We first learned about sex from the Encyclopaedia Britannica. It was really slow going and overly clinical, but it was the best source available at the time....apart from trial and error on human subjects. There was a variant of social media in those days (conversations held between classes) and we used it to learn proper usage of the necessary four letter words.
Fast forward a few years to the social media whirl in which we all live. The delta of change in social media is itself increasing rapidly. Do you, dear reader, remember MySpace, the social media equivalent of an earlier era's hula hoop? There's increasing discussion about whether websites will be replaced by pages on top social sites like Facebook and LinkedIn. Things are moving faster than you can imagine, bay-bee.
Many managers will also keep an eye on the technicals -- that is, the composite picture of a stock's trading, complete with increases in volume, moving averages, gaps and the pretty Rorschach inkblots that can also reveal a stock's direction. The theory behind technical analysis is that the market knows, and every trade reflects an action based on a view, rather than the opinion alone. And that makes it somewhat more reliable, knowing that investors are matching action to opinion.
We suspect that the anecdotals in a Twitter feed on an industry, a stock, or a product, equally reflect action and sentiment, all of which is of value to the manager who not only has an opinion but who wants to know if the rest of the world is changing its mind, and if so, why.
Some portfolio managers may know Twitter as an investment based on research reports more than as a tool to use. We once attended a roadshow for a Wall Street IPO for a top pizza chain. The chain told their story well, and served their financials, but not their pizza, for lunch at the 21 Club in New York. The steak was quite good, but we always thought that a taste of the pizza itself might have been more informative, although probably not more nourishing.
Many view Twitter is as a swirl of useless noise with celebrities telling us how they feel as their followers tell us how they feel about how the celebrity feels. That view misses the sequence of major anecdotals to be found on Twitter that are slower to surface on the Google machine.
Let's take a topic we've discussed before on these pages: climate change. A spinoff topic derived from climate change is the divestiture of fossil fuel holdings from portfolios. A portfolio manager who was on the fence about climate change (statistically more likely if "conservative", given the trend towards organized conservative attempts to avoid scientific conclusions contradicting their dogmatic assertions) might, no matter what he wanted to believe, still like to know which way the investment winds were blowing. For comparison, we did a search using the keyword 'fossil fuel divest' on both Google and Twitter.
Here's what we saw on the first two pages of Google:
- Harvard students and alumni taking the University to court to bring about divestiture of fossil fuel investments
- Links to four websites promoting divestiture
- Link to a recent Huffington Post story about Brevard College as the first college in the southeastern US to divest
- Link to an October 2014 story in The Guardian about the history of fossil fuel divestment
- Link to a scholarly paper describing the Stranded Assets Program from the Smith School at Oxford University in England, with citations from the 1970's through 2013
- Two very recent links from Forbes and FT on the intramural debate by climate change activists about the strategic value of the divestiture movement
- A link to a WSJ opinion piece financed by a petroleum organization suggesting that fossil fuel divestiture would lead to slight portfolio underperformance
- A link to a New York Times Dealbook piece on the pros and cons of divestiture
And then there was the Twitter feed:
- Links to the breaking New York Times story about Wei-Hock Soon, a scientist without climatology training, who had become a darling of climate denialists. The story strongly suggests scientific findings paid for by the oil industry
- Links to the Harvard divestment discussion with emphasis on the more famous alumni supporting divestment
- Link to a summary of four oil-related accidents in various places around the United States and the socialized costs to the local communities
- Reference to a major foundation whose corpus was originally derived from oil wealth, namely the Rockefeller Foundation, divesting
- Link to The Guardian article about the fossil fuel lobby going on the offensive with back testing to show portfolio performance including industry investments, without the caveat that past performance is no guarantee of future results
- Report that the Norwegian Sovereign investment fund of $850 billion (and Norway is also an oil producer) has begun to divest its coal company investments and will review other fossil fuel investments on a case by case basis
- Link to a story on small investors being influenced to avoid fossil fuel investing
- Link to UBS support of divestment movement
- Endorsement of divestment by head of the World Bank
- Reference to total of 90 universities getting attention from divestment activists
We decided to use 'coal' as a search term on both sites also.
The Google results for coal weren't all that interesting, unless you wanted a summary understanding of coal and where it comes from. There were three article references ranging from 2010 to 2014. But it was difficult to get the current heartbeat of discussion.
Twitter's line on coal was more robust and current. It included:
- a reference to declining coal consumption in China, with a separate link to an article observing that a substantial number of coal-fired electric plants are still under construction
- report of the Ohio Utilities Commission rejecting AEP's request to pass additional costs of coal-fired plants to utility customers
- report of the Sindh government in Pakistan suspending construction of a coal-fired plant citing environmental concerns
- report that Virginia legislature extended coal tax credits for utilities
- link to a Scientific American article citing negative health effects of coal-fired power plants
- Wyoming legislators propose bill to fund a coal port in Pacific Northwest
- Link to article reporting increase in mercury levels in tuna making it unfit for human consumption, linked to human sources like coal burning
What we saw in this non-statistically significant random sample was a series of current data points which made it easier to see the broader picture through the Twitter feed on a subject, as the anecdotals provide enough data points to get some inkling of the composite. The viewer is more likely to see more of the unsuspected outliers that may, ultimately, disrupt the current view. Another useful by-product is that the emerging picture takes the viewer out of the strictly Wall Street universe and into the universe in which all the non-Wall Streeters live, plebeian though that may seem. But hey -- someone out there is actually eating the pizza discussed in the research report you're reading.
No matter what your personal view, there's an argument that better portfolio decisions can come from being able to place your chosen topic within the closed system we call the world.
Another anecdotal: a couple of years ago we wrote about www.topsy.com, which itself is sort of a first derivative of Twitter, filtering out the mass of tweets to arrive at slightly more condensed information. They were clearly doing something right, and were bought out. It is still instructive to understand why they were acquired by Apple.
Thanks to Mark Strauss @ToGoMedia for some of the insights lurking here. Follow Doug Friedenberg @JigsawCapital.