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When it comes to tips, stocks pros turn to Facebook, Twitter
Investing » Critics aside, many see link between publicsentiment and prices.

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Another study found a high correlation between a stock’s popularity on Facebook and its performance. Arthur O’Connor, a Pace University doctoral student, examined 30 consumer stocks for the year that ended in June 2011. The stocks of companies with growing fan bases tended to outperform.

Some Wall Street veterans see the potential.

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Sam Stovall, chief investment strategist at Standard & Poor’s Corp., likens it to bring-your-children-to-work day, when his firm’s retail-stock analysts pepper their co-workers’ children with questions about their consumer favorites.

"You want to be the first on Wall Street to know what’s hot in the local junior high," Stovall said. "The feeling is that if you can’t talk to young adults directly, maybe you can eavesdrop through social media."

No one has more faith in the strategy than Peterson.

The Stanford-trained psychiatrist used to see patients to earn enough money to pay programmers to write his social-media code. The bookcase in his office brims with titles such as "Nerds on Wall Street" and "Handbook of Emotional Regulation."

The 39-year-old, who shows up to work "dressed down," says his computers sift through 2 million posts, tweets, blog posts and news articles a day, analyzing the psychological context of each.

Peterson started a hedge fund during the depths of the global financial crisis in late 2008. It surged 40 percent in nine months.

But after he tweaked his formula to improve it, the fund lost 1 percent a month for the next 15 months, and Peterson closed it at the end of 2010. He says he’s fixed it and recently began managing a small amount of money for friends and family.

There’s a lot of money to be made interpreting the moods of other investors, Peterson said.

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"It’s huge. The biggest barrier is convincing people that it matters."

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