Whether you’re just getting started investing in stocks or a seasoned Wall Street pro, the right data can help you make better decisions and improve your performance as an investor.
In this article, you can find out how data can be used to give you a competitive edge with data driven investing. We’ll go over specific data points to monitor, where to obtain quality data for free, how to use that data to make informed decisions, and how to take advantage of data driven investing strategies.
Data Driven Investing — Why use this method?
For data driven investing, you should collect and analyze data points including the following:
- Stock’s price
- Technical indicators
- Company’s financials and fundamentals
- Industry trends
- Analyst ratings
- Economic data
- News
Analyzing these data points can help you understand the potential of a stock, identify potential risks, and evaluate the potential return on investment.
Economic Data
Understanding how the economy works is crucial whether you are a novice or a seasoned investor.
When monitoring economic data, there are a few indicators that you should focus on. The most important economic indicators include releases on the labor market in terms of the non-farm payrolls ("NFP's") report, the gross domestic product (GDP) and consumer price index (CPI) releases, as well as central bank meetings with interest rate decisions (FOMC).
Tracking these key metrics will typically move the market significantly and help you identify market changes.
These releases are crucial to market timing and understanding the weights of your portfolio: do you want to allocate more funds to stocks because the economy is doing well, inflation is trending down, and central banks are easing monetary policy, or would you rather reduce you stock weightings because of tightening of monetary conditions, rising inflation or a contracting economy?
To monitor economic data, there are several resources available. One of the most popular ways to track economic data is using financial websites and apps, such as Bloomberg and Yahoo Finance.
A great resource to keep updated about economic news is the economic calendar on investing.com
Fundamental Data
Monitoring fundamentals is important to measure a company’s financial health. Understanding this information helps to assess what kind of risk you are taking when you are performing data driven investing in a company.
Fundamental data is typically updated quarterly, when companies announce their earnings reports. Some of the key metrics to consider when monitoring a company’s financial fundamentals include revenue, earnings, cash flow and leverage metrics such as debt-to-equity ratios.
You can find information on these key metrics through various resources, such as financial reporting, company websites, stock analysis sites, and SEC filings via their EDGAR database.
If you own shares in a particular company, you should pay close attention to the company's financial data. Through diligent research and monitoring of the fundamentals, you can decide whether to keep the position when things are going well or dispose of the stock when the fundamentals deteriorate.
One of the most comprehensive websites to check fundamental data on companies all across the globe is marketscreener.com.
Alternative Data
Alternative data is information about various events unrelated to particular company fundamentals or economic data. It is any other kind of data that investors can use to obtain information about a company's health, the success of their business, or general trends and attitudes towards the company or business.
There are many different types of alternative data available, one of the most prominent to drive investor decision-making process is social media sentiment data.
Social Media Sentiment
Social media sentiment data driven investing has become an important tool for stock picking. It can provide you with a wealth of real-time market sentiment data about the participants, allowing investors to react more quickly to market swings and make informed decisions.
Additionally, it can provide you with insight into more subtle patterns that traditional quantitative data may not be able to capture.
With the StockGeist social media sentiment data platform, investors can gain real-time insights into the popularity of more than 2,000 publicly traded stocks across social media.
It can help you determine the popularity of stock with other investors, which can aid you in making your investment decisions in addition to the fundamental research you performed.
Sentiment can be recorded and presented in numerous ways which is why the StockGeist platform has various stock sentiment features available for its users.
How to Implement a Data Driven Investment Strategy
Using data effectively can be a great way to become a successful stock investor. Here are four steps of how to start:
Gather the right points: Gather financial and fundamental data on a company, including its financials and analyst ratings. Also, assess industry and economic trends.
Analyzing: Analyze each data point to get a better understanding of a potential investment and its potential return.
Make informed decisions: Make decisions on investments based on your data analysis. Be sure to take measured risks as well.
Monitor the markets regularly: Once you make an investment, continue to monitor the markets and make adjustments as needed.
In summary, by considering fundamental, economic, and alternative data, you can identify potential investments, understand potential risks, and make informed decisions.
Using data driven strategies can help you become more successful in the stock market. When looking for quality data, you can utilize trusted websites like Bloomberg, Yahoo Finance and Marketscreener.com to track financial data and Stockgeist for social media sentiment data for a more comprehensive market view.
