Why Twitter Is the New Tape

02/10/2013 8:00 am EST

Focus: TOOLS

Keith McCullough

CEO, Hedgeye Risk Management

As markets breakdown or breakout, many real-time sources are now on Twitter, which makes it very useful for augmenting your process, says former hedge fund manager Keith McCulllough.

A lot of traders and investors today are looking at Twitter to get good ideas, and my guest today is Keith McCullough to talk about that, so Keith, I know you’re a big fan of Twitter.  How do I know who to follow and how are you using it today?

Well, Twitter is now the new tape.  If you go back to at least the last 15 years that I’ve been trading, there was the actual tape, then there was the Bloomberg machine, then there was AOL instant messenger, and now there’s Twitter.  Twitter is starting to not only break news, but now people are synthesizing news as it breaks, so if you look at a company, like ours for example, as news is breaking, it’s not breaking news anymore.  We’ve already given you an opinion on what that is, so when you look for sources, you have to find credible sources and you have to replace the broken sources, which are largely in what we call Old Wall Street or old media, which are failing like, really in real time because you can see this as anything relevant really comes across the tape or if a market starts to breakdown or breakout, you could see that the real time sources out there are actually on Twitter, and nowhere else.

Alright, so assuming we follow Hedgeye, there’s a lot of noise out there.  Who else should I be looking for or how do I develop a core group of people that I follow?

Well, that’s the curation that’s going to be specific to every single individual, so whether you’re a technical guy or a quantitative guy or a fundamental guy, or gal, I mean it doesn’t matter.  You can find the kinds of people that can help augment your process, and I think that Twitter is really a self-help tool for a lot of people.  For me it’s a democracy that’s really starting to come to life, so you’re going to have different people to follow than I will, and I’m going to really look at different things that maybe you naturally wouldn’t think of, like I look for people that are contra-indicators, so I have, call it 100 different people that I follow because I’m going to do the exact opposite of what they’re doing because they tend to all do it at the same time.  There’s a ton of groupthink in the marketplace, and they really reveal themselves on Twitter, so you can look at it that way or you can look at the real sharp, edgy people that are really early on stuff.

And is it someplace where you get actual ideas or is it more of just here’s someplace to look, you might find something interesting here.

Well, I think it’s both.  I mean idea generation is all over the place on Twitter, and it’s unique.  We live in, in particular the institutionalized side of Wall Street.  A new idea doesn’t last very long because a lot of different people start to dog pile it and again, it’s groupthink, groupthink, groupthink, so on Twitter you can see a lot of different unique and independent thinkers that are really hostage to the meritocracy that is Twitter.  If you’re bad or if you’re dumb, or if you’re not good on Twitter, people will reveal you, and that’s a very important concept because if you’re bad on old Wall Street, you somehow keep your job.  Now that’s a big difference, and again, I think that people are going to really bubble up their best ideas because they really do want to be validated as being smart, and guess what, a lot of them are.

If Twitter was the next best thing and that’s what you’re following now, what’s next; what’s next for Twitter.  What do you think is, do you see starting to form here in terms of the next big thing?

Well, Twitter was so early; now, Twitter’s a platform and I think you’re going to start to see new media tag-ons or plug-ins to that Twitter platform, so you’re going to start to have TV broadcasts, any kind of audio product that you didn’t have any access to before.  We’re already starting to get to the simple stuff, which is charts; real-time charts, real-time analytics, there’s a lot that’s going on there in terms of how bloggers are trying to influence the tapestry of what they’re trying to show visually on to that Twitter tape.  I think it’s going to go big time into the media space; it’s going to become a very big broadcast channel, and I think that that’s where there’s a huge opportunity for a lot of people to make names for themselves in the business.

I was just going to say, and finally if following is the first step, should I open my own Twitter account, what advice do you have for me just putting out my own information?

I think if you’re going to start, 1) I love guys that use their own name.  It’s all about getting down to the principals, I think, that people need to get back in this business which are transparency, accountability, and trust, so if you put your own name out there you’re accountable to your mistakes and what we say is you timestamp your positions.  People are going to start to respect you because this game’s not easy.  A lot of people make mistakes, but we’ve created an industry that’s very opaque where people don’t want to be responsible for their recommendations, so again, I’d start with your real name, I’d start with people that you really start to think are influential and then I’d start to jab them a little bit, get involved in the big.  I love it when individuals tweet me with something intelligent.  I will absolutely reply to it because some of the best questions I get on Twitter are from individuals, not people that have been in the business or are well known names.