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)
Best Practices•
on August 7th, 2008•
The SEC in the U.S. has updated its guidance relating to public companies and their use of corporate websites for investor disclosure. Quite significantly, we think, they have recognized Social Media in the context of Social Networks and how groups of investors can discuss information and the impact on a company stock. The last time any such Internet related guidance was issued was 2000. Even the SEC acknowledges things have changed. Quite a lot. Oddly enough however, the new rules will not be posted on the Web until the print version has appeared in the Federal Register.
Some of the interesting points:
Sarbanes Oxley: Although as yet unclear, the SEC is saying that information posted on a website does not necessarily fall under Sarbanes Oxley rules. There is no direct translation of this in terms of Social Networks; as in do conversations need to be kept on file internally? If so, data storage companies will be a good investment. We think this regulation needs some further clarification that may come out when it is printed and then on the Web.
Participation: The rules now cover anti-fraud and direct participation by a company or company person presenting information in a blog or other form of Social Media (presumably this covers vlogging and microblogging.) One wonders; will a “comment” or blog entry by a company representative be followed by three long legal paragraphs about disclosure warnings and statements of speculation?
The How: The rules will apparently clarify “how” information posted on a website will be considered public. This may impact Content Management Systems and controls for corporate blogs. This may also impact the “who” for who posts information to the Web.
These new rules essentially say “Social Media is here to stay and we have to figure out how public companies can play here.” Such significant changes in SEC rules are most often driven by incidences resulting from cases where the issue in question has resulted in fines or other legal actions and inquiries. Anyone know of any significant legal cases around Social Media and public companies?
Canada has a very fragmented regulatory system, so likely any changes in Canadian practices will come from Ontari’s OSC and be adopted in various forms by other Provinces. Changes however, will undoubtedly come to Canada. Such regulations are important to protect investors and we think this is a good move by the SEC; what do you think? Will the rules let companies be more open or will they become more “closed”?