Fox Business News: The Impact Of Twitter On Investing

Fox Business News:  The Impact Of Twitter On Investing


HOW DO INVESTORS FILTER OUT WHAT IS REAL AND NOT REAL ON TWITTER AND MAKE SOME MONEY WHILE DOING THAT? WITH US TO TALK ABOUT ALL THIS, SCOTT MARTIN, CHIEF STRATEGIST AT UNITED MARKET ADVISORS. AND FOX BUSINESS CORRESPONDENT JEFF FLOCK. THANK YOU ALL FOR JOINING US. JEFF, LET ME START WITH YOU. WHAT ARE THEY DOING? HOW CAN YOU LOOK AT ALL THESE TWEETS AND HAVE ENOUGH TIME TO FIGURE OUT THE DIRECTION OF THE MARKET?>>WHAT THEY DO, ADAM, CALLED STOCK MARKET ANALYTICS. I SPENT THE DAY AT THE COMPANY TODAY. THEY DO IS MAKE A DICTIONARY OF KEY WORDS AND PHRASES THAT ARE EITHER POSITIVE OR NEGATIVE. THEY LOOK AT ALL 400 MILLION TWEETS A DAY. THEY FILTER OUT GUYS THAT DON’T KNOW ANYTHING. THEY JUST LOOK AT TWEETS FROM FINANCIAL PROFESSIONALS AND KEY PEOPLE. WHEN THEY HIT ONE OF THESE POSITIVE OR NEGATIVE PHRASES THEY ASSIGN A VALUE TO IT. AND THEN THEY LOOK AND CAN SEE IS THIS STOCK TRENDING POSITIVE OR NEGATIVE IN THE TWITTERS VERY — TWITTERVERSE. IT OFTEN LEADS IN ADVANCE OF A MOVE POSITIVE OR NEGATIVE IN THE STOCK. SEEMS LIKE A GREAT PROGRAM. ADAM: I HEARD ONE MUCH YOUR REPORTS. THEY HAVE 2,000 CLIENTS THEY SELL IT TO THE PROFESSIONAL CLIENTS, HEDGE FUNDS AT $5,000 A POP A MONTH, IS THAT ACCURATE?.>>YEAH. DO THE MATH ON THAT. THEY HAVE 2,000 CLIENTS. YOU DO THE MAA THAT’S A LOT OF DOUGH. WHY DON’T YOU USE THE INFORMATION FOR YOURSELF. ADAM: HELLO.>>WE CAN MAKE MORE MONEY SELLING IT. ADAM: I WILL TAKE A SHOT AT IT. I WILL LET LANCE ROBERTS TAKE A SHOT AT THAT FIRST. LANCE, SOUNDS LIKE A GOOD IDEA. AT THE END. DIE MOST HEDGE FUNDS, CLIENTS OF THIS, FAIL TO A PERFORM AT A RATE COMPARABLE TO THE S&P 500. LAST YEAR RETURN OF HEDGE FUNDS WAS IT 6%? THE S&P WAS 13.4%. YEAR-TO-DATE SOME OF THE BIGGEST FUNDS, GREEN LIGHT CAPITAL, 5.78%. PAULSON AD ADVANTAGE, 4.6%. PERGINGS — PERSHING SQUARE 4.6%. SOUNDS LIKE A GIMMICK, TWEETING ANALYSIS. WHAT DO YOU THINK?>>I THINK WE NEED TO TAKE A STEP BACKWARDS FROM ALL THIS, THE AVERAGE INVESTOR PEOPLE WATCHING YOUR SHOW RIGHT NOW, THEY’RE NOT SITTING HOME WITH HIGH FREQUENCY TRADING ALGORITHMS AND COMPUTERS SITTING ON THE FLOOR OF THE NEW YORK STOCK EXCHANGE OR RIGHT NEXT DOOR TO IT AN ANALYZING THIS DATA IN MILLISECONDS. WE NEED TO KIND OF THINK ABOUT ACTUALLY REVIEWING HOW OUR MARKETS ACTUALLY WORK. YOU KNOW OVER THE LAST FEW