By Fin Pierson
Information and data have long been the lifeblood of investing. Stock brokerages didn’t just provide trading, they also provided information–but kept the best information for only their best clients. Data was a scarce resource that the average investor didn’t have the time or money to take advantage of; institutional investors flourished in this environment.
The internet changed this and–finally–ordinary investors had access to the necessary information to make good investments. In fact, all investors had access to too much information and no way to organize or understand it. This is where big data came into the picture. It provided a way to organize the data, spot associations in the data, and use the information collected to make better decisions.
What is big data?
Big data is a relatively new term coined in the late 1990’s to describe the torrent of data being generated by multiple systems. According to Investopedia, it refers to the large data sets produced by multiple data streams coming from a wide variety of sources. Big data encompasses the techniques used to analyze these datasets using computational resources to spot trends, patterns, correlations, and associations. It is also data that is too large or cumbersome to utilize traditional data processing techniques that requires a whole new set of software packages to extract hidden gems of information.
Big data uses algorithms, machine learning, and inductive statistics to reveal data relationships and help understand the conclusions reached. This is where the natural nexus between big data and investing occurs. Investing requires up-to-date data to ascertain potential risks and potential rewards, meanwhile machine learning increases the accuracy of decisions based on risks and reward probabilities. This nexus shows how complementary these two subjects are.
Providing better analytics
Big data greatly enhances investment analytics. Instead of limited pricing information, investors can mine a huge assortment of data that can provide financial picture of a business, its competitors, and the industry in general.
Financial reports, stock prices, annual reports, customer purchase patterns, geopolitical risks, and trading patterns are all data points that can be mined through software to provide the analytical information needed to invest wisely.
The ability to spot trends represents one of the greatest strengths of big data when it comes to investing. Trends can range from short to long-term trends and investing in the right trend can mean fantastic returns. It can be relatively easy for an investor to collect streams of data for their own use.
For example, a simple Twitter (NYSE:TWTR) bot can be developed to search Twitter for all references to a company or industry. The bot can also be used to gauge changing consumer opinions about a company or spot new trends in an industry. Furthermore, the tool can see what popular topics are on Twitter, called “trends,” and who is talking about it so subjects are discovered before other investors spot it.
Making better decisions
Yes, big data can help investors spot trends and get better analytics, but it’s also great for helping to make better decisions. Imagine that you set up self directed IRA. You can take advantage of the machine learning prowess of big data to make better investment decisions and invest in areas that a traditional would never let you invest in.
Big data is good at predicting what might happen in the future. While it’s not 100 percent accurate in its predictions, as more data becomes available they will become more and more accurate.
Investing in big data
While big data is a relatively new technology that is rapidly expanding, with growth comes obvious opportunities to financially benefit from that development. According to Forbes, the big data service industry is expected to increase at a compound annual growth rate of 14.44 percent, reaching more than $90 billion by 2026. Revenues in the data software industry are expected to surpass $192 billion by 2019. Overall adoption rates are rapidly growing.
Big data can certainly improve one’s investment portfolio, particularly if you self-invest by applying it to all of your investments–whether it’s a self directed IRA or a stock portfolio. It can help you make better decisions and get access to better analytics, as well as help you spot new trends. It can help you get on the same level as other investors.
About the author: Finn Pierson is a freelance writer and entrepreneur who specializes in business technology. He is drawn to the technological world because of its quickly paced and constantly changing environment. He believes embracing technology is essential to capturing success in any business and strives to inspire and encourage top technological practices in business leaders across the globe. He’s a fan of podcasts, bokeh and smooth jazz. His time is mostly spent learning the piano and watching his Golden Retriever Julian chase a stick.