So you like your investments just fine. But here’s the big-money, big-data, 2-ton terabyte question: How do your followers on social media like them? Or have they “liked” them, to borrow from Facebook parlance?
Perhaps the even more relevant question — at least for those new to investment — is how much do you like someone else’s financial strategy? For in the omnipresent world of social media, investment marks the latest segment where people from all corners gather to share their thoughts — though in this case, it’s about portfolios as opposed to pet photos.
“Some investment and retirement firms have already built online communities within their authenticated space to enable similar clients and participants to discuss issues among themselves and to pose questions,” says Jill Jacques, vice president of North Highland, an Atlanta-based consulting firm. “Other firms are pursuing bolt-on technology solutions for their existing online capabilities to enable similar discussions.”
Venture further out into the nexus of cyberspace and the financial space, and you’ll find Web portals solely dedicated to networking investors. Openfolio is one example; its self-stated mission is to bring the “openness, connectivity [and] collective intelligence to the world of personal investing.”
Yet as any technophile will tell you, the proof lies in the numbers, and Openfolio’s latest stats are quite impressive. “November was a good month,” says David Ma, head of research at the free investment platform. “Seventy percent of investors on Openfolio managed to make money,” up an average of 0.6 percent from the month before. Yet that also means 30 percent of investors lost money (though for half of them, it was a scant 1.25 percent or less).
Launched by former Wall Street bond traders in August 2014, Openfolio seeks to bring the open culture of a professional trading room to retail investors. Or if you prefer, think of it as a site where people share investment knowledge just as they would reviews on Foursquare, TripAdvisor (ticker: TRIP) and Yelp (YELP).
Want even more social media wind in your e-sails? Openfolio also connects with Twitter (TWTR) and Facebook (FB) and boasts one of the first financial apps to land on the Apple (AAPL) Watch.
Indeed, groupthink represents a legitimate concern for such sites. “Simply following what other investors on the platform are trading could be a recipe for disaster,” says Shomari Hearn, a vice president with Palisades Hudson Financial Group, based in Fort Lauderdale, Florida. “Other investors may not have the same goals and investment objectives as your own. … There’s also the concern that certain investors will use these platforms for nefarious purposes, such as for pump-and-dump schemes.”
Disclosures are important, says Gary Tsarsis, a clinical assistant professor at the University of Pittsburgh’s Katz Graduate School of Business. “The first set of kinks that needs to be worked out includes full disclosure of any writer of investment advice. Do they have a derivative position in the asset? Are they short? The second is the relationship they have with any paid sponsors.”
But there’s also a clear sense that some on the Silicon Valley side see social investment hubs as a fabulous buy themselves. Consider Tip’d Off, based in Alphabet’s (GOOD, GOOGL) hometown of Mountain View, California. Tip’d Off raised $1.35 million and had a waiting list of more than 5,000 people in the late spring before it was acquired for an undisclosed sum.
Digital-native millennials — the logical target of social investing — have every reason to turn away from conventional investing approaches, says Rahul Sethuram, one of Tip’d Off’s co-founders.
“Millennials grew up in a different financial world than the baby boomers, who currently dominate the stock market,” Sethuram says. “The dot-com bubble. The housing bubble. Occupy Wall Street. The Great Recession. Big bank failures.” Social investing, he says, will assist market greenhorns in the same way that Koosh Saxena once did for him. He became one of Tip’d Off’s co-founders, too.
“Koosh kept a Google spreadsheet where he would manually input his trades and watch list of stocks,” Sethuram says. “He began to share this document with his friends to collaborate on ideas and share tips. I asked Koosh to let me know when he made updates to the sheet so I could see when he made a new trade — and that’s where we got the idea for Tip’d Off.”
That said, the social investment idea isn’t going to be for everyone — including investment rock stars wary of attracting a crush of pesky groupies.
“Twitter is very public, and some investors, particularly angels, will not be tweeting about their investments,” says Afif Khoury, founder and CEO of SOCi, an enterprise social media platform based in San Diego. “By nature, these are very private people. So, mainstream social media networks aren’t their primary sources for investing news and opportunities — for the most part, they stay closely within their networks and circles.”
But assuming someone behind the velvet rope creates an exclusive portal — a members-only chat room, for example — you could expect lots of instant messages would fly back and forth. “The more privacy and segmentation a social network offers, the more likely you’ll find investors there,” Khoury says.
And with the recent change in crowdfunding regulations approved by the U.S. Securities and Exchange Commission, the act of creating new companies will go hand-in-hand with sharing intelligence on them via social media exchanges.
“I expect the number of social trading platforms and networks will continue to grow, especially with the recent adoption of rules that will allow startup companies to sell private stock to retail and nonaccredited investors through crowdfunding-style portals,” Hearn says.
So what does this mean in the end? It makes sense, experts conclude, for smart investors who are testing the winds to go social — without going postal.
“Social analysis is just one tool in an investor’s tool belt,” says Kunal Vaed, a senior voce president and head of digital channels at ETrade. “It should not be used in a vacuum.”
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The Pros and Cons of Social Investing originally appeared on usnews.com
