When Carl Icahn tweeted in August that Apple Inc. was “extremely undervalued,” it sent the share price up more than 4% that same day. It’s just one sign of Twitter’s market-moving muscle—and it won’t be the last.
In 2012, Netflix CEO Reed Hastings used his personal Facebook account to brag that his company had, for the first time, streamed a billion hours of video in a month, news not disclosed in a press release or regulatory filing. By the end of the next trading day, Netflix shares had risen nearly 16%. The case sparked an investigation by the Securities and Exchange Commission. But, in April the commission declared that companies are free to reveal material information via Facebook or Twitter, as long as they tell investors in advance which platforms they’ll use.
Today, one-third of Canadian investors consult social media for investing information or advice, according to a BMO InvestorLine study. For Twitter specifically, the number falls to 4% of all investors polled, and 11% of those aged 18 to 34.
Nonetheless, Twitter is starting to become the lazy retail investor’s substitute for due diligence, says Kash J. Pashootan, vice-president and portfolio manager at Raymond James’s First Avenue Advisory. “When you look at the Icahn tweet, it’s a classic example of the retail investor being driven by greed and emotion,” he says.
View Twitter as a complement to research, and as a way to gauge market sentiment over days, weeks or months, advises Pashootan. Even Howard Lindzon, the Toronto-born founder of StockTwits.com—a Twitter-like platform now used by 300,000 members—admits the technology is just one tool within a tool set.
Don’t place too much emphasis on any given tweet or tweeter. “Much of what’s posted has an underlying bias to it,” says Pashootan. He suggests following people with contradicting views—balance someone who’s bearish on commodities with someone bullish—then make up your own mind.
Know also that tweeters with a big following might have great marketing skills but not necessarily investing know-how. Analysts from financial institutions, by contrast, tend to be tight-lipped due to regulatory restrictions. The Investment Industry Regulatory Organization of Canada requires that member firms monitor staff Twitter accounts.