Who knows you best; your partner, your friends — or Facebook?

AJ Financial PlanningAustralian Shares International Shares investing TechnologyWho knows you best; your partner, your friends — or Facebook?

With Facebook users reaching around 1.44 billion globally and users posting around 250 million pieces of information per hour on the site, the expansion of information is mind boggling.

So with this quantum of information being amassed, the question is how is this data being utilised — and at what point is artificial intelligence or an algorithm smarter than people?

Late last year, Stanford University and University of Cambridge produced a research study, ‘Computer-based personality judgments are more accurate than those made by humans’, which investigated whether Facebook’s algorithms are actually better at judging people’s personalities based on their ‘digital footprints’ than those who are closest to them.

Essentially, a survey was conducted of 86,220 volunteers who were asked to complete a 100-item ‘personality’ questionnaire. The findings of the study were as follows:

  • After 10 Facebook Likes, the algorithm was more accurate than an average person’s colleague
  • After 150 Likes, Facebook could outsmart people’s family members
  • After 300 Likes, Facebook could even beat the person’s spouse

Now like all surveys, the findings are not 100% accurate due to the limitations of the questions. However, it does demonstrate how advanced personal information gathering has become, and how quickly it is evolving.

So what does all this mean and what does it have to do with investing?

Companies realise the ability to understand the behaviours of their customers or potential consumers is vitally important in ensuring they remain relevant. A company that has a greater understanding of their end user potentially can create larger bonds, which assists in their ability to generate a community as part of their business strategy. It is also very likely there will be an increased level of importance for forward-looking organisations to utilise these types of technology and stay ahead of the competition.

Now that all sounds great, but companies generally don’t release this type of information in their annual report. Yet a simple search of a company’s Facebook page or other social media sites can reveal a lot about how much emphasis they place on information gathering and whether they are serious about this technology, or have tossed it in the ‘too hard’ (or too expensive) basket.

Equally, companies that accrue consumer data via social media platforms will be in an incredibly powerful position as they have a valuable resource that can be utilised for a variety of purposes beyond the simple advertising revenue model, such as future product development, design and consumer profiling.

Understanding these dynamics can provide you with an edge in your investment selections. Although it should not be the sole reason to invest into a company, it can provide further scope to one’s investment methodology and an understanding of how forward-looking an organisation might be to ensure they remain relevant, not only today but into the rapidly evolving future.

Please also remember that before embarking on any investment decision, you should always seek professional guidance from a licensed financial planner. Of course, I recommend AJ Financial Planning.