Using Social Media for Investing

Learning how to invest in stocks can prove to be an overwhelming task when you consider the wealth of information available. This information overload can stall your efforts in making timely investment decisions so that you miss potentially lucrative opportunities. Social media sties, especially, Twitter, can help you wade through the thicket of data to make wise investment decisions.

Twitter is a micro-blogging platform. Users compose short blog postings ("tweets") on nearly any topic. The benefit for investors is that many market experts use Twitter to track potential investment opportunities. According to a study conducted by Indiana University in October 2010, Twitter can be used as a barometer of public mood and, as such, helps predict the direction of the stock market.

The researchers at Indiana University reviewed over 10 million tweets composed over a 10 month period and found that the changes in public opinion accurately reflect changes in the performance of the stock market with an amazing 87.6 percent accuracy! The study made use of two mood tracking tools that searched for keywords and analyzed them using specially designed algorithms. The first tool analyzed tweets to determine whether they were positive or negative, while the second tool classified those tweets on six dimensions: happy, alert, sad, ("calm, alert, sure, vital, happy and kind"). The conclusion to be made from this study is that public mood should be factored- in when predicting stock market performance.

There is a second tool that investors may use to also gage stock market performance. In October 2010, StockTwits, an online service that provides real-time status reports from investors posting to Twitter, introduced a new tool, named Stock Following, that allows users of Twitter to track their preferred stocks by the same method they follow their friends, family, and colleagues. In this way you are able to track public mood with regard to various stocks throughout the day. While not a guarantee that you will make money, this tool does provide you with the option of gaging public mood before investing.

While social media can prove to be a valuable tool in helping you make investment decisions, it is best to use this tool in tandem with some research about the company. Information can be obtained via the company Web site, Dun & Bradstreet reports, or simply by performing a Google search on the company name or ticker symbol. Below is a list of seven additional social media sites where you may find daily news on certain stocks.

Social News Sites

1. Tip'd: This site offers financial news, ideas, and tips for investing. Areas of focus include personal financial, investing, business news and economic trends.
2. FeedTheBull: Provides real-time stories of selected stocks with their ticker symbol and current trading price.
3. Value Investing News: Provides stock market news. Areas of interest include stocks and bonds, stock analysis, and value investing.
4. StockTwits: "Real Investors, Real ideas. Real Time." StockTwits has partnered with Twitter to provide real-time updates on stock performance.

Social Networking and Stock Picking Sites

1. Motley Fool CAPS: CAPS reviews selected stocks by conducting surveys of investors' opinion regarding whether certain stocks will perform better than the S&P 500. Member commentary on stocks is also posted to their individual stock page.
2. SocialPicks: Users share investment ideas and guidance and are able to keep track of other members' investment success. Members create an identity and have the opportunity to join niche groups such as Green Investing or Value Investing, among others.
3. StockPickr: Investors are able to compare their portfolios with those of such investment gurus as Warren Buffet, Carl Icahn, and George Soros. Stock pages display a stock's trading price, a list of investors currently holding that stock, along with recommendations for similar investments. Because you are able to determine which stocks are held by industry gurus, this site is one of the bests for those new to online investing.

Daniela Baker contributed this article. Daniela is a social media advocate at CreditDonkey, a credit card comparison website.