"The only way for an individual to temper the consequences of the herding impulse and to gain independence from it is to understand that it exists."
Robert Prechter, 1990
Today, C-SPAN is live-streaming events of the new session of Congress… on Facebook.
This exceptional event comes on the eve of the SEC's investigation of a reported deal between Goldman Sachs and the social media giant. And don't forget that the critically acclaimed movie "The Social Network" -- the story of how Mark Zuckerberg founded Facebook-- is still in theatres.
Hedge funds are tapping into Twitter sentiment analysis to pick stocks and run money. University researchers are analyzing mood en masse via LiveJournal and other blog forums.
"Like" it or not, the herd is on the move over to Web 2.0 as a communication medium: investors are paying attention.
Regardless of how much some individuals may love or hate Twitter, Foursquare, Facebook, Linkedin (et al.), these new tools have found permanent homes on hundreds of millions of screens worldwide: social media is socially acceptable.
So what does this mean? Is it an opportunity for savvy investors, or just another expression of the mania?
Robert Prechter has helped subscribers anticipate social change for over 30 years. He begins with the premise that readers must think independently, and prepare themselves for changes that most people never see coming.
Social mood change does not necessarily affect every individual involved, but in the aggregate, the people participating in markets are acting as a crowd.
An early observer of crowd psychology once made the observation that a very rational and sensible human being, when part of a crowd, becomes a “blockhead.” To be more precise, he ceases to think independently and reasonably.
Wall Street is certainly a crowd. Every day, investors read the same newspapers, listen to the same TV shows and watch the same market indices go up and down.... Much of Wall Street’s information (such as price level, direction, speed of price change and volume) is self generated, and just like a crowd, Wall Street feeds off its own frenzies....
Because crowds have a nature all their own, and a behavioral style which reflects it, mass emotional change has a fair degree of predictability.
Robert Prechter, "Human Social Behavior Forms a Fractal"
We may be reading our financial news on a Kindle, watching CNBC on our iPhone, or catching market advice in an online chat. But no matter the medium, the message is still generated by mass psychology.
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