YEARS, THE FLASH CRASHES THAT WE’VE HAD, A LOT OF THE VOLATILITY IN THE MARKETS, ARE DRIVEN BY THE FACT THAT, YOU KNOW, THE BULK OF THE TRADING THAT HAPPENS NOW IS RUN BY COMPUTERS, BY ALGORTHYMIC TRADING, HIGH FREQUENCY TRADING. I’M NOT SO SURE IN THE MARKETS THAT WE HAVE TODAY, THAT IS REALLY A FAIR PLACE FOR INVESTORS IN GENERAL. I THINK THIS IS WHY YOU’RE SEEING SO MANY INDIVIDUAL INVESTORS KIND OF GIVE UP AND WALK AWAY BECAUSE THEY JUST CAN’T WIN AT THE GAME. ADAM: SCOTT, HE RAISES A VERY GOOD POINT. WE’VE SEEN RETAIL INVESTORS, JUST LOOK AT THE VOLUME IN STOCKS, AND YOU CAN SEE RETAIL INVESTORS ARE REALLY NOT THERE TO THE TUNE OR LEVEL THAT THE HIGH FREQUENCY TRADING CROWD IS THERE. HOW DO YOU RESESPOND TO THAT?>>NO, I THINK HE IS ABSOLUTELY RIGHT. I FEEL LIKE LANCE READ MY NOTES BECAUSE THAT IS THE THING, ADAM. I JUST, YOU KNOW, HE’S RIGHT THOUGH. IF YOU’RE SITTING AT HOME, THE INDIVIDUAL INVESTOR AT HOME THAT IS TRYING TO PICK OFF PENNIES IN SAY AMAZON OR APPLE YOU’RE IN THE WRONG GAME BECAUSE BY THE TIME YOU HIT THE NUMBER, THE BUTTON TO MAKE THAT TRADE, THTHOUSANDS OF COMPUTERS HAVE MADE THAT TRADE. THE MORAL OF THE STORY THOUGH IS, JUST LIKE THE HASH CRASH AND FLASH CRASH YEARS BEFORE IT WAS A BLIP. IF YOU LOOK AT THE FLASH CRASH IN 2010, THE MARKET WAS UP AFTER THE NEXT COUPLE WEEKS. THE INDIVIDUAL INVESTOR IF YOU’RE PLAYING AT HOME I WOULD SAY IGNORE THIS STUFF. IT IS FUN TO WATCH IT BUT DON’T GET CAUGHT UP IN IT. ADAMAM: JEFF, I WANT TO ASK YOU A QUICK QUESTION. I THINK IT IS GREAT THAT PEOPLE CAN MAKE QUICK MONEY. WHAT THE GENTLEMEN HAVE DONE WITH THE FORMULA, FINE, THEY CAN HAVE A IT. WHAT HOW DOES THAT PLAY IN TRUE INVESTING? IT SOUND LIKE A CASINO INSTEAD OF A I’M GOING TO INVEST IN A COMPANY TO SEE WHAT HAPPENS. THEY’RE IN AND OUT. THEY’RE NOT INVESTING. THEY’RE GAMING.>>WELL, YEAH, I DON’T KNOW IF I WOULD CALL IT GAMING. I THINK IT HAS TO BE A PIECE OF THE PUZZLE, A PIECE OF THE PUZZLE IN TERMS HOW YOU MAKE YOUR INVESTMENT DECISIONS. IF YOU DO IN FACT TRADE WITH MORA PIDTY MAYBE THIS HELPS YOU. MAYBE THIS HELPS WITH YOU MAKING MONEY, NOT LOSING MONENEY. AS YOU GUYS KNOW ONE BAD TRADE CAN SOMETIMES SCREW YOUR WHOLE DAY UP. ADAM: ASK MR. PAULSON THAT QUESTION. IT TIPS YOU OFF TO A BAD STOCK THAT THERE’S A LOT OF NEGATIVEVE TALK K ABOUT. YOU SAY GEE, HEDGE THAT POSITION, DO I WANT TO SELL THE STOCK EARLY. ADAM: LANCE, WOULD YOU FOLLOW THIS KIND OF A, IT SEEMS LIKE, YOU KNOW, MEDIEVAL VOODOO TO ME. ESPECIALLY IF SINCE IF I WAS A REALLY SMART GUY I WOULD COME UP WITH A ALGORITHM THAT WOULD LAUNCH TWITTER TWEETS, INFLUENCE THAT ALGORITHM, SO I COULD DO WHAT I WANT TO MAKE MONEY OFF IT. COULDN’T YOU DO THAT?