Ever since the popularity of online trading in the 1990s, traders and investors have been ditching their stock brokers and performing their own investment analysis and trading. All at a fraction of the cost and with greater access to reams of market information. As part of this transition to self-managed investments, many traders and investors subscribe to various trading signals (alerts) services, financial newsletters, commentary and analysis services and even investment clubs. This is all done in the hopes of acquiring accurate, timely and useful information in order to make better trades and investments. With the interminable quest to find better data, strategies or analysis, social networking is also being leveraged.
Social networking use has grown dramatically since the mid-2000s. Sites like Facebook, Twitter and LinkedIn are used for many purposes such as maintaining personal relationships, gleaming trends and professional relationship management. There is now a growing trend in the use of social networks to assist investors and traders to make more informed trading decisions. Specifically, social investing is now considered a new form of investment analysis compared to the traditional fundamental and technical analysis.
Social investing makes use of crowd intelligence to provide participants access to information that is then utilized to make more informed investment decisions. In a sense, it is like tapping into the subconscious of market players similar to the way that a trending idea or meme permeates an entire society. The fundamental technique used in social investing is collaboration. Members of a social investment network share their insights, knowledge, analysis or other information with others so that the entire group benefits. The larger the network, the more varied the information that can be obtained. Social investing can complement individual fundamental and technical analysis to round out a thorough investment decision.
As Hayek described, it is impossible to centrally plan an economy because nobody or no one group can know what is in everybody’s head at any given time. An economy functions as a sum of individual action. Acknowledging this is a prerequisite to understanding any market. Social investing recognizes this fact and hopes to encourage the distribution of market information in a voluntary and mutually beneficial manner.
As an investor, consider adding social investing to your arsenal of investment decision-making.