On Tuesday, April 23 the markets plunged after the Associated
Press twitter account was hacked and published a tweet that two
bombs had exploded in the White House and Barack Obama was
injured. The Dow Jones Industrial average plunged 150 points in
only a few seconds, but quickly recovered.
What was action was swift, as traders quickly sold stocks and
then bought them right back ... making the clear cut winners the
brokerages that generated a few more commission dollars.
The losers are even easier to find. They are going to be the
small time investors. Mom and Pop. How did they lose out? Well
they are more likely to use stops and while they agreed to sell
the stock or ETF if it went below a certain price, they lost out.
This is probably the most important lesson regarding stops since
the big flash crash of May 6, 2010.
Maybe Not So Much
I know its hard to really say they were the same thing, and the
damage of the real flash crash was so much more than the Twitter
hack job. But there are lessons that can be learned here and the
use of stops as a "hedge" is the number one lesson.
If you want to hedge a long position you hold, you need to use
options. They are complicated, but a broker can walk you through
a solid strategy on how to protect yourself without being exposed
to the flash crash that will come again in the future.
In the big event, holders of Apple
(AAPL - Free Report) got smoked
if they put a stock in far out of the market. This time, the
damage didn't take as big a bite out of the big red fruit. The
four point drop in AAPL the other day doesn't compare to the 50
point drop of the flash crash, but its a drop nonetheless.
Twitter Is The New Tape
If there was any doubt about it in the past, we can put the idea
of traders not being on Twitter to rest. The source of the rumor
was Twitter and the traders acted after the tweet came out. In a
shoot first, ask questions later world the traders went for the
kill and some got killed.
Twitter is becoming the source that investors look to first for
the dissemination of news. Breaking news is like heroin for
traders and the source that is the fastest is the best. For most,
that means a twitter account with multiple lists of news
providers and other resources.
Conference Call Questions Via Twitter
The adoption of Twitter is nearly complete. Late last night I
learned that Zillow
(Z) would be taking
questions for management on the earnings conference call via
Twitter. Talk about being ahead of the curve and leading the
market! A move like this is bound to only bring more attention
to the real estate information resource.
It seems like it will only be a matter of time before all
companies are using Twitter to take questions.
The take away from this idea is that Twitter is not going away.
It is only going to expand from here. Expect Wall Street to
continue to rely on it.
In God We Trust, All Others Not So Much
The final and most import lesson from this investment idea is
that Twitter can be hacked. Lies can be told. Misinformation
You knew that already, but the idea is that you have to be
responsible for yourself and do your own homework. Sure you can
follow the Penny Stock King and make the big money he or she
promises, but you can also lose the big money just the same.
Verification on Twitter may tell you that the account of
@BillClinton is really the former president... but he just joined
last night and all the other Bill Clinton's on there were fake.
I mean all but the one account that Stephen Colbert created for
the former President.
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Brian Bolan is a Stock Strategist
Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks in the portfolio.
Brian is also the editor of Breakout GrowthTrader
trading service that focuses on small cap stocks and also carries
a risk limiting strategy.
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