For as long as investors have existed, data and execution quality have mattered. Investors must understand everything about the opportunities they evaluate and execute their strategies appropriately. As technology has improved, both data and execution quality have received a boost, resulting in massive gains for investors.
Aside from powering sophisticated infrastructure, technology is also changing how investors conduct market research. Here are three ways technology has changed investing and revolutionized market analysis.
1. Uncovering Hidden Catalysts
Investors have always placed a premium on information. Thanks to data collection and analysis processes, investors can now quantify the impact that market events have on companies. Data collection is simple these days, thanks to investment APIs that allow researchers to connect disparate data sources into a centralized data platform. This makes analysis reporting easier, and you can even set up a dashboard with visualizations to make sense of signals in real time.
For instance, companies can stream social media data, scrape the internet for company reputation data, and import financial and comparative web traffic data onto a single platform using a range of APIs. The result is a central view of a company’s business posture.
APIs are also transforming the types of data investors can look at. Alternative dataset use is on the rise in the financial world, and with good reason. These datasets offer investors the opportunity to uncover hidden catalysts ahead of time. For instance, investors can analyze the quality of a retail chain’s locations by analyzing footfall data and customer behavior using mobile phone GPS signals.
The results of these datasets are correlated with financial data to paint a better picture of company performance. Digital data such as web traffic, marketing campaign engagement, and the quality of affiliate partnerships also help investors determine the quality and impact of a company’s growth strategy.
In short, data is powered by technical innovations that help investors conduct deep analyses of companies. Thanks to technology like APIs, investors do not have to rely on half-heard tips and less-reliable sources of information.
2. Investment Data Transparency
While data surrounding companies has always been present, its quality has been suspect. Even before computers took over the markets, investors were never sure of the quality of publicly available information. Regulators do their best to force companies to disclose material events but don’t always succeed.
Events such as the WorldCom scandal destroyed investor trust in the markets and rose due to a lack of transparency. If data could so easily be manipulated, how could investors trust anything a company said? Technology has changed this picture and enforced new norms of transparency.
Improvements in cybersecurity and the installation of data governance practices at firms have ensured that companies can rely on their data and convey this information to investors securely. This makes sense, given that cybersecurity is considered by so many to be the biggest threat to financial markets. Today there is greater trust in the markets – and there are fewer regulatory filings involving earnings misstatements and other errors.
A side-effect of heightened data security is a clearer picture of investment trends. Investors can now analyze trends easily thanks to the centralization of historical data. Connecting the dots has become easier, since investors can trust the data on their screens.
Data transparency has also set standards for executive communication in the markets. In the past, management could get away with making frivolous statements. However, investors these days can quickly verify such statements and evaluate the impact of policy changes.
For instance, investors can evaluate the success of a restructuring plan by analyzing a wide range of datasets. Questions such as how well the company’s new marketing plan is performing, how sales are trending, what customers think of a new brand image, and so forth are easier to answer.
Investment analysis has thus become more efficient, giving investors more time to search for hidden opportunities in the markets.
3. Better Analytics and Reports
There was a time when the only reports investors had access to were the financial statements. They had to print these reports, correlate management discussions with numbers, and manually derive metrics such as free cash flow and owner earnings.
Technology has changed all of that. Analyses such as these are now automatic, with investors creating algorithms that can parse data and quickly identify red flags. Data analytics platforms now allow investors to create visually rich reports quickly.
For instance, an investor can model complex scenarios and project company performance. The effect of a new product line on sales and margins, its impact on procurement costs, and the rise in capex are simple to project thanks to powerful technology that crunches all the numbers.
Investors can make decisions faster thanks to ad-hoc analysis. For example, if an investor receives news of a portfolio company, they can run a projection on their reporting platform and verify their assumptions. Thus, spotting red flags and troublesome situations is simple.
Investing has always been a tough art to master. The best investors condense a wide range of data and add a touch of genius to achieve outperformance. Technology is now helping investors everywhere unlock more of their potential by offering quick answers to important questions. The result is a new era of investing that is unlikely to slow down any time soon.