Are you aware of the situation?
A single news item can make headlines and move stocks, but the day-to-day of trading is about making the best buy, sell and hold decisions based on a multitude of moving pieces. And then continually re-assessing those decisions and mitigating risk as new information comes in.
“Situational awareness is about having more valuable and useful information that gives you better context, and ultimately a comprehensive view about what matters to you,” said Ed Oliver, VP, Strategic Accounts at Dataminr. “It provides awareness around events as they evolve.”
Alternative data, broadly defined as information outside the traditional channels of company fundamentals, economic data and wire-service reports, may be the best enabler of situational awareness for today’s trader. That’s due to the sheer breadth and variety of alternative data sources -- from little-known public officials to trade-publication reporters to citizen journalists -- and its effectively real-time delivery.
Of traders and portfolio managers who were using alt data as of the third quarter of 2018, 61% cited situational awareness as a reason, according to a Dataminr and WBR Insights report. That was behind the 63% who cited the core purpose of making trading decisions.
Case Study
On March 26, 2019, at 10:52 a.m. Eastern Time, a Texas-based investment professional with fewer than 300 followers Tweeted, “APPLE INFRINGES QUALCOMM PATENT, U.S. TRADE JUDGE FINDS,” and that there would be an import ban on some iPhones. The information was based on a release from the fairly obscure U.S. International Trade Commission.
Mainstream news organizations, technology journals and social media influencers picked up on the Tweets and ran with the complicated, fast-moving story, and the situational awareness included perspectives from intellectual property analysts, tech bloggers, and a second ITC ruling in favor of Apple later that same day.
“Moment to moment, alternative data provides you with information that allows you to adjust your decision or confirm your decision,” Oliver said.
Situational awareness is not a new phenomenon -- indeed, broadsheet newspapers of yore had their own version, covering big stories in a multi-faceted way that included a substantial ‘mainbar’ with depth and perspective, multiple sidebars looking at different angles, plus an opinion piece or two to round it out. The drawback was that the information was a day old.
Digital media is running fast to keep up -- for example, CNET updated its March 26 Apple-Qualcomm story four times with new information. But the medium can’t keep up with social media platforms and its global network of content generators that immediately deliver breaking information.
John Avery, Head of Artificial Intelligence and Advanced Analytics at Fidelity Investments, likened the utilization of alternative data to building an investment mosaic.
“When I was a (portfolio manager) I thought about stocks as pictures,” Avery said on an alternative data panel at Context Summits Miami in January. “Valuation, fundamentals, earnings were all pieces of the picture. By bringing in external data that we haven’t been able to analyze in the past and perhaps marry that with our vast quantities of internal data, you’re able to brighten the picture, so that an analyst or PM can say that reinforces my view on the stock, or it doesn’t.”
Oliver emphasized that alternative data is meant as add-on rather than standalone information.
“It's not like alt data and the ideas around situational awareness are trying to replace traditional sources of information,” he said. “It's about how do you supplement or augment that known source, that trusted source, with additional information that can help you make a better decision.”
