Mining Twitter for picking stocks has crashed and burned in London, gotten the nod from the SEC, and caused yet another gut-wrenching lesson in the dangers of electronic markets.
DCM Capital started a "Twitter Fund" in July 2011 with respectable assets, reported up to 20M pounds. Derwins had a secret sauce to measure Twitter sentiment of stocks to predict the movements of the broader market. The "Twitter Fund" failed last summer, and the whole kit-and-kaboodle was auctioned off in February for whopping $186,000.
DCM Capital has sold for £120,000 ($186,000), a fraction of its £5 million guide price, in a unique auction.
The sentiment analysis provider, which was launched by Paul Hawtin in May 2012 following the dissolution of his "Twitter Fund", sold yesterday to the highest bidder at the end of a two-week online auction. The winning bid came from a financial technology firm, which Hawtin declined to name.
The sentiment analysis sounded like fun, there was anxiety, fear, happy, sad and lots of NLP (natural language processing) derived moods. Computers are pretty good at pulling apart language. Derwin's sad fate is another in the long line of GIGO (Garbage In Garbage Out) flame outs. Have you actually read what comes over Twitter? Plus, they are magnets for "grey area" cons. Just like the dutch coffeehouses, and countless wall street bars, and stock message boards, Twitter is going to have either a low signal to noise ratio if you are being polite, and a lot of BS if you are not.
Messing with what people hear is nothing new. Joseph de la Vega, in Confusion de Confusiones, wrote of the Amsterdam Stock Exchange over 300 years ago (1688):
"The greatest comedy is played at the Exchange. There, . . . the speculators excel in tricks, they do business and find excuses wherein hiding places, concealment of facts, quarrels, provocations, mockery, idle talk, violent desires, collusion, artful deceptions, betrayals, cheatings, and even tragic end are to be found."
While the Twitter -driven fund is no more, there is "on the other hand" news from the SEC, which has given the OK for CEOs and other corporate officers to talk to investors over Twitter and other social media. Maybe Derwin was ahead of their time.
Yesterday, we had a reminder of why this may be a bad idea. At 1:08pm, the Associated Press sent out a Tweet based on bogus information that two bombs had gone off at the White House, injuring the President. The Dow Jones Industrial Average dropped 145 points in a minute, recovering by 1:10.
Those odd minutes of trading are shown below. If this doesn't remind you of the Flash Crash, it should.
