Why Twitter is a Net Negative For Most Investors

Your author spends wayyyyyy too much time on the ol’ Twitter.

(Note: I know it’s called X now. I’m not calling it that. Sorry, not sorry.)

If you asked me why I’m so addicted to the platform, I’d probably respond with the following reasons:

• I’m establishing relationships with other investors

• I get a pretty consistent feed of good investing content (although that took months of patience to get the algorithm to understand what I wanted)

• I’m exposed to dozens of stock ideas put forth by interesting investors each week

• It continues to be an effective way for me to promote this newsletter

A few weeks ago I realized I have a problem, so I’ve been trying to implement some new rules to limit my time on the site. I’ll schedule tweets in advance and then check once an hour or so for responses. I respond and immediately go back to whatever it is I was doing. I also limit myself to scrolling through my feed to just a couple of times a day.

So far these rules have had mixed success, but I’m working on it.

The reason why I’ve been trying to limit my Twitter access goes deeper than just spending too much time on the site. I’m legitimately starting to think that Twitter is a bad place to hang out if you’re a long-term investor.

Or, as Rod put it the other day, after reading multiple bearish arguments against one of his stocks:

It’s a great quote, and I really think Rod is onto something. So let’s talk a little more about why I think Twitter is likely a net negative for most investors, and how you can insulate yourself from the worst parts of the app.

What’s a bearish argument worth, anyway?

Your author spends a bunch of his time sharing really quick analysis of stocks I find interesting on Twitter, a tactic I use for a few different reasons. I want to let other investors know I think a certain investment is interesting. I create further social proof I’m a worthy person to follow on there if you’re interested in stocks. It’s also a half-assed version of market research to see what kind of stocks will be popular for the paid part of this newsletter, too. And finally, I get to hear what people think of stocks that are usually already in my portfolio.

There’s a reason why I put those reasons in the order I put them in. Inevitably, when people give their opinion on a stock on Twitter, the proverbial peanut gallery shows up in the replies and tells you why the stock is actually terrible. It never fails, these folks show up.

Now I don’t want to argue that bearish opinions are worthless, because they’re not. Every investor needs to think about the potential downfalls of each stock they own. They’re worth something. But I will argue that much of the time bearish arguments aren’t worth nearly as much as bears think they’re worth.

(I will also acknowledge the irony of this post coming from a tweet responding to a bearish tweet I put out)

Bearish arguments are very often about short-term weakness, something I don’t care about at all as a long-term investor. Dollar General is a great example. Yes, the U.S. consumer is struggling. I know that. It’s the exact reason I’m interested. The only way that becomes a legit argument is if the U.S. consumer never recovers.

These arguments are also often based on surface level analysis, the kinds of things any competent securities analyst can identify in their first few minutes of research.

Let’s also not forget that bearish arguments simply sound smarter than bullish ones. Let’s face it; a lot of bullish analysis really boils down to four words — this too shall pass. Bearish analysis, which is usually much more specific, sounds a whole lot smarter.

Bearish analysis also preys on loss aversion. Investing is inherently a risky activity, and studies have shown that investors feel greater pain losing money than the joy they feel making money. Bearish arguments tap into that part of our lizard brain, and they often will make an enterprising investor pause at just the wrong time.

To reiterate, I don’t think somebody poking holes in an investment thesis is worthless. Far from it. But I’ve been investing a long time, and I can remember all sorts of situations where investors were talked out of buying long-term winners by an aggressive bear, someone who emerged from the shadows at the exact wrong time.

As I discussed when I talked about my miss on McDonalds shares, these errors of omission can have huge consequences.

Investing from a cave 

I’ll start this section with a controversial statement.

If I didn’t have a newsletter to promote, I don’t think I’d be on Twitter. I just don’t think it has the value it used to.

Remember, my reasons for using Twitter are:

• Establishing relationships with other investors

• Good investing content

• Idea sourcing

• Promoting this newsletter

Going forward, I’m not sure I need Twitter for any of those things. I have all the relationships I can pretty much handle at this point. The best investing content comes from long-form writing and books, not 280 character tweets. And my portfolio is likely too diverse today, so I don’t need any help with idea sourcing. That leaves the last reason, which I’ll admit is working.

Now, how about the negative things about Twitter?

• Continual emphasis on short-term noise

• Exposure to thousands of investors who think the way I invest is sub optimal

• Outright abuse

Even though I’m a nothing burger on the ol’ Twitter — I’m flirting with 8,000 followers — I still get a fair amount of abuse thrown my way. People can disagree, that’s fine, but I’m called an idiot, moron, etc. probably 1-2 times a day. I’ve had people accuse me of being dishonest, or a crook, and that regulators should shut down this newsletter.

And those are just the tame things. Let’s get real for a sec; I’ve had people tell me to kill myself, or that my life is worthless. There was one guy who threatened violence against my family.

Or, as I put it the other day:

Again, I’m a nothing burger. I don’t even have it that bad. My buddy Dividend Growth Investor has 20x the followers I do. I can just imagine what he has to go through.

I don’t want it to sound like I’m complaining here, because I’m not. Those people are a very small minority of people on the site, and they’re quickly banished forever with one click of the block button. But when you combine them with a small army of people who think the way I invest is suboptimal and the aforementioned bears who question long-term decisions with short-term thinking, and it combines to be a significant anchor, one that I’m arguing isn’t good for most long-term investors.

Compare this to Rod’s analogy of investing from a cave. He can sit in his “cave” (basement, presumably), with a nice cup of tea, in a soft chair, read annual reports, prospectuses, and other research, consider the arguments on the other side, and only after carefully pondering both sides of the coin he’ll make a decision. He has no one calling him an idiot, or filling his ear with last quarter’s economic numbers.

Which version sounds more ideal to you? Because it’s pretty much a no-brainer for me.

The bottom line

Next week on this newsletter I’ll feature an interview with “Jim,” an early retiree in his mid-50s who hung up the proverbial skates after accumulating $3M in dividend stocks, investments that spin off approximately $120,000 in annual dividend income.

I mention him because Jim managed to grow his portfolio to enviable levels by living below his means, investing in dividend stocks, and reinvesting those dividends. He has only recently started withdrawing dividends to pay his living expenses. Not only is he not on Twitter, but he recoiled in horror when I showed him my mentions.

“So many tweets. And they’re all just noise.”

Ultimately, that’s what this all comes down to. So much of what happens over at Twitter is noise, constant chatter that I’d argue is negative to long-term returns. It’s really hard for the average investor to differentiate between the good stuff and the crap. In a world like that, there’s really only one solution — leave.

I’m certainly thinking about it.

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