Practical analysis for investment professionals
05 April 2012

Using Twitter To Understand Information and Improve Investment Returns

Posted In: Drivers of Value

In my book, The Intuitive Investor, I state that the most important investment skill is understanding information. After working for years as a successful mutual fund portfolio manager, I discovered that he who understands information the best, performs the best. Both of the words in that simple equation — understanding information — help to provide useful context for how to improve investment returns.

Information

Internet technology has massively lowered the price of information as the cost of publishing and distributing it is nearly zero. All of that information helps to build a more complete information mosaic so that we, as investors, can make more informed decisions. Yet, super cheap information comes at a cost: How do we discern signal from noise? That is, what information is important? How can I focus on what I want to focus on? How can I begin to understand that ocean of information?

Understanding

One simple solution is to carefully curate information to identify quality sources and then return to those sources for critical information. In the past, this was done by subscription. Investors identified content providers — newspapers, magazines, newsletters, sell-side analyst reports — that were trusted; then those sources were delivered to us, usually by mail. In rare instances, television delivered information to us that was curated, and thus also trusted. In an era of ubiquitous information, these media are outmoded — but, even in the digital world, subscriptions are still key.

For a while it looked as if RSS (really simple syndication) feeds were the new subscription solution, but then information consumers realized that they did not always want to eat everything providers had to serve. Important questions remained: How do you follow just the curators/content providers that you want to follow? How do you get all of that information in digestible bits? In short, how do you create a custom newswire just for yourself? Enter: Twitter.

Twitter: A Personalized Headline Service

As a former Twitter naysayer, and now avid user, I can testify that Twitter is exactly what is needed for the investment professional trying to understand that hurricane of information. By following only people or organizations of interest, I get digestible, high quality, curated information in real time! Combined with officially Twitter-sanctioned freeware, TweetDeck, I now have a customized newswire delivered to my desk that allows me to see only what I want to see and when I need to see it. Excelsior! How is this seemingly innocuous service so danged powerful?

  • Message limit of 140 characters. This limitation forces people to be succinct and focused when crafting their messages, or tweets in Twitter-speak. Better yet, user profiles are also limited to 140 characters, so you do not have to wade through a bunch of hyperbole and hot air to figure out a tweeter’s angle or the essential part of a story. Such limited space leads to careful, on-point messages.
  • Hotlinks. Twitter allows for hotlinks to be embedded right in the middle of a Tweet. This means that Twitter is a headline wire service that is referent of other, more in-depth stories. If you don’t care about the Tweeted story it will soon scroll right on out of your view. But if you do care about the story then you can go straight to the source of the story and decide for yourself if the information is signal or noise. But don’t forget that individual Tweets can be news, too.
  • Retweeting. Essentially, retweeting allows you to grab a headline of interest and then distribute it to your followers. This means that news can spread like wildfire on Twitter in a way that surely makes CNN, Google, and Facebook envious. So, Twitter is timely. Not surprisingly, the preceding media institutions all have Twitter accounts, as does the Wall Street Journal (@WSJ), Bloomberg (@BloombergNews), the Financial Times (@FinancialTimes), the Economist (@TheEconomist), and many millions of smart folks including individual reporters, bloggers, and others whose opinions are interesting and worth incorporating into your attempts at understanding information.
  • Painless unfollow. Twitter makes the addition and subtraction of those people and services you are following absolutely painless. Want to follow an information curator? Just click the “follow” button. If after several days or weeks you realize that the tweets are more like twits, then you can painlessly unfollow the tweeter. Easy.

Before launching your reputation into the Twitterverse, it is sensible to consider the ramifications of fully public and immediate bursts of communication that are globally distributed. Unlike other social media platforms, you can not prohibit anyone from viewing your profile or following your updates. My colleague Michael McMillan, CFA, (@M_G_McMillan) has an upcoming and excellent primer about the subject; look for it on the Enterprising Investor.

How to Move from Twitter Lurker to Twitter Berserker

  • Set up your Twitter account. It is free, easy, and takes almost no time.
  • Resist the temptation to feel pressured into tweeting. You need never tweet to benefit from Twitter. Remember: This is your customizable breaking headline service, and you can follow whomever and whatever you want to follow.
  • Use Twitter’s search function to find folks that mention keywords you care about (e.g., ethics, equities, economics, private wealth management, fixed income, Justin Bieber, etc.) in either their profiles or their Tweets. Follow these people.
  • Keep Twitter open on your desktop and refresh your browser every so often to see the latest tweets from those you are following. If you begin to see utility in Twitter and get tired of refreshing your browser, then consider downloading TweetDeck (or any other Twitter app) that allows you to more seamlessly use Twitter as a private, customized newswire.
  • Cull the list of those you are following to only those you want to follow or have the bandwidth to follow.

Curated Resources at CFA Institute

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Voss also sub-contracts for the well known firm, Focus Consulting Group. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: jason@jasonapollovoss.com

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