Alpha goes to Primary School
New
York – In the world of equity research the Holy Grail is the quest for
informational alpha. Increasingly, the stars in the research industry are
hunting for unique primary data sources to fit into their knowledge base and/or
models. As a result, primary research
continues to gain credence on the Street. According o our taxonomy, primary
research includes subcategories as follows:
Channel Checkers—studies of downstream
consumer behavior or other analysis of data that is “in the channel”. Recently this
has been extended to supply-chain analysis.
Expert Networks—connect experts in a
field to investors or analysts. An expert network is defined specifically a firm
which assess he needs of a client and then assigns an expert. The client of the
expert network is connected directly to the expert.
Data Miners—find nuggets of
information hidden in huge data sets, such as DMV records, Auto Dealers data
and similar information sets.
Search-based—research depends of the
creation of web-crawlers that search and update information gleaned from web
sites globally.
Market Research—one the main segments
of market research is survey creation, execution and analysis. From the sample
of survey respondents, one tries to estimate, for example, the demand for a
particular product or service.
Access to Management—is the practice of
connecting investors with the company management in those companies where the
investor has an interest.
There
is no question as to the value of access to management, expert networks, market
research and channel checkers in terms of providing significant information
alpha, but we feel that the really hot primary research topics are a result of
trends that are apparent in the global economy.
One
overarching trend is the democratization of data, given the massive amounts of
available information on the World Wide Web. This means that investors will
need to look even more intensively for unique information. It also means that
trends may be hidden in an overwhelming amount of data and may therefore be
overlooked. This trend points towards a growing usefulness of data mining firms
and search-based web crawlers.
Posted at 08:33 am by Thomas Hutchinson
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