How are different social networks used to research stocks?

DISCLAIMER: THIS IS NOT FINANCIAL ADVICE. THIS IS NOT A RECOMMENDATION TO BUY OR SELL STOCKS, ESPECIALLY THOSE APPEARING IN THIS ARTICLE. Please refer to this disclaimer for more information.

Last week, the world saw the rise and fall of 88 Energy. This stock captured the imagination of tens of millions of investors hoping to catch a piece of the world's next big oil find. For many investors, the story did not end well.

88 Energy highlighted the power of news on social media. In particular, it showed how various investor communities on Twitter, Reddit and Stocktwits overlap to provide up-to-the minute information and perspectives on social media.

I have written previously about how institutional investors, algorithms and retail investors all consume social media data.

We are not talking about an insignificant number of investors. Mobile stock trading has changed everything, with millions of people now trading daily. At least $15.5 trillion is held at two of the top US retail brokerage firms. It is estimated that 32% of daily trading volume is now from retail. 54% of Americans directly own stock. If you are a public company, you are probably wise to embrace this phenomenon. Recall, it's all about mobile stock trading.

The path to buy, sell or hold

Let's take a look at how "retail" investors — individual investors — discover stocks using social media. And then how social media informs decisions about whether to buy or sell.

I will use a "penny" stock as an example, but the same process holds true for any stocks. Especially those that are exhibiting "momentum."

On social media, it is common to precede stock tickers with a $ sign. So, $CBYI is a stock trading with the ticker CBYI.

Let's see how a social media user might start researching a stock after hearing about it. We'll use $CBYI as an example. CBYI is about obscure as a stock gets. This company is currently in limbo with “custodial” status on the OTC. This means it doesn't currently have an active business, but has been approved to be taken over.

$CBYI is very much a shell company, waiting for something to crawl into it. Maybe crawl is the wrong word. Leap? There are all sorts of verbs. This listing was just "reinstated" yesterday, meaning a court approved the listing so that a business can crawl or leap or whatever into it. To investors, this means $CBYI is about to be something soon. Exciting? If you believe what you read on social media, perhaps.

Who knows who or what $CBYI will turn into?

You can buy this stock under the name Cal Bay International. For now, $CBYI is about as obscure as a stock gets, trading for $0.0029. That's a third of a cent. Full disclosure: I bought at this price yesterday. Many people bought this stock when it was $0.0006 or less. (If you bought 1 million shares at .0006 that cost you $600; at $.0029 you made $2,300). Please note: you could also lose everything.

After hearing about $CBYI on social media, let's see how an investor on social media might use the different networks to gather discrete bits of information to make a decision to buy, wait to buy, sell, or hold.

Discovery is not a rigid sequence, but a typical path is: 1. Reddit  2. Twitter  3. Stocktwits

1. Starting with Reddit, an investor will perform a search to see if the stock symbol $CBYI is mentioned. Anyone with an internet connection can do this. You don't need an account with Reddit.

Where does $CBYI appear? Who is talking about it? Some symbols have their own “pages.” Others are referenced in forums. Here, we see (above) that $CBYI is mentioned only a few times.

All mentions are in the “pennystocks” and "subpennystocks" forums which are popular places for these types of investors. There are forums for just about everything: green stocks, crypto stocks, you name it.

The fact that $CBYI is only mentioned a few times (above) on Reddit and is mentioned along with another custodial stock ($FBCD) that recently “ran” means two things: 

1) the stock is not yet widely known on Reddit, and 

2) the stock was mentioned by someone on Reddit who is very experienced. These are both good signs. 

Time for more research. Let’s see what’s happening with $CBYI on Twitter.

2. On Twitter, there are a lot more mentions of $CBYI. I don't show them all here, but after searching the ticker, you can scroll through months and months of mentions.

We can see from Twitter that people like the stock. There are no bad comments. $CBYI is looking better and better. Time to check another social network: Stocktwits.

3. Stocktwits gives investors a very good indication about the real time sentiment of a stock.

When a stock is really popular, thousands of people will be “watching” it. We can see only 200 are watching now.

In the case of $CBYI, this is excellent news, because it means it’s not too popular to get in early at a good price. More watchers means more volume but it also means more volatility and potentially steep rises and falls.

Summary

Many retail investors buy and sell stocks daily. They are always looking for new ideas. But retail investors are not the only ones. There are also hedge funds and quants. If you are a public company, you should at minimum be monitoring what is happening. Better yet, you really want to have a presence. With so much of the market skewed retail, these are good things to think about.

As a reminder, this is not investment advice. It is provided to demonstrate how many investors use social media to research stocks.

About the Author

I operate an award-winning corporate social media agency. I am also the author of a book on financial communications. I love stocks and the stories they tell.