When people invest in any company, they expect results, but how is this expectation formed. How does an investor know what his returns will be? The answer is simple, it’s the historical data and market conditions that reflect on the expectations of returns. But what about now? How will an investor evaluate expectations? This is where alternative data comes in.
With disruptions in the supply chain, misleading increase in expenses, and ceases in manufacturing, a lot of companies have stopped publishing balance sheets. Even when companies do publish these balance sheets, the figures do a poor job of evaluating the actual health of operations for good or ill.
Alternate data is the solution, these offer insight into investment processes from non-traditional sources, these data sets can be used to determine worthwhile investments. Where does this data come from? Well, it’s basically the same as big data, obtained from all over the web from social media to personal blogs or public forums. Since this data is extremely voluminous we obviously need AI tools to analyze and decode it.
Many companies have started development on systems that can analyze the economic impacts of COVID-19. Using alternate data, you can find them by simply searching COVID-19 economic impact on google. These companies now have an edge over traditional financial analysts, simply due to the lack of tangible financial data. Things are unlikely to return to how it was since the recent events have shown everyone a better way of evaluating a company.
One of the most successful ventures is from a company called Exabel, they partnered with an alternative data provider called 1010 data to provide an economic impact tracker. Their system analyses information from debit and credit card transaction data as well as geolocation data from phones that show actual visits to and from storefronts. This gives investors an insight into how Covid-19 has practically impacted retailers, travel agencies, education institutes, and 8 other industries.
The future is now, many systems will change permanently in the next 5 years, it’s up to us to adapt and rise to the occasion. One of the surer changes is the adoption of alternative data in all major investment decisions. We should start familiarising ourselves with this system sooner rather than later.