Investors are repeatedly warned against trying to read markets based on headlines and popular trends.
But one Santa Monica-based hedge fund manager has seemingly found a loophole, reports Financial Times.
Richard Peterson, founder of MarketPsy Capital, uses online resources like chat rooms, blogs and Twitter to track investor sentiment on thousands of companies. He then uses this feedback and data to buy and sell stocks for his hedge fund.
This might seem risky, but Peterson’s fund produced 40% returns in the first two years based on this methodology.
FT says, “It’s never been so easy to trace what influences [investors’] decisions. People Google their questions, tweet their thoughts and post their findings on blogs and Facebook” everyday.
Read more on MarketPsy Capital’s approach, as well as more on whether using the Internet to gauge sentiment is valid.