Justin Bieber, one of the world’s most recognizable pop stars, was discovered on a Google-owned video-sharing service, YouTube. Leapfrogging the usual merciless gauntlet of Simon Cowell–mannered record label scouts, American Idol auditions, small-town talent and trade shows — that is, all the barriers faced by young performers in search of stardom — Bieber took straight to the Internet to develop an organic mass following. That caught the attention of superstar R&B singer Usher, who signed the then 13-year-old Bieber to a contract with mega-label Island Records. The rest is history: The web-savvy Bieber became at least as mainstream as any boy or girl who had to pass through the Saint Peter–inspired selectivity of the gates of Disney Television and onto the stage of The Mickey Mouse Club (Justin Timberlake, for one). Social media became lodged in lore as providing unconventional avenues to success, inspiring millions of young children around the world to upload “Stairway to Heaven” guitar covers and a cappella songs to video-sharing sites in the hope of achieving similar fame. But could the same thing happen to a financial analyst?
In other words, might Twitter — which went public earlier this month — ultimately do for Wall Street analysts what YouTube did for undiscovered music artists, by disintermediating analysts and clients through a weakening of the grip of large investment banks over the dissemination of research and analysis aimed at the buy side? Will Twitter empower analysts to publish their own insights and research independently and to attract a following and monetize their work without the need for a patron institution? While regulatory and compliance issues abound, such a transformation is less inconceivable than ever before.
In April the Guardian called social media platform Twitter, with its 140-character broadcasts pouring in from 49 million users in the U.S. alone, “the first and quickest source of investment news.”
The rise of Twitter in business, technology and culture has been thoroughly documented (and with increasing frequency, as a result of the company’s IPO). Many commentators and players have loudly hailed its benefits for the financial sector. The platform works in real time, as a kind of crowdsourced, infinitely sensitive ticker. Twitter enables analysts to tweet microbursts of insight that are ultimately more fresh than carefully vetted research notes produced by expensive, slow-moving, conservative teams at large financial institutions. This fact in and of itself seems to promise a new avenue for independents to capture clients; key insights into market shifts of all sizes will probably always accrue valuable prestige to their fastest disseminators.
In some ways Twitter is already doing for small firms and independent analysts what YouTube did for Bieber; lists of top financial Twitter handles are already being published by Business Insider and others. So far as can be predicted, however, independent success on social media sites depends on the “quality” of a given Twitter stream — often determined impressionistically — and the overall efficacy of any user’s unique voice. Both concepts are reportedly difficult to translate into a practical social media plan for a company of any size, outside of certain best practices. There are examples of what one might call success, however. Barry Ritholtz, an independent analyst, has some 47,000 followers (more than the official Twitter account of all of Morgan Stanley, which clocks in at about 40,000 followers); Bespoke Investment Group, a two-man research shop, has almost 30,000 followers; fund manager and self-declared enfant terrible Eddy Elfenbein has 13,000; and Michael Kitces, editor of the blog Nerd’s Eye View, has acquired 11,000 followers.
Skeptics of the Twitter phenomenon as it has affected the financial industry consider the use of social media a fool’s errand, especially in that it destroys the single best promise of success at the heart of running a competitive fund: exclusivity. New York–based Integrity Research, for instance, has underlined that broadcasting information that might augment your fund’s performance eliminates your own competitive advantage, which in turn ought to discourage potential clients with a grain of sense. Furthermore, there’s no guarantee that even the most retweeted prediction is of any real value, or that tweets can move markets at all. (The exception here is a now infamous tweet by 26-year-old Kevin Kaiser of Hedgeye Risk Management that allegedly caused Kinder Morgan’s stock price to plummet 6 percent.) Note that the Guardian didn’t call Twitter the most reliable source of financial news. It’s also worth noting that conventional news sources have at times as many followers as even the most successful individual independent analysts; CNBC, for instance, clocked in at 1.3 million followers at the time of this column’s writing.
Nonetheless, a Twitter-savvy independent fund manager prospecting for new clients on Twitter wouldn’t have to expend resources duking it out with big firms in conventional research arenas. It doesn’t take a team of hundreds of Ivy League econ grads to peruse a few hours’ worth of hashtags and then compose a wittier-than-average tweet. Then again, the big firms — Morgan Stanley in particular — have already made their own increasingly successful forays into the tweetosphere, weakening any notion that social media is a kind of Wild West in which information is necessarily unfiltered, better, faster or purer. The Wall Street Journal reports that 40 percent of all investment banks tweet to clients. Deutsche Bank cautiously allowed Silicon Valley–based managing director Ted Tobiason to begin tweeting about technology last year; it now runs branded Twitter newsfeeds in both English and German.
Overeagerness for digital avian engagement can backfire, however: Just last week J.P. Morgan canceled a planned question-and-answer session over Twitter when Internet denizens preemptively hijacked the #AskJPM hashtag with less than favorable statements and jokes about the Wall Street firm. J.P. Morgan’s final tweet on the matter: “Tomorrow’s [Twitter] Q&A is cancelled. Bad Idea. Back to the drawing board.”
There is, of course, another barrier to the rise of a true Twitter celebrity financial analyst, born and raised on social media: a set of complex regulatory concerns behind the use of those media to generate leads, provide advice or market. Indeed, the concern is that the use of social media confuses all three activities, whether a user is an individual or a member of the Big Board. Social media marketing is stupefyingly low cost and low touch — and sometimes goes viral, amplifying itself through retweets and shares, at no further cost to the advertiser. However, the Federal Trade Commission has indicated concern over activities such as counting a “like” on Facebook as a testimonial and is pushing a requirement that firms inform clients in advance of their social media presences, among others. Many companies have strict policies in place forbidding employees to deviate from set templates for tweets and posts — or forbidding them to use the platforms at work.
Love it or hate it, however, it would be difficult to overestimate the social and professional cachet that might await individual analysts who manage to wend their way to just the right mix of digital personality and real-time financial insight backed by demonstrated results. And no thinking businessperson can afford to ignore the age-of-the-web phenomenon that is Justin Bieber. His Twitter feed has more than 47 million followers (more than ten times as many followers as the Wall Street Journal and CNBC combined); at the age of 19 Bieber — once an utter industry unknown — appeared on the cover of Forbes, which now lists him as the ninth most powerful person in entertainment. He’s No. 27 on its money list. (For the curious — or maybe for the masochistic — here is his first-ever YouTube video.)