August 13, 2018 by Adam Kornblum
“In this age, in this country, public sentiment is everything. With it, nothing can fail; against it, nothing can succeed. Whoever molds public sentiment goes deeper than he who enacts statutes, or pronounces judicial decisions.”
Abraham Lincoln may have said this in the middle of the 19th century, but his words hold true today. One reason? Social media. With the right social media tools and the right analyst observing the data, drawing conclusions on how the mass market feels about a brand, company, product, or politician can be done faster and with more accuracy than ever before. A skilled creative strategist will see the blurred line between qualitative and quantitative analysis, and it’s important that they do. Driving business value depends on it.
A number of studies show why. Blakespoor, Miller, and White (2014) suggest that Twitter has an effect on the trading volume within the market. Another study showed that sentiment of tweets (including non-company published tweets) are associated with abnormal returns (Oh and Sheng 2011). IHS Markit, a leading financial data service provider, also found that positive social media sentiment around stocks displayed cumulative returns of 76% compared to -14% from negative sentiment stocks. John Bollen, a business professor at Indiana University, claimed in 2010 that Twitter data could predict the Dow Jones Industrial Average with 87.6% accuracy.
It goes beyond sentiment. The volume of social media posts can predict next-day trading volume (Wysocki 1998). The Wysocki conclusion was reexamined by Stanford University’s Derek Tsui, over a period of 756 trading days from 2013 to 2016. Tsui found a correlation between Twitter and short-term market movement.
More definitively, MIT Technology Review proclaimed in 2010 that “an analysis of almost 10 million tweets from 2008 shows how they can be used to predict stock market movements up to 6 days in advance.” The department of economics at Oxford University concurs, having drafted an October, 2016 paper that found current social media buzz predicts future market activity.
These are not just theories; we have seen these phenomena in action. Here are eleven examples of tweets that show how social media can turn the market upside down:
1 - Within the past week, Elon Musk, announced via Twitter that he’ll be taking Tesla private and funding has been secured. Shares of Tesla Motors ($TSLA) ended 11% up.
2 - We’ve seen Musk wield this power before, in April of 2017 and even as far back as March of 2013. In 2013, the shares of Tesla Motors increased to $38.40 after Elon Musk tweeted on March, 25, 2013 about a future announcement. Shares closed at $37.51 (2.4% increase).
3 - Kylie Jenner made headlines in early 2018 by firing off one single tweet that set off a downward spiral for Snap’s stock ($SNAP). A headline from CNN Money read: “Snapchat stock loses $1.3 billion after Kylie Jenner tweet.”
4 - Billionaire Carl Icahn, of Icahn Enterprises L.P. ($IEP), shared his position on Apple ($AAPL) on August 13, 2013, via Twitter, saying that the company is undervalued. Seconds later, Apple’s stock spiked. Minutes later Apple gained $17 billion in market cap.
5 - Based on CNBC’s report, hedge fund manager Doug Kass published a tweet on February of 2013, one day before Apple’s ($AAPL) shareholder meeting mentioning a rumor of a stock split. Shortly after his tweet, Apple’s shares increased to $448.04 (1.2% increase).
6 - On January 29, 2013, Audience ($ADNC), a voice processing company, found itself in muddy waters, literally, after a Twitter account named @MuddyWaters published a tweet about a false report in which the company was being investigated by the Department of Justice. The tweet set the company’s stock into a 25% drop. Muddy Water’s published a tweet after, clarifying the hoax.
7 - In the spirit of propagating “fake news”, on April 23, 2016, the Syrian Electronic Army hacked the Associated Press’s main Twitter handle @AP and sent out a false breaking news item. The markets reacted instantly and sharply.
8 - On December 6, 2016, then-President Elect Donald Trump set his sights on Boeing ($BA), which set the stock to dip by almost $2.00.
9 - About a month later, in January of 2017, Trump then went after Toyota ($TM), which led to a $1.2 billion decrease in the carmaker’s value.
10 - Short-seller Marc Cohodes shared his perspective of Equitable Group ($EQB) via Twitter. His POV helped push the stock price down.
11 - Tim Hrenchir, a local Kansas reporter, tweeted about a court case impacting the merger of Westar Energy and Great Plains Energy–Westar Energy dropped 4.5% post-market.
The financial services industry has been keeping an eye on social media to increase the probability of success when predicting the stock market’s movement. But how can you position your company to take advantage of this phenomenon?
At the start of my career, I spent time with the global CMO of a Fortune 500 company. One of the lasting impressions he made on me was that we have to see marketing multi-dimensionally—not just in terms of B2B or B2C or investor relations. It’s all wrapped up together. Social media content can mean different things to different people, and this fact should not be ignored. A tweet may be focused on B2C, but B2B and investor relations shouldn’t be dismissed, especially when adding paid social media targeting into the mix.
The truth is that every social media post matters. Social media has the ability to sell direct to the consumer, reach mass market, and even shift the stock market. If a brand isn’t thinking multi-dimensionally when they publish social content, they aren’t maximizing their social media efforts. Paid targeting and segmenting allow for real, valuable testing. A good marketer knows the difference between a good results report and a good results report that drove real profit. Two different stories; the latter is good business.
I want to leave you with five action steps to consider with your social media strategy, as it relates to finance and investor relations:
1. Invest in your social investor relations strategy: Investor relations should be baked into your brand’s content strategy. BlackRock CEO Laurence Fink says that companies need to provide “a positive contribution to society.” If investors are factoring in social and environmental contributions into their investment strategies, then brands need to not just have a program, but also have the proper distribution via social media, to reach both investors and consumers.
2. Compounding interest: If you are consistent with your social media publishing cadence, and your social media engagement is rising year-over-over, you’ll find a compounding engagement effect with your community. Every post and every single engagement compounds to build a stronger social community. So, when it’s time to launch a new product, you can leverage the interest that you gained among the community to earn a stronger ROI from your content.
3. Go long on social: Don’t ‘short’ your social media resources. Social media is your brand’s gateway to consumers and investors. The next time you’re in a meeting, count how many social media experts are in the room versus other specialty areas. As it’s one of the most important marketing mediums, make sure the emphasis on social isn’t just talked about—it’s staffed against.
4. Dump the stock: If you have invested in a stock and it’s underperforming, you may consider dumping your shares. The same applies to paid social media promotion. If you have invested budget for promoting specific pieces of content but engagement is not rising fast enough and for the right price (cost per bid), dump the content – remove it from the paid flight.
5. Chart analysis: When it comes to your brand’s social media, social media listening and monitoring should be addressed in at least three ways:
a. Observe trending topics that your brand can leverage if, and only if, it’s relevant to the brand’s voice.
b. Observe trending topics that are either positive or negative. If a topic is trending positive, consider altering your publishing schedule. Alternatively, if a topic is trending negative, consider pausing your publishing schedule and your paid social media. Don’t be an insensitive brand.
c. Observe sentiment of your brand, your competitors, and your industry. Sentiment is often not drilled down deep enough yet research has shown the impact of it on the market.
