How social insights can supercharge investment research

As an investor, social-media data can be one of the most valuable cards in your deck. When used alongside financial data sets, social insights can empower investment researchers, they capture opinions that are often a precursor to consumer behavior. In this way, researchers can get a jump-start on the potential impact of consumer intentions on financial markets.

Three ways investment researchers can use insights from consumer social intelligence include:
● Interpolating inferences from microbehaviors to determine broader economic impact.
● Identifying and analyzing trends.
● As input to the buy, sell or hold decision for individual stocks.

Social intelligence can help researchers identify — and quantify — minor shifts in specific topics that can have a real impact in aggregate on the economy. Take the prediction of box office takings for movies. Social-media conversations between individuals about going to the movies are microevents. But by aggregating individual conversations from millions of consumers, the data becomes more representative than many methods of collecting consumer opinions. It is not difficult to leap from these microdiscussions to identifying a movie’s chances of becoming a blockbuster: a growing swell of positive social conversations is good news for a movie’s box office takings.

Over time, more people expressing their intention to go to a movie, or to the movies in general, can indicate greater disposable income available in the family wallet. This offers researchers insight into the liquidity of consumer finances. By relating the patterns of these conversations to economic indicators, researchers can understand more about expendable income and economic prosperity. On the other hand, monitoring fluctuations in conversations about purchasing large-ticket, essential items, such as cars and homes, as well as attitudes toward debt, mortgages or student loans, can inform alternative market conditions.

One of the highest values of social intelligence is its immediacy. Monthly reports such as the Bureau of Labor Statistics’ report on U.S. employment rates can be informed by up-to-the-minute conversations about people getting or losing jobs. Aggregating consumers’ expressions of joy about getting a new job across millions of social-media posts is valuable input to more traditional fundamental research.

Social intelligence analyzed over time can provide trending and benchmarking data about specific markets and sectors. Analyzing consumer perceptions of an entire market or market segment can indicate whether something is a true industry trend or just a passing fad.

An analysis of online eyeglasses retailers shows their impact on the overall eyeglasses market. Social insights can surface preferences of different demographics, such as the strong millennial buzz generated by Warby Parker. Monitoring the ebbs and flows of sentiment over time can inform whether the brand has staying power.

Comparing the social sentiment of brands with their competitors, or sectors by region, can also inform new winners and losers within a category or segment. Again, the immediacy provides additional value for those looking to get an early start in jumping on or off a trend.

Tracking social-media interactions about a company’s stock ticker, alongside the brand and trend discussions mentioned above, is another key social intelligence tool. Historical back testing versus stock price movements can provide early detection of correlations that can be validated with additional analysis.

How a company leverages social media during a crisis can critically impact the speed of recovery from a negative event. For example, Richard Branson publicly empathizing with victims and proactively and authentically communicating through social media during the Virgin Galactic crash helped mitigate damage to the company’s reputation. Typically when a catastrophe strikes, the volume of social media increases exponentially, and it is often all negative. Without proactive intervention such as that by Mr. Branson, the backlash can be both sharp and prolonged. Consumers will quickly express their intention to drop a brand, so it is important to have a social strategy in hand to be ready to respond.

The #Blackfish controversy emanating from a 2013 documentary spotlights SeaWorld’s inability to respond appropriately. Prolonged consumer discontent has had devastating consequences: an 84 percent drop in the resort’s profits was reported in the summer of 2015. Close tracking of social-media metrics will inform a researcher whether, and how quickly, the company can recover from a negative incident.

Social media is here to stay, and is becoming increasingly relevant and valuable. Social insights help investment researchers gain important visibility into market trends at the industry and company level — an important advantage that no investor can afford to ignore.

Stephanie Newby is CEO of Crimson Hexagon and previously founded investment firm Golden Seeds.