Prior to the widespread availability of the internet, Wall Street insiders had a huge advantage when it came to access to information about public companies. Individual investors would often read about market-moving news in the newspaper the next day or in a company’s annual report once it arrived in the mail.
Today, market moving news spreads nearly instantaneously via online newswires and social media. Since most legal public data about a company are widely available on the internet and non-public inside information is illegal, hedge funds and other professional traders have turned to the use of “alternative data” to gain an edge.
This alternative data is information about a company that is non-financial in nature but nevertheless provides insight into the business activities of a company. Social media sentiment data are prime examples of alternative data.
The Financial Times’ Alexandra Scaggs recently highlighted the subtleties of alternative data.
“The information is proprietary – as in, a mom-and-pop investor couldn’t get the same thing – but it’s fine to trade on because it hasn’t come from the company , or from someone with a special confidential relationship to the company, like a banker on a deal,” Scaggs wrote.
Startups like Quandl sell alternative data to hedge funds for a hefty price. Some traders argue that data aren’t truly public if only wealthy Wall Street funds can afford it. The funds themselves and the companies that compile the alternative data argue that the data is public if you have the sophistication and technology to collect and interpret it.
One thing seems certain: It’s getting…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
