“Customers, employees, and suppliers are empowered” through social media, said Barbara Gray, CFA, Equity Analyst and Founder of Brady Capital Research, (BCR) and this fosters the growth of firms that behave responsibly to them. Her company actively promotes investment in companies with “positive social capital.”
Gray was the second panellist (of four) to address the topic “The Impact of Social Media on the Investment Process” at a CFA Toronto Society gathering held in the gallery of the TMX Broadcast Centre on the evening of May 21, 2014.
As an example of negative social capital, she cited a case of Air Canada cancelling flights and then rebooking them more than a day later at highly inconvenient times—and not caring that it had created a dissatisfied client who would use it as an example of poor service in a public forum.
By contrast, a bungled reservation through AirBnB that required rebooking and a change of plans, became a positive experience due to fast response time on social media from persons high up in the corporation. “Good companies are using social tools to disrupt” established methods of customer interaction. “Most investors don’t realize this,” said Gray.
Brady Capital Research closely follows six companies. “We monitor mention of these companies on Twitter, especially during the all-important earnings season.” Brady Capital Research uses the number of followers on LinkedIn, plus other variables, to assess a company’s social reach. “It gives good insight into the social ecosystem,” said Gray.
Moderator Eric Lam posited there were risks to moving faster on social media, such as the recent scare, spread through a hacked Twitter account, that the White House had been bombed. Gray agreed, saying that’s why Brady Capital takes a long-term view of companies on social media. They looked at data from 1000 Facebook and Twitter corporate accounts, analyzing the tenor of interaction with customers. “We assess companies on their level of transparency, authenticity, and engagement” she said.
“Social capital is not goodwill,” Gray clarified. It’s not recognized yet as a valuation metric, but she is confident it will catch one. “It’s a new catalyst” that changes the value of stocks. Companies “could get torpedoed” if caught unaware. As an example of the strong correlation between positive social capital and earnings, Gray said that the five companies in the BCR Portfolio (Chipotle Mexican Grill, LinkedIn, lululemon athletica, Starbucks, Whole Foods Market) were up an average of 44 percent in 2013.
Gray is a publisher on LinkedIn’s publishing platform (see, for example, her article on Millennials), and urged investment professionals to post in that forum.
Social media also encourages good corporate behaviour because it influences the movement of talent to good companies. “Social media gives you a voice,” she said, so make sure your values align with the company’s values. ª
Follow Barbara Gray on Twitter at @barbcfa
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