Tuesday, January 31, 2012

StockTwits and the "Wishdom of Crowds"...

Here are some new fun phrases to whip out at your next cocktail party... "the crowdsource investing movement", "the facebook of finance", and "news dissemination in a social finance world".

All have been used to describe StockTwits, a website that aggregates Twitter messages about individual stocks and displays them on a single organized screen.

A fuller description as written by SmartMoney Magazine...

Various parts stock-market news feed, rebel community and investor kvetch-fest, Lindzon's free service essentially plucks out Twitter messages focused on individual stocks and other investments and streams them across its home page (or the user's Twitter feed) as though it were a stock ticker. But here, instead of mere price updates, the ticker ticks off snippets of gossip, prediction and raw information, all of it coming from StockTwits members -- many of whom, in turn, are shrouded in anonymity.

For a quick example, take a look at the StockTwits page for Google (ticker: $GOOG). You'll get the idea.

What's particularly interesting is that this entire business - a website with over 150,000 regularly posting members - is essentially little more than a content filter for Twitter. Again, all StockTwits posts are actually Twitter posts, just harnessed in one place.

But here's where things get problematic. Four in 10 StockTwits users self-identify as novices, and this often makes financial regulators wary. As Dyan Machan's article points out, "online investing communities, say experts, are ideal environments for market manipulators to engage in schemes like 'pumping and dumping': repeatedly hyping a stock to lure in gullible investors, then selling the moment the price rises".

StockTwits says it addresses that problem by 1) banning discussion on ultralow-priced "penny stocks", 2) kicking off anyone peddling products or posting repeated messages on the same stock or other tweets that don't "offer members value", and 3) maintaining three paid, full-time editors who troll for tweets that violate the rules or spirit of the site and award star ratings to certain "helpful" members. Above all, as its passionate members will quickly tell you, the community of StockTwitters keeps a vigilant watch on itself - akin to the Wikipedia model of self-regulation.

But I see other problems besides just the pumping-and-dumping threat. How about with the business model itself?

StockTwits has been proud to highlight the fact that, unlike most social-networking companies, it doesn't try to earn revenues through advertising, nor does it offer a paid, premium version of its product. Instead, StockTwits plans to make its money by offering an Investor Relations package to the companies profiled on the website - the StockTwits IR Suite - will give an investor relations team access to the company’s page on StockTwits and to a dashboard that lets those companies push their updates directly to Twitter and Facebook, and then measure the results.

One has to wonder, then, is StockTwits just a promotional, marketing tool for publicly-traded companies? Furthermore, add in the fact that StockTwits makes it a practice to share revenue with bloggers. You don't have to be a conspiracy-theorist to see potential conflicts of interest here.

All of this belies the point that the website is really a lot of fun! It's just that when you have this confluence of money, information, and anonymity, everybody just really needs to maintain a healthy dose of skepticism and to pay close attention to who's writing what.


At 7:15 PM, Anonymous Anonymous said...

Thanks for the write-up. One point of clarification, StockTwits content is generated by only StockTwits community members --- not aggregated from Twitter. To post on StockTwits you must be a member. StockTwits is its own technology platform for publishing, interacting and sharing your ideas across the web. Feel free to message me on StockTwits if any of you would like to know even more about our platform.


David Putnam
VP, Products
SrockTwits, Inc.

At 8:55 PM, Blogger Robert J. Domanski said...

Thanks for the clarification. Since you asked, here's a question for you... Is there a StockTwits API being released anytime soon? Or maybe a scroling-ticker type of widget?


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