This is the second part of a 2-part blog series on the imminent future of stock market investing and the way socially active investors and traders can make the most of it. Thanks for all the feedback you sent on the first part.
Def: Stockal Media = (Stock Market + Social) Media
We define “Social”, here, as a combination of popular platforms like Twitter, StockTwits, eToro, Facebook, discussion forums like SeekingAlpha, commenting platforms like Disqus and LiveFyre, and blogging platforms like Tumblr, WordPress and Blogger. Over the past 2 years it’s has been proven, with a fair degree of certainty, that things (news, opinions etc.) reported on social media impact stock prices. The crucial thing here, as a trader, is to be able to spot whenever such information emerges.
To continue …
Economic Trends: When key economic signals point to a healthy and growing economy, unemployment is low, inflation and interest rates are under control, people have more money, they buy more and companies are likely to make more money. Future of companies looks bright and they are looking to scale-up. Conversely, negative signals indicate a contracting economy, joblessness and therefore less money for companies. Stock market moves almost always in conjunction with the predicted movement of the economy.
While some these key economic signals, indicators – if you may, are easy to track from federal government sources and organized media. These are the likes of CPI (Consumer Price Index), Gross Domestic Product (GDP), Budget Surplus, Inflation, Central Bank Interest Rate Federal Tax rates and Unemployment Rate.
But since everyone has access to such data, there is no big market advantage that a trader can easily derive. It is interesting, though, when you are able to track some of the signals or conversations which “could” predict any or all of these indicators. For this, it’s important to know who the opinion makers are. These could be individuals or small think tanks or consulting organizations. These could also be a combination of conversations on a discussion forum or thread. A trader or analyst could do well to follow these sources of information and analysis across social media. One can also do a larger “mood of the crowd” analysis to determine if the overall sentiments are positive or negative. For instance, if a lot of people are happily talking about new purchases and new jobs then it’s likely that the economy is looking good as well. If loan departments of banks are doing well and their future outlook remains positive (info you can get by following their key people, customer outreach handles and digital advertising) then people are taking more loans – and are therefore confident of paying the same back, indicating good jobs prospects and continued employment. A lot of this data and analysis can be gleaned from networks like Facebook, Twitter and Linkedin.
Geo-political Events (National & International): Quite often, it has been seen that news related to international events has an impact on stock markets in general and quite often, this impact spreads across multiple markets in multiple geographies. For instance, when a Malaysian Airlines flight was struck down on the Russia-Ukraine border, it created a mood of global political instability that lead to a minor slowdown in growth of stock markets and in turn, lead to increased investments in Gold (because of the inherent stability associated with Gold as a commodity). Similarly, if a US-based company is largely dependent on exports to, say, the Asian market and there is unrest in a major Asian economy, the company’s stock performance is likely to be negatively impacted.
Such information can be discovered quite easily on organized media. But it may be too late, by then for a trader to take an advantageous position. One can follow specific keywords on social media and lesser known websites (through search engines) to discover useful nuggets of such information. For instance, if a major illness strikes, it is quite likely that you’ll read about it on Twitter before reading about it on New York Times.
Company Related Events: A key employee being hired – say a new CEO or Sales Head. Brand receiving glowing feedback or awards. A massive layoff. An overall organizational restructuring. A new product launch or new market entry. An acquisition or new partnership. These are just some events that have a high likelihood of impacting stock prices.
Events like these and more can be discovered on social media by following key employee handles, platforms like Linkedin and Glassdoor, Twitter handles or analysts and bloggers and credible blogs written by employees as well as outsiders who are enthusiastic followers of and commentators on the industry the company belongs to.