The best alternative data sources for investors
Let us look at what kinds of data are not to be overlooked by anyone looking to make the right investments.
The advancements of data technology and growing accessibility to information has done a lot to change how investing works today. Traditionally, investors would use such sources as press releases and SEC filings to get insight into the company’s current state and potential.
However, alternative data sources have emerged and are constantly growing in importance for decision making in the field of finance. Let us look at what kinds of data are not to be overlooked by anyone looking to make the right investments.
The 3 types of alternative data sources
Generally speaking, alternative data is the data that does not come from the official company or industry sources. It means looking at the investment research both more creatively and more analytically. Creatively, because it is utilizing non-traditional ways to find out what is relevant for investment decisions. And analytically, because having more data and of various kinds requires a more skillful analysis to extract the most value.
Alternative data is usually generated by one of the three following data sources.
1) Individuals. This category consists of any data produced by individual consumers. Such data is gathered from internet sources that show the preferences and interests of the general public. Examples of these types of data are social media activity, product reviews, and website visits. As our online activity tells a lot about us as consumers, investors can gain a lot of tracking such data. Of course, as tons of such data are constantly generated, tools for efficient analysis are necessary to unveil the most valuable insights.
2) Business processes. Various actions and interactions by businesses produce information that may be very precious for the investor. These types of data include credit card transactions and corporate and sales data. Naturally, these types of data tell a lot about the proceeding of a particular company, as well as the general buying habits of the population. Properly analyzed, this type of data is very likely to make the best investment opportunities manifest.
3) Sensors. This refers to any data detected by devices and systems made to receive and transmit various signals of events and actions. It includes mobile apps, which allow geolocation, satellite data, and the internet of things. This sort of data is used to track customer behavior and see which businesses are frequently visited and which are not. By utilizing this type of data investors will know which businesses are popular and gaining in popularity and will be able to take action and seize the investment opportunity.
The types of data that investors should mind
A lot of different types of data can be collected from the alternative data sources above. Depending on where one is looking to invest, different types of data may prove to be the most useful. Therefore, an investor may find it difficult to choose where to look for the best insights. To make it a bit easier, here are a few types of data that are universally useful and likely to improve the investor’s outlook on available opportunities.
1) Company funding data. Anyone interested in investing in a company would naturally want to know how it is funded. This type of data is now accessible much easier and faster than ever before, thus should be utilized.
2) Job posting data. Studies show that changes in a company’s job posting activity are the main indicators of its future performance. This means that by online job postings, especially when the company is looking to fill new positions, investors can very accurately tell what lays ahead of this company.
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3) Social media data. As mentioned, social media activity is a great way to get a better understanding of what people want. Nowadays, most of us are on multiple social media platforms. This is where the general sentiment of the public regarding products, services and desires is channeled in real time. It is becoming less of an advantage and more a necessity for investors to utilize this type of data.
4) Credit and debit card data. Acquiring credit and card data is a great way to track a company’s sales performance without waiting for their financial report. Information about the firm’s transactions obtained almost as soon as they happen to provide an investor with a chance of acting before others.
Navigating the ocean of information
When we add these alternative data sources to the ones traditionally used in investment, what we get in front of us is an ocean of information. To find the treasure islands in this ocean investors will need the best kind of ships.
This means the best algorithms and data analysis tools to process the data in time. The new world of data is too big to be navigated without the help of AI. But investors able to utilize alternative data and information technology will surely make this new world of opportunity their own.