On Saturday, Sept. 29, Elon Musk agreed to step down as chairman of Tesla and pay a $20 million settlement after facing charges from the Securities and Exchange Commission (SEC) that he misled investors.
On Aug. 7, Tesla’s stock jumped over 6 percent after Musk tweeted to his 22 million followers that he had secured funding to take the company private at $420 per share. According to the SEC, Musk had not secured the funding. Its charges against Musk included “false and misleading tweets.”
Under the settlement, Musk must vacate his role as chairman of the board within 45 days but will be allowed to remain Tesla’s CEO. He will also be barred from pursuing re-election to the board for three years.
Tesla agreed to an additional $20 million settlement for charges that it neglected to monitor Musk’s Twitter usage.
Musk’s use of social media may have created unique market waves, but tweeters at large have influenced the broader investment climate. Research shows sentiment on Twitter can affect the success, failure, or popularity of market goods.
Consider President Trump’s Boeing and Lockheed Martin tweets in 2016, which immediately upset aerospace and defense industry stocks.
Using social media, corporate executives can speak directly to potential investors. Conversely, investors comb CEO tweets for potential market signals, attempting to glean insights ahead of news coverage or official announcements.
But getting stock insight from Twitter is risky. To avoid making investment mistakes through social media, U.S. News and World Report’s Coryanne Hicks suggests exercising caution and intuition. For example, she suggests applying the rule of “cluster validity,” which means ensuring that more than one account is tweeting about a particular product or company.
If only one handle is tweeting about something, it’s probably unreliable information.
Cluster validity could be reasonably disregarded, however, if the solitary tweeter was a big-time market influencer like Elon Musk . . . until now.
Undisciplined CEOs make getting market tips from Twitter that much more perilous. If tweets from corporate executives can’t be trusted, Hicks’ common sense advice becomes all the more important: Exercise discernment when looking to social media for stock insights.
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