Choosing where, when, and with whom to invest is one of the most important decisions you can make as a business. Make the right decision, and you could see incredible success and lavish benefits for many years to come. Make the wrong decision, however, and the cost could be detrimental, even devastating. So it’s imperative that investment decisions are made wisely, and that usually happens based off of having the right data.
It then becomes important to know where you’re getting your data. Big data is, after all, all the rage these days, so you have a lot of options to consider. Data is sometimes looked at as the lifeblood of a business, so using it to make sound investment decisions is a must, and when it comes to data sources, alternative data is garnering more and more interest.
What is Alternative Data?
You’ve likely used traditional data for making business decisions, including those related to your investments. Big data can fall within this category since big data is mainly distinguished by its immense volume. Alternative data is different in that it doesn’t cover traditional data sources. Instead, alternative data is information that has been collected from data sources that fall outside of the regular sources that are normally used by a particular industry. This can apply to pretty much anything such as evaluating the customer experience, optimizing logistics, or predicting market trends. It should come as little surprise that alternative data is playing a larger role in informing investment decisions.
Why Use Alternative Data?
If traditional data sources in your industry have served you well for many decades now, you may wonder why you should move toward alternative data? First off, using alternative data doesn’t mean abandoning traditional data. If anything, adding alternative data to your arsenal only serves to enhance your decision making process. You’ll have more information than before, giving you that much more of an advantage when it comes to making smart investments.
Secondly, while traditional data sources have notable value, you also have to keep in mind that everyone else within your industry likely has access to those same data sources. In other words, what you’re collecting isn’t exactly new or unique. Alternative data sources, on the other hand, can give you unique insights that don’t always conform to conventional thought in your industry. A failure to use alternative data means you’re only getting a portion of the overall picture, so you would be making investment decisions based on incomplete information.
Alternative Data Sources
Traditional data sources for investing usually come in the form of company information that’s publicly available. You can find this data in filings companies have made with the SEC, quarterly earnings, press releases, public announcements, and more. You can even go straight to the source by talking with company leaders to see if this is an organization you’d want to invest in.
Alternative data sources cover much more than this and are usually more difficult to quantify. Some of the areas considered the best for collecting alternative data include survey data, social media networks, app usage of mobile devices, geolocation, customer sentiment, websites, and much more. In fact, those areas merely scratch the surface of all the possibilities where you can alternative data investing information.
Narrowing the Data Down
With so many possibilities, you can quickly get overwhelmed and experience a form of analysis paralysis. That’s why you need to narrow your focus and figure out what data will be the most informative for making smart investments. That boils down to a number of different factors. One of the biggest considerations is what your company’s goals are. The more specific the goal is, the better as it will establish a clear strategy for your organization. You also have to determine how much budget you will devote toward collecting alternative data. Collecting data from social media may carry a different price tag than gathering information from data-gathering sensors. Once you know how much money you have specifically set aside for this purpose, you can better decide where you spend your resources.
It should be noted that the challenges of gathering alternative data can be formidable. Part of the problem stems from the fact that much of this data comes to the user in an unstructured form. As opposed to the more usable structured data, unstructured data tends to be disorganized and more difficult to interpret. Gaining insights from unstructured data is a challenge that many companies find tough to tackle. Web data, for example, is a type of unstructured data that can be extremely useful in many cases, including for investment decisions.
There are plenty of tools and businesses that can help with this effort. In the case of the previous example with web data, Import.io helps by scraping websites and collecting data that provides valuable information for others. That unstructured data is put into a more digestible form, one where informed actions can be taken when making vital decisions that will affect the health of your company. Don’t let the scope of the issue be too intimidating. There’s much to be gained from using alternative data in this manner, and companies should look into taking full advantage of it.