>>THAT IS THE WHOLE THING. THIS IS THE FOOL’S GAME, WHATEVER YOU COME OUT WITH, SOMEBODY WILL COME OUT WITH SOMETHING THAT WILL TAKE ADVANTAGE OF IT. LET’S GO BACK TO WHAT THE QUESTION REALLY WAS HERE. CAN INDIVIDUAL INVESTORS INVEST AND MAKE MONEY AND INDIVIDUAL INVESTORS, REMEMBER, THE AVERAGE AMERICAN, THEY’RE SAVERS. THEY’RE NOT INVESTORS. AND THEY’RE NOT IN THIS GAME TO PICK OFF A FEW PENNIES HERE AND THERE. IF I’M BUYING A STOCK BECAUSE I BELIEVE IN THE COMPANY AND THE FUNDAMENTALS ARE STRONG, WHAT DO I CARE WHETHER THE STOCK MISSES EARNINGS BY A PENNY OR MAKES EARNINGS BY A PENNY IF I’M INVESTING IN THE STOCK FOR A LONG-TERM INVESTMENT AND I’M BUYING VALUE? NONE OF THIS MATTERS TO ME. BUT WHAT DOES MATTER, HERE IS WHERE IT IS IMPORTANT, WE HAVE MARGIN DEBT NOW BACK AT RECORD LEVELS, BACK TO WHERE WE WERE IN 2007. THE PROBLEM COMES IN WHEN SOMETHING LIKE THE FLASH CRASH OCCURS, THAT STARTS TRIGGERING MARGIN CALLS AND THEN YOU CAUSE A COLLAPSE IN THE MARKET THAT HAPPENS SO QUICKLY, THAT INDIVIDUALS CAN’T REACT TO HEDGE OFF OR TO SELL OR TO G GET OUT OF THE MARKET. THAT IS WHAT WE SAW HAPPEN IN 2008. WE’VE GOT EXACTLY THE SAME SCENARIO SET UP NOW. ALL WE NEED IS A CATALYST. ADAM: SCOTT, ARE YOU WORRIED THEY CALL IT A BLACK SWAN EVENT BUT SOME UNFORESEEN EVENENT IS GOING TO TRIGGER SOME KIND OF A MASSIVE SELL OFF? COMPUTERS WOULD REACT SO FAST THAT NOBODY WOULD BE ABLE TO MAKE HEADS OR TAILS BEFORE WE DROP PRECIPITOUSLY IN THE MARKET?>>THAT IS POTENTIALLY TRUE AND PROBABLY DUE TO HAPPEN, RIGHT? SEEMS THAT STUFF HAPPENS EVERY FEW YEARS. BUT ADAM, I KIND OF DISAGREE WITH LANCE. GOING BACK TO 2011, THAT FLASH CRASH THE MARKET WAS UP NEXT COUPLE WEEKS AND NEXT COUPLE QUARTERS. THAT WAS THE BIGGEST BULL RUN, RIGHT WE’VE HAD IN THE LAST THREE OR FOUR YEARS. I DON’T KNOW, ADAM. I THINK PEOPLE SHOULD NOT WORRY ABOUT THAT. I HOPE IF IT DOES HAPPEN WE HAVE CASH ON THE SIDELINES TO USE TO START GOINING IN AND BUYING.>>I IF YOU HAVE CASH ON THE SIDELINES EARNING NO INTEREST THANKS TO THE FEDERAL RESERVE. ON THAT I GET THE LAST WORD AND FAT WORD. HOW’S THAT? ALL THREE OF

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