DATA DRIVEN INVESTMENT DECISIONS

Keith Bortoluzzi, CEO, Thread

 

According to The Economist in 2017, ‘the world’s most valuable resource is no longer oil, but data’.

Like oil, data can be extracted from diverse sources. Like oil, data then needs to be stored and refined in data centres. Eventually, both serve as feedstocks for the economy. Many sectors depend on oil by-products from the kerosene that fuels airplanes to the fertilizers that nourish our soil or the soap that we use to wash our hands. Similarly, data drives services from social networks and digital marketplaces to connected devices.

Similarly, in much the same way that the discovery of oil at the end of the 19th century led to the development of new machines, boosted growth, and increased the living standards of many, data is already reshaping our society in 2020. Increasing interconnectedness as well as giving us a deeper understanding of human behaviours and needs, data transforms business models, changes the way we interact, and powers more accurate services.

Of particular interest to us is the fundamental link that ties data with decision-making, particularly for finance professionals. Unlike oil, which has an intrinsic energy content and can, therefore, be used in its raw state, data is an intangible asset with no practical use in the physical world unless it is refined or contextualized.

If you use the right tools to interpret data points, you will get a shape or a curve. From this shape, you will derive information, that is, a new understanding of the physical world. Based on this newfound insight, we can make decisions which in turn will shape the real world. That’s why we believe that having the right tools to structure and analyse data is as important as having access to data itself.

 

The investment data funnel

We can understand a typical investor workflow in three stages, otherwise known as an investment data funnel. Much like in the oil and gas industry, this funnel is categorised into Upstream (collecting data), Midstream (deriving actionable insights from data), and Downstream (turning insights into decisions). The challenge for investors today is to make sense of the overload of information that they are exposed to on a daily basis.

Over the last decade, financial analysts downsized the average number of companies under their coverage by roughly 25%, according to StarMine numbers. Over the same period, analysts’ job postings dropped only by around 18%. These numbers underscore how investors prefer to focus their limited resources on deeper analyses and due diligences. But what if instead of investing in more upstream — data collection — and midstream — data analysis, investment firms were able to put more time into the downstream section of the investment data funnel?

When working with partner asset management firms, we have seen how investing in downstream processes, namely collaboration and communication, yields valuable benefits. However, to be truly productive in today’s interconnected but physically-remote world, Asset Managers need a new approach to digital collaboration. Next-generation technology which enables them to share and discuss ideas, as well as retain learnings for the good of the whole team and wider business.

 

Next-generation productivity tools for Asset Managers

Even in today’s digital environment, Asset Managers derive their best and most original investment ideas from the collective knowledge of specialists within their organization, such as industry experts, bonds, or equity analysts. Cross-industry expertise and collaboration are often required to crack the most complex investment opportunities – but this is difficult to achieve when we are all working remotely.

Traditionally, investment teams have operated in silos, relying on different files, tools, and methodologies to source, build or update investment theses. The ability to share information and collaborate on ideas has often been based on the back-and-forth, informal communication between team members.

First-generation tools like Excel, Word, and email clearly help individuals be more productive individually, but it’s easy to see how information can get lost and distorted. Similarly, how do you ensure decisions involve all the relevant stakeholders and ideas are discussed openly and transparently when there are many different email threads and offline conversations in the mix?

When we think about next-generation productivity tools for the investment community, it’s all about collaboration and a shared digital workspace where all relevant information and people are gathered in one place to create, discuss, and challenge investment ideas.

This should include features such as real-time editing and commenting on investment notes, a centralized and shared views build so that teams can tap into a ‘single source of truth’, access to company restatements and estimates made by your colleagues, and the ability to edit estimates directly within a shared table which removes the hassle of copying and sharing Excel sheets with teams as a way to share knowledge. It is very common to see separate teams reviewing the same information several times instead of capitalizing on each other’s work because they don’t have the right tools to collaborate and properly split their workflow.

It’s time to redefine the way Asset Managers work, share and collaborate. While innovation usually takes iterative steps towards a final revolutionary product that changes the world, the current crisis, where investment teams have been forced to work remotely, has provided as a unique opportunity to break down silos and make the big leap into collaborative, next-generation investment technology.

 

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