Social Media and Small Cap Vs. Big Cap Stocks

Does Social Media have an impact on stock trades? A question we’ve been delving into and here we reveal an interesting finding in our work so far. Essentially, we have found that small public companies (with a market valuation under $100 Million) experience greater trade stability than those with higher valuations, Big Caps or Seniors. At least in Canada and the United States, when having a higher presence in the social mediasphere.

We monitored 6 juniors and 6 seniors in the U.S. and Canada on the NYSE and TSX over a 4 month period, so we had some pre-meltdown data. Although we’ll say up front that due to the sudden volatility over the past 30 or so days, there is some cause for trepidation in these initial findings. To be sure, we will expand this monitoring since we need to compare different sectors as well, since we only monitored commodities.

What we found however, was the the Small Cap companies who used blogs or engaged with bloggers and other forms of Social Media enjoyed less overall volatility over the past 30 days (20% less in fact.) The larger, more established companies were not engaged in Social Media and only used traditional media channels to communicate their messages. We also note that the Small Caps had a significantly larger number (by 40%) of retail investors who tend to hold only for short periods and are not “builders” when it comes to investing.

Our initial conclusion is that Small Caps have a larger following of retail day traders, who are also very talkative on Bull Boards, Forums and Newsgroups and who share prolifically any amount of information no matter how small it is. So if you’re a Small Cap, you might find Social Media to be a valuable way of engaging your retail traders for your investor relations.

(Author: G. Crouch, Managing Partner)