With its widely anticipated initial public offering, Facebook is seeking a market value of as much as $100 billion. If successful, the IPO would yield the company a higher price-to-earnings multiple than virtually every other company in the Standard & Poor’s 500 index. So why such investor enthusiasm for a company with fewer than 2,500 employees worldwide? According to Brian Uzzi, professor of leadership at Northwestern University, the answer comes down to the emerging science of networks. In a session at the 65th CFA Institute Annual Conference in Chicago, Uzzi dissected the network effect: he explained how personal networks can be not only key assets for investment professionals but also a source of collective intelligence about financial markets, which, if properly harnessed, can help money managers make better investment decisions.
Uzzi began his talk by differentiating between two types — one akin to a modern-day Paul Revere, and one more like William Dawes. Revere, of course, was the American patriot who traveled from Boston, Massachusetts, by horseback on April 18, 1775, to alert colonists that the British were coming. His message spread far and wide, and Revere is credited with helping to raise the Continental Army that ultimately defeated British forces. His role in the American Revolution is memorialized in a Henry Longfellow poem titled “Paul Revere’s Ride.”