Twitter: The New Way to Invest

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Twitter isn’t just for posting random thoughts no one cares about. You may be able to use it to make some money as well.

According to a study released this month from Indiana University, it is actually possible to use Twitter to determine the public mood, which in turn can help predict the ebb and flow of the stock market.

The researchers analyzed nearly 10 million tweets from 2.7 million users over 10 months and found the ups and downs in public mood could be used to predict the daily ups and downs in the stock market with an incredible 87.6% accuracy.

To determine this, the researchers used two mood tracking tools, one that analyzed tweets to find out whether Twitter users were feeling positive or negative and another that classified tweets by six different moods, including calm, alert and happy.

Of course, we understand if you have your doubts about whether this will really help your stock portfolio. After all, most people probably won’t analyze the entire daily output of millions of Twitter users in this way. That said, the study simply makes the case that investors should factor data about the public’s mood into stock predictors.

For the time being, though, there is another new tool that works toward this end.

Last week, StockTwits, an online service that posts real time updates from investors on Twitter, launched a tool called Stock Following that lets users track their favorite stocks in the same way they might follow friends and co-workers on Twitter. In this way, you can use Twitter to find constant updates about how investors and the public feel about particular stocks throughout the day. It may not be infallible, but at least you have the option to see if people are depressed or ecstatic about a stock before you invest in it.

That said, you should always think twice before picking a stock solely based on information found through a social network. There may be some wisdom in what the masses think about a particular company, but some people’s opinions may be better than others. Also, if you’re looking at information from someone billing themselves as a qualified investor, make sure they can be verified by a reputable third-party such as Stockpickr, our sister site.

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