The world is constantly growing in very many senses. The population is increasing, and the cities are getting bigger both horizontally and vertically. And correspondingly the world of business is also growing. For investors, this continual escalation means that there is more to take into account than ever before. The traditional information sources are no longer enough to make the right decisions. This is where alternative data comes in. Harnessing the benefits of alternative data sources is now among the most important steps investors can take. Read more about alternative data here.
More data than ever
In hindsight, the rise of alternative data in the 21st century was inevitable. As everything is growing, naturally, the scope of information is becoming larger as well. Additionally, data-gathering technology has become more powerful and varied.
This is what led to the many alternative data sources we have today. Generally speaking, we define alternatives by contrast to what is mainstream or traditional. Traditional information sources include such to investors familiar communications of company’s stance as press releases and SEC filings. Alternative data usually come not directly from the business but from observations of its effects.
The following types of alternative data are among the most commonly used by contemporary investors.
- Credit card data
- Satellite imagery and related geolocation data
- Data from various sensors
- Online job postings
- Data collected from social media and company websites
Some of these categories of data have many subcategories and there are very many other information sources used for business and investment decisions. Thus, we now not only have much more data than ever before, but much more ways to categorize it as well. This leaves nowadays investors in an interesting position, where a lot needs to be learned and understood. And there is a much wider space for innovation in decision-making.
Navigating the possibilities of alternative data for investing
The wide world of data that stands in front of the present-day investor opens up both new possibilities and new necessities. And often these two are quite intertwined. Utilizing alternative data sources is necessarily considered for an investor when competitors are doing it and gaining a clear advantage.
But since at the end of the day, what matters to the investors is the quality of their own decisions, such new means as alternative data turn to possibilities hardly imagined before.
Harnessing the fruits of big data analysis is a captivating goal to go for. Let us look at some ways in which investors achieve it.
1) New insights. The fact that we leave in a very different world from before means that there is a set of new facts about it waiting to be unveiled. And this in turn means that there are new points of view, alternative ways of thinking that result in the kind of insights that have never mean available before. And new insights are always what investors actively seek out to take their game to the next level. Alternative data gives just that, as there is so much to choose from and try that any investor can be the one who finds just the right opportunity at just the right time.
2) AI–based investment models. What attracts many to investing is the idea of letting money work for you. Add to that technology working for you and you will reach a whole different level of personal freedom to get interested in, do and achieve more than ever imagined. Utilizing big data analytics, broadly speaking, teaches AI-tools to build, maintain and improve investing models. This leaves plenty of space for human creativity in investing, but also provides greater financial security and assuredness of returns.
3) Watching and learning. The general way to get better at any field is by trying, seeing what works and what does not, learning from mistakes. We can always be sure about the mistakes part of it all, we will always make plenty of them. But learning is about choice and effort. Utilizing alternative data also means keeping track of your own and other investors’ decisions and analyzing them to see why some decisions provide the expected results and others did not. It is precisely the diversity of alternatives that allows to understand the conditions which have determined the outcome of investment.
Where is the data?
One of the points of this article is that generally, pretty much everything around us can be turned into a source of insights for investors. But to really be able to use it one has to know where to find all this data.
Generally, most of the valuable data in one form or the other can be found online. Web-scraping and similar procedures allow us to gather various information from brand-mentions on social media to product reviews to job postings that can inform investment decisions.
Thus, collecting and acquiring data from online sources is a good way to start harnessing the great new power that is alternative data.