Investing in Facebook Likes?

In case you thought the joke of Facebook’s public offering couldn’t get any worse, we have some bad news (or good news, if you have a morbid fascination with these kinds of things). There’s a stock index out there now that is made up of the companies sporting the largest numbers of Facebook “Likes.” Via Via Yahoo! Finance:

“So the index is an attempt to look at if there is a correlation between popularity on Facebook and how your stock performs in the market,” says Michael Copeland, senior editor at Wired magazine. He says the six-month old project is essentially an effort to determine if “Facebook is a platform that can boost your company in sales and ultimately in the stock market.”

The index consists of only the top 9 most “liked” companies on Facebook, which include Coca Cola (KO), Walt Disney (DIS), Viacom (VIA), Nike (NKE), Starbucks (SBUX), McDonald’s (MCD), Limited (LTD), Monster Beverage (MNST), and Wal-Mart (WMT). While Copeland says they are ”starting to see some correlation between Facebook popularity and market performance”, a longer dated back test over the past 12 months, showed the 9-stock index up about 12% and performing almost in-line with the broader market.

Granted, it’s not like they’re taking anyone’s money at this point… but still. Investing based on Facebook likes? Seriously? A few problems with this idea come to mind.

1. There’s a huge susceptibility to spurious correlation. Facebook likes are going to be centered around big consumer brands – this method won’t produce much of a dynamic investment strategy. It’s really just a roundabout way of getting particular sector exposure.

2. Facebook likes may hold value for some companies, but they’re irrelevant for many. There’s not much cause for a company like Lockheed Martin to have a Facebook fan base… but that is no indication of the company’s future prospects.

3. Fake “Likes” – and even though Facebook has been making noise about cracking down on this, it’s still a metric that is very easily manipulated.

Even if the folks over at Wired “discover” something based on this experiment, we’re far from convinced that investors will start consulting Facebook stats alongside P/E ratios. Big data may be trendy on the heels of Nate Silver’s rise, but when it comes to using Facebook to gauge company prospects, this looks like a case of “garbage in, garbage out.”

One comment

  1. I do believe Facebook likes have some value for companies. In one way it shows credibility of the company among the customers, but i wont suggest to making it the key reason to invest.

Write a Comment

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

logo