What is alternative data? Insights from the CFA FinTech Symposium
On November 5, Thinknum's Chief Strategy Office Katya Chupryna was part of an all-women panel for the CFA Society of New York's 2nd Annual FinTech Symposium: A look into the Future. Attendees at the event got a chance to ask questions about some of the hottest topics in the industry today, such as cryptocurrency, machine learning, and, of course, alternative data.
But did attendees really understand what alternative data is? We searched around during the networking sessions to ask a few FinTech investors and professionals to find out.
What is Alternative Data?
"Alternative data is basically market and research data that third-party providers provide for investors." — Liridon Fetahu, Principal, Illyricum Capital
"Alternative data is data that human beings can't collect and process in an efficient way. For example: satellite data and counting cars that go into mall parking lots or stores... Human beings don't have the ability to collect that information themselves through hundreds of shopping centers and malls, but computers can do that very quickly. And we can develop an intuition based on this data and those trends." — Gravelle Pierre, Founder and Chief Investment Officer, Iron Harbor Capital Management
"Simply put, alternative data is non-traditional data. What we use in investing is fundamental data that companies are reporting... Anything beyond that counts as alternative data." — Dan Hubscher, Managing Director and Founder, Changing Market Strategies LLC
Why is alternative data useful for investors?
"Fair warning here: I'm a skeptic on it, but still understand its use. I think it provides more information that can give investors a better confidence interval on what their predictions on.... Alternative data is going to help you have better understanding of how a business is working and what their prospects are over the course of the next three months. Does that tell you where the markets are going? It absolutely doesn't. There have been times over the past 50 years where corporate earnings have improved, and stock market returns have gone down. You just have to be deliberate when embracing this new technology, but it's a wonderful thing. I appreciate a more quantitative approach to decision making, but we have a long way to go." — Gravelle Pierre
"As investors, we have to stay up to date with market trends. That's how we invest." — Liridon Fetahu
"What data can you find — that other people don't have — that can give you edge in your investment strategies? If you can find a data source that other people aren't using and gives good predictive power, it's a good source of alternative data. One of the strategies that's as old as the hills is information advantage; getting information before people do, or information people don't have, and trading on that." — Dan Hubscher
Here's what our own CSO, Katya, had for answers to these two questions:
What is Alternative Data?
"It's all the data that is outside a fundamental data category, such as earnings, and a market data category, such as stocks or securities pricing. It's a blanket term that covers a wide range of data, such as satellite data, credit card transaction data, sentiment data, and web scraped data. In other words, it's anything that helps to understand company performance better in real time. It's a new term, but not a new concept.
What use does it have for investors, and what does Thinknum do for those investors?
"Investors were always looking for an edge; they used to do surveys, collected prices of items in stores by hand and manually collected foot traffic into a store. The source as well as the method of collecting and analyzing data changed dramatically recently. The gamechanger is the internet; all types of economic activity are moving online, and the volume of data being generated is unprecedented. in fact, the most valuable companies in the world all have something to do with taking part of the economy to the internet."
Also, here's what she said during a panel with fellow innovators about what Thinknum does with this data:
"You have investors who are very sophisticated quantitatively, and then you have investors who are completely fundamental, but they all understand the use of alternative data. The quants want to interact with clean and organized data programatically, but most others don't have the specialized skills for this. So on top of collecting and organizing massive amounts of data, we built a tool that is user-friendly and intuitive for non-programmers... The data is on one side, the tool is on the other, and in the middle, you have a human who is going to ask intelligent questions to achieve a specific purpose. Alternative data is open-ended, and you have to use it the right way to get the right result."