Is Alternative Data a Silver Bullet?

"Hiya, Sport" -- Thirty two years ago I was a 6th grader, and I didn’t really understand what happened on Black Monday, October 19, 1987. I lived in Austin, Texas which was a pretty sleepy town and neither of my parents backed up the truck for equities (unfortunately). We were busy keeping Austin weird. I am feeling contemplative today as it is my 43 birthday. Don't worry, I already shredded your birthday card.

The 80s and 90s marked my formative years. The demographic battles rage on Twitter and social media, and for my money I submit that Gen Z will never truly understand the pains of hanging out at the mall and using pay phones or saving up your allowance to buy a Guns n' Roses CD. If you haven't, watch Kevin Smith’s Mallrats for context. There was a movie from that time that sparked my imagination for a life in the stock market, Oliver Stone’s Wall Street. I must have watched it 10 times or more. Even though Gordon Gekko was intended to be an evil character, his animal spirits, and will to win really resonated with me. Greed is Good! It made me want to fly to New York and be a runner on the NYSE or beg my oldest cousin who traded bonds for Banco Santander for an internship. 15 years later when I was in my MBA program I was determined to shift out of Tech to Wall Street. I thought Wall Street would be all two-tone collared monogrammed starched shirts, suspenders, and cigars. I saw some of that as an M&A banker in my career to be sure, but I never rode a motorcycle like Bud Fox or tried to get information by hanging out at Teterboro airport. I did see billion dollar negotiations, proxy fights, LBOs, and many exciting acquisitions up close. Now if you need information on flight patterns you can just get data from JetTrack.io. And, no, I never bought a sushi rice rolling machine.

When I think of malls now, I almost wonder about the point of the visit given how easy it is for me to order most things on Amazon, Farfetch, Mr. Porter, etc. I can get my staples and streetwear without leaving the comforts of my couch. From an information perspective, if I want to know how quickly malls are decaying visa-a-vis the digital shelf, I can get a report from Thasos Group. In fact, almost every piece of near real time data an investor needs is somewhere. It just typically needs to be found by a data hunter. But before you hunt for data, you should try to understand what problem you want solved or what hypothesis can be validated.

Now to be fair, alternative data is not a magic bullet. One data set alone will not kill the "Wolf of Wall Street” or help an activist investor beat benchmarks, but it can often help complete a mosaic that includes the ground truth for company operations, global macro environments, and sentiment. For example as consumer products move from atoms to bits in the digital economy it is important to have an understanding of products on marketplaces like Amazon with SKU level data as well as brand & product level sentiment (take a look at Fakespot and Shareablee respectively).

Well, my friends, I am heading out to Russia for a family vacation so I will be going off the grid soon. The Russian Internet is blocking LinkedIn and other sites in a situation reminiscent of China’s “Golden Shield” internet project, otherwise known as "The Great Firewall of China”. Information is knowledge, information is power, and information brokerage is my business. Send me your questions and comments. See you in the Fall!