By Paul Hawtin

News and media organizations rely on a network of reporters and agents to write and report news stories.

The vast majority of these news stories inevitably affect the share price of certain listed companies around the world within minutes of their release. The number of reporters and agents working for media organizations is limited. It is simply impossible to have people positioned in the right place at the right time to capture every event as it happens.

Once a reporter witnesses or is informed of an event it can take up to an hour before the news story breaks on the wires. That’s vital time lost when it comes to trading.

Twitter and Facebook’s 1 billion combined users make up about 18% of the world’s population. There are more eyes and ears witnessing and tweeting events as they happen than all the news networks combined could ever possibly match. The speed at which an event can be reported over social networks is practically instantaneous.

For example, the moment US Airways LCC  Flight 1549 touched the surface of the Hudson River in a miraculous ditched landing by Captain Chesley Sullenberger, a passerby, Jim Hanrahan, aka Manolantern, witnessed the event, and proceeded to tweet “I just watched a plane crash into the hudson riv [sic] in manhattan”.

Twitter users broke the news of the incident around 15 minutes before the mainstream media alerted viewers and readers to the crash. Another example is when the U.S. special ops team were carrying out their mission to kill Osama bin Laden. An IT consultant, living in Abbottabad, unknowingly tweeted details of the U.S.-led operation as it happened. He tweeted “Helicopter hovering above Abbottabad at 1AM (is a rare event)”. Both of these tweets were reporting major global events as they were unfolding. The information was made public on the Twitter network in a matter of seconds after the tweets were submitted.

Events, large and small continue to occur and be reported on social networks before any of the major news agencies. Based on the assumption that traders and investors rely on major news channels such as CNBC, Reuters and Bloomberg, there is an opportunity to develop technology to filter through social media data in real-time to discover news before it breaks. This provides firms such as ours (Cayman Atlantic at: http://www.caymanatlantic.com/) the opportunity to position ourselves long or short of an equity we believe will be affected once the news breaks and goes global.

There are several authorized social media data vendors such as Gnip and Datasift who for a fee can provide real-time access via their API. There are also firms such as Dataminr who have built technology to automatically alert traders to information their algorithms believe is of value the moment it is posted.

The rise of social networks

Social networks burst onto the scene around 2003/4 with early networks such as Myspace and Bebo quickly gaining popularity. People from all over the world flocked to sign up and connect with friends at an alarming rate. So fast, in fact, the major global media corporations paid huge sums to acquire these rapidly growing networks.

AOL acquired Bebo in 2008 for $850 million from its long haired, geeky founder Michael Birch and News Corporation NWS, under the helm of Rupert Murdoch, picked up Myspace for a cool $580 million in 2005. Then from a dormitory at Harvard a young Mark Zuckerberg launched Facebook which has grown into the largest social network in the world with an unprecedented 900 million active users and a valuation of $104 billion when the company listed on the Nasdaq in 2012.

In 2006, Jack Dorsey launched Twitter, a simplified network where users could freely post short messages to their followers. Twitter now has 300 million active users who post on average two billion “tweets” — 140 character messages — every week.

Tweets or Facebook status updates are made by users expressing their feelings, experiences or describing events as they happen. The data being generated from over a billion users is vast and unstructured but holds highly valuable information for traders and investors.

About Paul Hawtin

Paul Hawtin ACSI is the founder and CEO of Cayman Atlantic Ltd (www.caymanatlantic.com) a boutique investment management firm. Previously, Hawtin was a pioneer in the use of real-time investor sentiment derived from social media data to predict short-term market direction. His Derwent Absolute Return Hedge Fund was dubbed the “Twitter Fund.” Hawtin is an Associate of the Chartered Institute for Securities & Investment. You can follow Hawtin’s firm on Twitter @CaymanAtlantic.