The pitfalls of using social media sentiment analysis in the markets
Good Afternoon Everyone,
I know it's been a few months since my last update but there's a good reason for this, we're growing extremely fast.
Back in 2009 my partners and I predicted, no pun intended, that in the coming years social would be used to assist and eventually lead in predicting stock moves. Now, 6 years later, we are actively doing it, on a daily basis, and have a nice track record to prove it out.
I'm pleased to say that there are a number of competitors who have come on the market. This is good for us but actually not so good for our potential clients. Why is this? Well that's what I'm going to address today in, "The pitfalls of social media sentiment analysis for the markets."
Sentiment Analysis or, simply scoring words and phrases with a number, is only one spoke in an entire wheel. This is what are new customers who were with other providers have come to find out the hard way. There is much more involved to measure intent, and that's precisely what we're doing.
You see factors such as velocity of messages, velocity of sentiment, re-population of messages, manipulation, and message fraud and just the tip of the iceberg to build a truly predictive model.
Without a minimum of the above mentioned core elements, it becomes a fruitless endeavor to achieve alpha.
So the grand pitfall for social usage in finance is primarily based on what signals and from which providers actually get results.
In my recent trips to New York speaking with fund managers and quants, they have actually stated it's good that our team doesn't have a background in finance. The conclusion is that we don't have any previous financial rules embedded in any of our processes. Our CTO's background is high level military intelligence where the core goal is to complete an objective, period.
For reference I've attached a monthly calculated NAV (HedgeChatterNAVReport.pdf) to show what can be achieved with both HedgeChatter and someone who didn't have any past experience in finance.
The report shows between Oct.2013 - Dec.2014 the S&P500 did 22.6%, and our CTO achieved an impressive 167%.
I'll be in NY again next week, Tue-9th, Wed-10th, Thur-11th.
If there are any questions I can answer or if you would like to schedule a time to chat or a demo, please feel free to let me know and we'll get it booked.
Co-Founder & CEO