Investors love to trade on rumor. In a data driven world where hedge funds know everything and still underperform, rumors are the only way that normal traders can get close to the buzz of knowing something the other guy doesn’t. It’s not reality however. Blackberry Ltd (NASDAQ:BBRY), (TSE:BB) isn’t getting bought out and neither is Twitter Inc (NYSE:TWTR).
Nigel Nicholson, a psychologist who studies gossip, says that rumors and gossip exist to keep a social structure in place. Gossip is about “networking, influence and social alliances” according to Nicholson. All three are in play when rumors about Microsoft Corporation (NASDAQ:MSFT) buying Blackberry or Google Inc (NASDAQ:GOOG), (NASDAQ:GOOGL) buying Twitter spread around the market.
Rumors as networking
Close to, but apart from, the kind of networking that would result from either a Microsoft-Blackberry or Twitter-Google alliance, Mr. Nicholson thinks that rumor works to ease speech, giving insight into the moves of the top class of people in our circle. A trader’s circle is full of companies, instead of people, and their rumors revolve around them.
Rumors give us something to talk about, and they let us tell others what is important to us. For some people the elite they spread rumors about are Kanye West and Jay Z. For others, Twitter and Blackberry stock is the theme. Rumors let people know their “own location within this labile lattice of relationships” according to Nicholson.
Blackberry-Microsoft is about influence
If you predict Google is just about to buy Twitter ten times and it comes true once, you’ll still reap the credit for that one prediction. Look at John Paulson or the other handful of traders that guessed the crisis was coming before 2008. They got one prediction right and their careers were made. The tens of trades they got wrong pale in that light.
Influence is the second part of the evolutionary pressure for gossip. Rumors are potent. If people think you have access to data they don’t, they’re more likely to believe you. Saying you know someone who is in the room with Microsoft and Blackberry right now gets people to sit up and listen.
Twitter is rife with this sort of rumor. Plausible deniability is usually built in. That means backing out or being wrong does little social harm. If Blackberry and Microsoft don’t merge, everyone can say it was only a rumor, even the most fervent spouter of the factoid.
Twitter and Google is a “social alliance”
If Twitter and Google became one, they would form a “social alliance” strong enough to challenge Facebook Inc (NASDAQ:FB). It’s not likely to happen. At the very least no rumor so far has given any basis to it. It does help to create a “social alliance” of another kind, of course.
Those that agree with the idea, mostly those who are long Twitter, think its a good idea. They meet in a public forum, in this case Twitter, and get to know each other. If they’re deeply involved they learn names and handles and they know who to trust on Twitter matters.
Nicholson says that making a social alliance is one of the reasons for gossip to exist. He says “People supply information to whom they are attracted and with whom they wish to align themselves.”
That is exactly the kind of thing that drives rumors about Google buying Twitter and Microsoft buying Blackberry. It’s the same thing that drives chimp tick picking. It’s a social habit, and that’s where its use ends.
The bad news is that none of the factors driving stories about these big moves involves an expression of the truth.
There is more likely bad faith than real truth. As Nicholson says, “gossip can be vicious.” Watch out the next time you share a rumor about Google, Twitter, Microsoft or Facebook.