[Howard Lindzon, Co-Founder of StocktTwits]
There were two quotes that I'm currently planning to use elsewhere in Twitterville, that came to mind today, when I dug into the story of StockTwits, the Twitter-based open community for investors. The first was originally the lead sentence:
"It is often in the very worst of times that the very best of things get started."
The second is an idea that was to be used later in the book:
"Despite common perceptions, communities do not need to be touchy-feely by nature. They can be comprised of hard-nosed and pragmatic individuals who come together for a common interest and by forming a community they gather great benefits."
I can point to StockTwits as a demonstration of both. In these tough times, the traditional investment community has lost power and credibility. They have also lost individuals more money than I can calculate. In their perception, this is a prolonged down cycle that will eventually turn around. In my perception this is a great opportunity for a new disruptive force to come along and change the way we are influenced to invest.
I see that potential in StockTwits. I almost hesitate to put the the company formed in October into the Little Companies, Big Footprint chapter because by the time Twitterville is published, they may no longer be just a little company. They may be a significant influence on new investment trends. It is already growing at a rapid rate. It will have 10,000 followers in a few days and by the time my book comes out in September, my guess is it will have more than 50,000 active particpants influencing each other's investment decisions. Some of the members, virtually unknown in the traditional investment community are already gathering reputations as savvy stock pickers.
The company was started by Phoenix-based Howard Lindzon , a sequential entrepreneur and hedge fund manager manager and Soren Macbeth, an Oakland-based currency exchanger enthusiast. In 2007, Lindzon sold his Wallstrips, video program a pop culture financial series to CBS. I have the sense he's a busy guy. It took him a while to get his answers to me, and then he sent them deom his cellphone in two parts, stripping out the questions, which I had to the re-enter. This would have been frustrating except his answers seemed to me to be really good.
Q1. Can you walk me through the thinking that created StockTwits? How did Soren Macbeth and you get together?
Soren and I got together from his consistent smart comments on my blog. We became friends and I had been writing about the 'idea power' of Twitter and how it was perfect for stocks. Soren agreed and we partnered to create a Twitter account for stock chat.
Q2. All your investors are individuals known as financial players who are already adept at
social media. Did you approach them because they already understood how
social media works?
I am not
that smart, but one thing I have learned that is that along with good ideas and a
good network, money is a commodity. So it is best to include investors
passionate about the space and/or idea and those that can add a unique
value to the whole vision and potential exit strategy. So the short
answer is we were very picky about who we wanted to invite and accept into
the round.
Q3. How has the economy impacted StockTwits?
The economy has helped StockTwits. People are scared. People are upset. The stock market is a mood ring and StockTwits captures the mood. We think that the wiser members are rising to the tip to help support new investors through the process.
Q4. What is the intended ROI on their investment?
I believe that creating shareholder value is all that matters. I am not a trained venture capitalist so I focus on a fair valuation and pricing and don't focus at the beginning on an ROI.
Q5. What is there about Twitter that made it ideally suited for StockTwits?
Stock people are not technologists. We want FLOW. The best traders can take in huge amounts of data, good and bad, and so like with Bloomberg, the more the better. Twitter is great for stocks for a few reasons. One is that ideas in real time are what matters. News is a commodity and with Twitter, our users can provide context. Also, with Twitter, although archaic, the reputation feature is a huge move forward. The reputation makes it harder to just walk away. You must protect your reputation in the finance business. Also, blocking and filtering who you follow in Twitter are simple--but key--element that we brought to the stock segment. The one-to-many ability also turns every wannnabe analyst into a potential superstar...if he or she is good.
Q6. Were there any barriers you had to consider or overcome to starting StockTwits?
We needed to find a way to separate chat about a product or company that was no stock related to that about ideas and by creating the "$" tag ahead of ticker symbols, we did just that. We think the "$" really is a simple tag to remember for stocks and finance because well, the symbol equals money. Other than that, there were no real barriers. The best defense is a good offense, so we are mostly thinking of feature acceleration, rather than protecting what we have built. Keep the company small, flexible and lightweight on the burn.
Q7. What sorts of filtering does StockTwits use? What stops a group of speculators from touting a stock or forcing it into an artificial short position?
StockTwits only filters out bulletin board and penny stocks. I bet that 90 percent of all Yahoo spam originated from the penny stocks and the PR/Investment Relation firms that are set up to push stocks from the hands of a few into the hands of many. You can't chat about those on our site.
We also have an early and aggressive anti-spam policy and we police the stream to catch spammers. The community itself does a good job of filtering out the noisemakers and troublemakers.
What stops people from making reckless recommendations should be that a person has no followers. His recommendation falls upon deaf ears. StockTwits is about reputation and trust. You earn that. You can't show up the first day and have it. If you ARE talented though, the community is set up to promote the best traders as fast as possible. Think DIGG for stocks but with a human, feature that helps manage who rises to the top. StockTwits is all about building a farm system for ideas generators. Ideas that will make the community members money.
Q8. Are there any legal issues that you had to consider in starting and running StockTwits?
We have a pretty detailed disclaimer but we are not recommending securities. Bulletin boards/message boards have been around a long time. That said, we take our responsibility seriously and we want to make sure that the site's integrity is high. The way the feed is structured should help us do that better than previous technologies and message boards.
Q9. Do you have a great story of something that happened on StockTwits that could not have occurred if it weren't on Twitter?
Traders are generally alone in a room and therefore lack a sense of community. It is a lonely profession as most good traders are isolated. StockTwits has helped create some positive camaraderie, despite the market ugliness. There are cheers and fighting songs used to lead the community into trades. We are loving the support the community members are lending one another.
Q10. Longterm, how do you see social media in general and Twitter specifically impacting the way stock investing will work?
This stock market crash of 2008 has brought down most of the big financial institutions and distributed the talent across the world into very small buckets. Our job at StockTwits, using the social web, is to re-aggregate the people who love stocks and the markets. We do that by helping analysts and traders build audiences built on trust, transparency and performance. You won't be able to raise money inside a black box operation. The days of the massive sized hedge funds are over. I see a day of smaller, more transparent hedge funds and the social webs will be integral in the new fin/tech world.