Information has been the decision driver for investors, and the right kind of information which provides an investor an edge is desirable. But looking at the information gathered over time, the nature of this information has evolved.
Until now, the standard practice to predict the health of a stock occurred using traditional financial data such as stock price history. However, there is a new form of data which has infused a renewed interest in investors. Turns out, investors are now turning to Alternative Data to reveal insights about a stock’s health even before traditional financial data.
Alternative Data for Financing Companies
Investors and other financial institutions like banks rely on alternative data to verify your credit worthiness and assess your financial position.
Data used as alternative data could be
1. Bank statement: Investors monitor bank statements to figure out your spending pattern. how much transactions you execute in cash or via digital card etc.
2. Transactions on e-commerce platform: Investors monitor your purchasing history on e-retailers site whether they are paid as lump sum or using an EMI facility.
3. Telephone Bills: Investors monitor whether bills are paid on a monthly basis or not and if there are any overdue.
4. Social media details: Social media is often used to cross-verify your date of birth, marital status, employment address, address etc. , information.
5. Mobile Data: After gaining your authority and consent, financial institutions derive data such as the apps you use to acknowledge as well as ensure that the prospective borrower is stable financially.
On the other hand, with Alternative data at their disposal, investors gain an advantageous edge for making profitable investments in new ventures and ideas. There is a horde of digital information available to them with the potential to be leveraged for commercial value. The infographic below states 10 such industries which can produce data for investors.
Hedge fund managers employ a new breed of tactics called “quantamental investing,” by adding computing power and big data sets to stock-picking skills. This form of data amalgamation gives hedge fund investors the edge over their competitors they have always sought. These managers now vie for newer forms of data that their competitors don’t have or haven’t thought of using.
This new found interest in using additional data has sprung from the technological boom witnessed by the big data industry. Recent advancements in machine-learning have now made it possible for companies to efficiently parse through millions of satellite images a day. Corporate analysts brainstorm ways to realize potential sources of investments and profits can now obtain this crucial quantum of information about companies’ performance. As the pile of information escalates each day, so will its adoption. At some point in the future, alternative data will turn into essential.