Are Firms Ready for Twitter?
Playing catch-up with community-creating technology
September 15, 2008
New channels of electronic communication have been a boon to many industries, opening up sales and marketing opportunities, helping improve customer service and speeding up innovation and collaboration. For Wall Street, however, the benefits of technology such as Twitter have to be weighed against the compliance pains.
Twitter, launched by San Francisco-based Obvious in late 2006 before being spun off, is a cross between an online discussion board and instant messaging system, allowing people to post short updates--capped at 140 characters--on their activities. Users can subscribe to each other's updates, or tweets, and have them sent to their Twitter screens. Some Twitter posters develop armies of followers.
Early adopters, as with most other social media platforms, were primarily teenage girls and the technology obsessed. But usage has spread quickly in recent months--the platform regularly grinds to a halt due to heavy traffic--and Twitter, with its powerful community-creation mechanism, is becoming widespread among groups such as venture capitalists, journalists and stock traders.
Because members select the people they want to follow, Twitter communities are self-organizing. Twitterers can see who the users they are following are subscribed to and follow them as well. If a particular user is particularly annoying, one click makes them vanish from your screen.
Twitter users often link to news items or blog entries, discuss issues of mutual interest, spread gossip and provide coverage of events in real time. For Howard Lindzon, partner at Toronto-based hedge fund Knight's Bridge Capital Partners, Twitter is both a useful research tool and a way to share information with a closed network of friends. "I've been using Twitter for about six or seven months," he says, adding, "some friends of mine had invested in it, so I was shown it early in the cycle."
A major attraction of Twitter is that, unlike securities trading message boards, "it's not spam-filled, with people talking about penny stocks," says Lindzon. "It's really a closed conversation with people."
Lindzon is so enamored of the platform that he created StockTwits, a service that searches for Twitter postings that mention stock symbols. "We're creating an aggregator where people can listen in on what people are saying," he says.
Undercover Users
Timothy Sykes, a former hedge fund manager and author of "An American Hedge Fund," is another proponent of Twitter. Sykes did not use Twitter when he ran Cilantro Fund Management--the fund closed last fall, just as the technology was gathering steam. But today he uses Twitter to promote his blog, which offers investment advice "for entertainment purposes only," and for research. Sykes says he follows the tweets of about 400 users, including stock traders and fund managers.
"You can get a sense of what people in the industry are thinking," he says. And judging by the posts from other fund managers and traders, he knows he's not alone. However, there are probably many more who passively follow Twitter conversations, he adds. "I would guess that there are thousands--or tens of thousands--of financial industry professionals who are not using their real names and following people," says Sykes.
If Sykes was working for a big Wall Street firm, he wouldn't be actively Twittering. "I definitely would not risk my company finding out, or the SEC coming down on me," he says. "Someone could lose a lot of money because of your tweets. I wouldn't risk it." Instead, he would restrict his use to pure research, in a read-only mode.
