A brief overview of what alt data is ?
And How has it changed finance forever?
5 min read
You must know enough about the company or the sector you will invest in to make accurate investment decisions. You can gather this information from formal reports such as company filings, broker forecasts, and management guidance but this will not give you the full picture. The more data outside the conventional you have, the easier it will be to decide your next investment, leaving little to gut feelings.
What is Alternative Data?
The key to solving the problem is using alternative data, which can be any non-traditional data that can provide information on how well a company or asset will perform in the future. And don't worry there is an abundance of this kind of data thanks to the devices we use. However, the question remains: what are the most effective ways to harvest and utilize it?
Where can I harvest this data from?
It provides a lot of data that really represents people's behaviors and how they behave as humans. these data like social media activity, online reviews, and web searches. Engagements of fans and followers count on a brand’s page can indicate future receptiveness when it launches new products or new campaigns and can be used for Event-driven sentiment tracking or Brand Virality/Advertising success.
Does a software company's app attract or drop new users? Are sites in a particular product category experiencing a sudden influx of visitors? Is the company suffering from weakness and despair and suddenly giving a huge discount? With an ocean of 4 billion web pages, there is a lot of valuable data for investors, which makes investors able to answer questions like ours. This data can be high product ratings that can indicate strong sales and give a positive insight into a manufacturer or company, Traffic data that can indicate a company's ability to attract new users, quantity sold, and prices on each item page and more of these data Mobile application data Like social media, mobile application data reveals a lot of subtle behaviors around the consumer that are very real and close to the market along with in-app activities that can make us know more about how the market works and give us an understanding of the consumer demographic. The level of accuracy and usefulness of the data depends on the size of the application panel and the functions and features collected
Transaction data that is generated from email receipts are accurate enough to build a prediction model about consumers' purchase behaviors, but panels are typically smaller than credit/debit card panels and can be biased depending on the nature of the email receipt collection still you can be given an insight about how macroeconomic conditions like inflation impact demand and purchase
Where people go is valuable information. More specifically, the GPS data they test on their phones over cellular networks, which reveals broader consumer traffic trends, is valuable information that gives us insight into subtle directions that web or social media searches don't reveal. Social. And that became even more true during the pandemic. In the past, geolocation was not considered quite as useful as other alternative sensor-based data streams, such as satellite imagery. But when previously predictable traffic patterns break down, Wall Street's appetite for GPS seems to be expanding.
People & Company data
This data can give an insight into the next destination of CEOs of the companies like FAANG - be it another company, competitor, or if they are starting a company. Companies like Proxycurl provide data on identifying and tracking prospective founders. Using the Employee Listing and Person Profile API endpoints, hedge funds can identify existing employees of FAANG companies, then track their change of jobs history all in one place.
When a private jet carrying representatives from the oil company Occidental landed in Omaha, Nebraska in April 2019, to interview Warren Buffett, news of the arrival extended beyond the chairman and CEO of Berkshire Hathaway. Alternative data company Quandl, which tracks private jet flights, shared news of the visit to its hedge fund clients, who reportedly pay upwards of $100,000 a year for the information. The cost paid off days later, when Buffett announced a $10 billion investment in Occidental, sending its value skyward.
In the years since, "corporate aviation intelligence," as Quandell calls it, has grown in scope. Quiver Quantitative, a free alternative data platform launched in 2020 that aims to give ordinary investors a Wall Street-style edge, is now offering a corporate private jet tracker to everyone.
Who is using alternative data?
Approximately half of all investment firms use alternative data in some form, and this number is likely to continue to increase. Alternative data is increasingly used by hedge funds and investment firms. Investing analysts, quant traders, and fund managers use alternative data in their algorithms to guide their strategies to generate consistently higher returns than the broad market. Furthermore, firms are also investing increasingly in alternative data as part of their investment strategies.
Where can I get alternative data in an actionable way?
According to the Alternative Investment Management Association in collaboration with fintech company SS&C. There are 400 currently active providers. This number is more than 20 times larger now than it was 30 years ago, this tells the story of how alt data providers are fast rising.
For a more macro view, the hiring velocity or employee turnover rate within a company will signal to hedge funds on its situation at the moment in time. Proxycurl currently provides an exhaustive dataset of companies and their employees for investment analysis and training AI models for this analysis. As Eric Schmidt (former CEO of Google) once said, “People are the foundation of any company’s success.” This alternative data gives a valuable edge in foreseeing the performance of a company and its future trend.
The article that inspired me :
Proxycurl - "The Ultimate Guide to Alternative Data - What Is It Really?"