NEW YORK, NY - (Aug 9, 2011) - As more people turn to social media for investment news and tips, it is important to keep a clear head and stick to the basic rules of investing, according to the team at Firstrade, www.firstrade.com (Twitter @Firstrade), a leading online brokerage. According to a 2010 report by SpectrumGroup, 63 percent of Twitter users would consider information from investment tweets when making a financial decision.
"While online discussion boards and Twitter feeds are very informative and sometimes even exciting to follow, self-directed investors should always take what they see online with a grain of salt," said CS Hsia, Vice President of Firstrade. "Not everyone who posts information or stock tips is a good investor or has other people's interests at heart. Social media can be a great tool, but it can also be an investor's downfall if information is not vetted properly."
To help self-directed investors navigate the labyrinth of information available online, Hsia offers the following thoughts on receiving and offering information on Twitter:
- Follow the "$" Symbol - With all of the discussions about stocks occurring on Twitter, it may be difficult to find information about a particular company. A tweeting trend has emerged in which "$" is typed in front of the stock symbol to flag it for discussion, similar to the pound sign's use as a hashtag. For example, if you want to find tweets about IBM, search for $IBM.
- Consider the Source - With only 140 characters to work with, most tweeters don't bother disclosing their positions when praising or panning a stock. If a particular user's analysis has you tempted to make a move, be sure to look at his or her past tweets to see if there's a clear trend, or if there are discussions of existing positions. You can even search the person's Twitter name to see what others have said about him or her. Also, it is good practice to view any websites to which the individual has linked in current or previous tweets.
- "Ask the Audience" - Use Twitter to take a poll of popular opinion on the category or company in which you are about to invest. "Trending Topics" is a great feature that Twitter brings to social media. Also, don't forget to reach outside the "Twittersphere" and research the stock on traditional websites (or go "old school" and talk to a friend or colleague) before following an idea from a tweet.
- Keep Your Cool - As Twitter continues to soar in popularity, you'll find more and more users either "pumping" their positions or viciously bashing stocks. This is particularly extreme during earnings season, and when investors feel the pressure of an expiring option or an impending margin call. Regardless of what your particular position is, remain calm and try to avoid starting "flame wars." You might find it helpful to block such users if you feel they are affecting your good judgement.
- Don't Be a Twit - Even with all the research in the world, sometimes things just don't go your way. When that happens, there is a huge temptation to try to "sway" the market in your favor by tweeting. While you are certainly entitled to expressing your opinions, you should base your comments on publicly available statistics and facts. Tweeting rumors or baseless beliefs is not only unethical, but could get you into trouble with the regulators.
Hsia noted that the most important thing to remember when selecting positions for your portfolio is that this is your money, and you are the best person to decide when, where and how much of it to invest. As the noted Roman philosopher, Cicero (who was around centuries before the stock market existed), once said, "Nobody can give you wiser advice than yourself."