deviations above the normal Twitter “sentiment” — would have outperformed the Standard & Poor’s 500 index by 21 percent.
Here’s a real-world example of how that can play out:
Around 8:15 a.m. EDT on Aug. 6, 2012, Richard Schulze, the founder and chairman emeritus of the retail chain Best Buy, submitted a written offer to Best Buy’s board of directors to buy at a premium price all the shares in the company that he did not already own.
At 8:30 a.m., SMA detected a huge jump in Twitter chatter about Best Buy and scored that sentiment as “high positive” — SMA’s strongest indicator that something big and good was happening with Best Buy and traders might want to act fast.
Not until 8:44 a.m. did the major financial-news services break the news. In the trading world, 14 minutes can be an eternity.
For all of that, cautious traders are only now beginning to stick a toe in the water of social-media analysis. None have been quick to forget how a single fake tweet on April 23, 2013 — “Obama is injured” — rocked the markets. They understandably are proceeding with caution.
Typical of the early birds is Tom Pruter of the small Chicago-based trading firm Drysdale Holdings, an SMA client. “We put some money behind SMA’s findings with some success” but backed off when the market grew choppy, Pruter says. “Now we’re really going to do a deep dive into it.”
Again, somebody is going to tweet this story. But that tweet, alas, is unlikely to carry much weight at SMA, where they prefer the chatter of the Wall Street crowd. They eavesdrop every day on some 400,000 traders, hedge-fund managers and the like.
That’s fine. But would a tweet of this story at least matter more than a Paris Hilton tweet?
“Maybe,” Blaschak replies. “A little.”
TOM McNAMEE is the editorial-page editor of the Chicago Sun-Times and the author of several books with Windy City themes. He wrote about eating flaming saganaki in Chicago’s Greektown in American Way’s June 15, 2013, issue.