Social media & investment trends

The recent run-up in the shares of GameStop Corporation (GME) has been driven by a herd mentality on the social media platform, Reddit. What began as a discussion thread on Reddit’s Wall Street Bets, a community of more than 3.1 million subscribers who discuss trading strategies, caused a major increase in the trading of GME prompting Nasdaq Exchange to halt trading on GME on a few occasions.   

The rise of social media-driven investing has contributed to the rise of social listening services, which try to correlate the discussion about a particular company or topic with changes in the price trends. Social conversations regarding GameStop and r/WallStreetBets began to increase in late January, as there were more than 82,000 Reddit mentions of ‘GME’ on Google and Sprout (a social listening service), which captured more than 1,582,000 tweets, over 1,450 YouTube videos about GameStop.  

While databases like Bloomberg terminal, financial parameters and an understanding of business fundamentals can help predict where a company is going, the volatility observed with GME and other stocks show how social media can disrupt market models at short notice. Other examples about the influence of social media include tweets from the former US President Donald Trump that moved markets (before he was banned from Twitter) and tweets from Tesla Chief Elon Musk, which has driven interest in ‘Signal’, a social media app as well as in Bitcoin.   

The single largest source of real-time consumer conversation is from social media data. As consumers and investors can’t and won’t be ignored, they have proven that social media will be the place that they will mobilise. This along with the large social media followings of industry influencers like Chamath Palihapitiya and the end result is categorised as higher market volatility.   

With companies including exchanges like Nasdaq using social media conversations to understand trends in the market, analysts can use social listening tools to offer them an edge in their investment strategies. Social listening can help analysts track investor perception & sentiment, understand consumer perception and perform due diligence outside normal channels, monitor competitor news, movement, and sentiment as well as identify financial influencers and market movers that need to be watched.