Are You a Diggvestor?

Mon, Jan 21, 2008

In a recent article published by Popular Science, a fascinating investing idea involving the monitoring of chatter on blogs and social news sites like Digg was proposed, it is called “neuroinvesting“.

According to a man named Richard Peterson, who went to medical school to study Psychiatry for the sole purpose of decoding what happens on Wall Street, it is possible to use social media activity (like that on Digg) to accurately predict market activity.

As he puts it, “I was looking for qualitative and emotional explanations for the way the markets move… I looked at the language that was making people buy stocks”. In other words: “tracking the mood on Wall Street as it moved.”

Based on this hunch, Peterson started MarketPsy and developed software that “churns through the daily malestrom of” votes, chats, rants and clicks on blogs and social news sites, weighing each word and looking for telltale signs of “overreaction and underreaction”.

And here’s the fascinating part that could start a finacial phenomenon and open up a new position at every Charles Schwab office across the country… the “Diggvestor”.

Think about this…

Peterson’s theory is solidly based on the assumption that most of us have a sort of “herding” mentality.

I think any one of us who has been around Digg or other social news sites for a while can see a little herding going on. Right?

Once a story gets some Digg-mentum (pardon the awful conjugation but I’m on a roll) it skyrockets to the first page as the masses Digg it because, well… everyone else is Digging it.

Financial markets are no different.

And this is the magical bit of wisdom that will, heretofore qualify you as a Diggvestor.

When you see the masses headed in a direction (remember: overreaction or underreaction), a financial opportunity is created.

Perhaps it starts with one negative story about XYZ Company that quickly gets Diggs, then another, then another… soon, everyone scanning Digg for potential content jumps on the “down-with-XYZ-train” and posts a negative story.

Is it really too hard to believe that this Digg activity is a preview of a significant dip in XYZ stock performance?

The implications of this are absolutely fabulous!

(Warning-Slight Exaggeration Coming)

This means that in a few short years, all uber-Digg users will become the new financial geniuses of the world with a finger on the financial pulse so tight that Warren Buffet will be “friending” them and sending daily “love-shouts” just to get a chance at a private convo.

Subsequently, Diggvestors will create a billion dollar hedge fund that will spawn a secret society that ends hunger and provides free healthcare to every citizen on the globe (except Canada ’cause they already had it).

To read the article I am referring to (that is much less exaggerated) in Popular Science you’ll need to check their site later, it’s not posted yet. The article is in the February 2008 issue and is titled “Money Minded” by Robert Armstrong and Jacob Ward.

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