Harnessing the data science revolution
“Data! Data! Data!” he cried impatiently. “I can’t make bricks without clay” Sherlock Holmes in The Adventure of the Copper Beeches, 1892, by Sir Arthur Conan Doyle.
The process of collecting and analysing data has undergone a revolution. No longer is it sufficient for active investors to tease investible insights from familiar information like trading figures, market shares and economic updates. A mass of numbers, from Twitter trends to real-time electricity use and demographic data, now floods in and can be manipulated in ways unheard of 30 years ago. If investors want to stay ahead of the game, they need to channel this deluge and harness its power to generate alpha in new ways.
To do so successfully, we argue, requires an understanding of what data can do for investors, what needs to be done to it to make it useful and who is equipped to do it. Just as important, however, is an understanding of its limitations and why data science alone cannot replace a good portfolio manager. Those who can marry industrial-scale data processing with tried and tested investment expertise will emerge as winners.