Sunday, 24 March 2013

Brevity is the soul of wit - how Twitter changes research

140 characters are enough to make a point, but only if you avoid wasting words. The age of the tweet has arrived and I welcome it with open arms. Social media commentary is already having a profound impact on journalism, and I suspect its impact will be felt increasingly in investment bank research too. In my life, that is already the case.

The internet and social media accelerate the speed at which information and views are transmitted, running the risk that facts aren't checked, gossip is spread and the quality of reporting deteriorates. At the same time, we have seen the emergence of a thought-leading 'commentariat' whom everyone respects, or at least listens to and who now have a far wider audience than before.

London coffee shops  used to be where news and opinion spread. By the time I started work, opinion-sharing and forming, at least in financial markets,  had moved to the bars around Cheapside. And the press were meeting in bars off Fleet Street. But the City spread to Broadgate and Canary Wharf, the journalists were scattered to the four winds and licensing laws and commuting encouraged us all to go home instead of the pub, anyway.

At the same time the financial exchanges we worked in closed and dealing rooms became quieter as more trades were undertaken electronically. With the increased 'sophistication' of the instruments we trade, we surround ourselves with great banks of screens that cut out conversation with all but our closest neighbours. The modern-day Master of the Universe is an increasingly solitary soul, working long hours, doing deals, and returning home.

Social media are filling the void that was left as we abandoned social intercourse. On Twitter, we engage in debate about the world, much as one would in a bar after work, but without collateral damage to livers. The risks are clear: When someone tweets something, it can be accepted as being true even if it isn't. Malicious gossip spreads like wildfire and the only form of quality control is peer pressure. High quality factual journalism is no longer valued (or at least no longer paid for). 'Opinion' may or may not be objective. If you rely on social media for news and don't check facts, you're a fool. But as well as allowing us to be  immediately notified of the latest thoughts of the intellectual great and good, Twitter brings us any number of very clever people offering 150 character analysis of the events which shape our world.  Better still , many of them are writing thought-provoking and detailed analysis on websites and blogs, to which they kindly attach links. How cool is that?

The press has been quick to respond, largely embracing Twitter and other social media.Financial markets too, are increasingly embracing the new media. What we rather pompously call 'sell-side research' is grappling with the issues and  lagging behind. But it certainly can't ignore what is happening.

When I first started writing, I produced a weekly telex comment for clients, progressing  to a printed piece which was sent in the post. Then there was email, then there were websites and then there was Elliott Spitzer and large-scale tightening up of the rules surrounding how "research"could be distributed.

The tightening up of standards and rules surrounding research published by investment banks, has left a gap which social media are filling enthusiastically. A traditional research note on the impact of events in Cyprus this weekend can't clear compliance much before 9 a.m on Monday morning, too late for markets in search of instant gratification. But then, what market participants want isn't a traditional research note, with 'buy' and 'sell' recommendations carefully vetted and caveats strewn around like confetti. "What has happened, and what does it mean?" is the first question, followed by a deluge of follow-ups "yes, but what if...." and so on.

Whether you are  a trader, a salesperson, a fund manager, a Master of the Universe or indeed an interested by-stander,  what you want is information, opinion and debate and Twitter gives it to you. For the traditional common-or-garden sell-side analyst, this demands a change of approach. The public dissemination of non market-moving information and broad macro-economic views should not be subject to restraint by regulatory authorities. At the same time, the analyst does not necessarily know for sure how markets will react to news. In the instance of Cyprus' woes, we have all known for a long time that a bailout was needed as a result of losses incurred by over-leveraged banks as the Greek crisis deepened. Whether the terms of a bailout will cause further risk aversion and contagion is a matter of opinion, and the best way to establish how the mood in financial markets will evolve, is to express an opinion and open it up to a wider debate.

So 300 years ago, I would have headed for Covent Garden this morning, with my top hat and my cane, in order to sound out the mood of those I respect. Today,  I am more likely to go to Starbucks in Crouch End before returning home, coffee in hand to shoot the breeze on-line. I'll be doing so in a personal capacity, and I'll be wary of the need to comply with regulations surrounding the publication of research that were written long before the social media revolution happened, but just because my business card says 'Strategist' rather than "Middle-aged bald bloke trying to figure it out" doesn't mean I can do without the debate.


  1. Yes Twitter changes research no doubt. It is a discovery platform and distribution platform. I would love you to try and benefot from our superdistribution and focused 24/7/365 audience on just markets like $MACRO

  2. Twitter is an amazing medium for information dissemination, StockTwits does take it even a step further with curation and reputation and features around consumption.

    But the bigger thing going on here is the disintermediation of who has voice when it comes to research. The sell side used to be the only one with the microphone, but now many other voices are able to be heard, whether they be via Twitter, or StockTwits, or when it comes to something like earnings estimates, Estimize, where hedge fund, asset management, and independent analysts are producing a better data set. Again, providing more value than the sell side.

    It's not the medium (Twitter) that is the important story here, it's the disintermediation of the whole sell side model which was predicated on only the banks having the microphone.

  3. Great analysis:

    The tightening up of standards and rules surrounding research published by investment banks, has left a gap which social media are filling enthusiastically. A traditional research note on the impact of events in Cyprus this weekend can't clear compliance much before 9 a.m on Monday morning, too late for markets in search of instant gratification.

  4. Thanks! What are your views on the twitter use by the sell-side? Obviously, they can restrict access to their clients only, but that would still leave questions regarding compliance, quality control, etc. Should/can they harness the power of twitter at all?

    1. I am, in my day job, a sell-side analyst who uses twitter. An individual using social media needs to be wary of rules on insider information and front-running research recommendations, as well obvious things like saying something that could upset or embarrass employer or clients. Some people skirt this issue by using aliases, I prefer to tweet in my own name. But from a legal/compliance standpoint, the main concerns are surround who a research analyst gives research recommendation to, and when. Front-running recommendations (trading, and then recommending that others follow in your footsteps) is illegal, but easily avoided by not tweeting research recommendations; and the same applies to the rules about what advice can be given to non-professional investors. Broad macro-economic opinion is not a trading recommendation, whereas specific investment recommendations are much more dangerous, as not all readers have a sophisticated understanding of investment markets.

      Beyond these concerns though, twitter lets a sell-side analyst share thoughts and ideas with a wide audience. No-one is prohibited from reading them and responding. That's healthy and very useful as the analyst's opinions are formed.

    2. Does soc gen have a twitter account where they provide market commentary?

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