Thursday, May 15, 2008

Social investing - where are't thou?

Social media and the role it plays in investment decisions continues to gain credence amongst the financial glitterati. The furtive days of the disgruntled "bedroom blogger" have given way to a world of considered (and not so considered) opinion as authored by 'market gurus', traders, and private investors. Over 700 financial blogs exist in the world today and this rapid growth shows no sign of slowing (There were about 200 financial blogs in 2004).

The acceptance of blogs, and more recently twitter (news frequently breaks first on twitter before it hits the mainstream), as key investment tools has in no doubt been helped by the collapse of Wall Street icons such as Bear Stearns; traditional guardians of financial information, now swamped in a sea of subprime. But also the all-to frequent scandals to hit major corporations, be it a WorldCom or an Enron, who's demise is often (deliberately) overlooked by the supposed analysts paid to follow them.

However, the cut-and-thrust of social investing has predominantly been an American affair. The strawberries and cream brigade have largely kept quiet on affairs of state. A quick comparison between the number of blog posts for 'Northern Rock' (28,935) versus 'Bear Stearns' (679,334) showed almost a 20:1 disparity. On a relative scale, the collapse of a brand like Bear Stearns (est. 1923) versus Northern Rock (est. 1965) is going to favor the former, but should this difference have been so great?

Although there may be cultural, if somewhat stereotypical reasons for this difference, this is not the real reason for the disparity. The past 10 years have seen a huge, and competitive growth, in the availability of online financial information in the U.S. This massive resource pool has provided a nutritional source for social media to thrive upon. It has fed the numerous bloggers and twitterers of this world, upon whom the finanical glitterati go for their dose of Java. But this freedom of information has created obvious commercial benefits; one only has to look at the competition between online brokerages for investors to know social media means big business.

But in the social policy world of Europe, where is this transparency and equality of financial information? The old-boys-club reigns supreme with their smoke and mirrors (and premium charges) just as it did in Wall Street before the fall. But for how much longer can this be maintained?

The Old World may be slow to adopt the trappings of America's social investing scene, but adopt it will have to. And when it does, the old-boys will need to learn fast, very fast.

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts, and stock charts website