Will algorithms replace analysis?
New sources of technology-generated data are now making up a greater piece of the pie when it comes to making a decision on whether to invest in a company or not.
Previously, if you asked an analyst at a Bank, Investment Firm or Fund, what information they use to make investment decisions, they would have told you they focused on a review of all the financial data available to them: the financial statements, the management information and business plans making up the lion share of it. Very much a human effort done by individuals.
This is now changing. Due to technology, the huge amount of data that is available and readily accessible online and the impact of social media platforms, the investment model and how you decide to invest is evolving.
Growing sources and types of data to make decisions, gain insights into the fundamentals of businesses, markets and economic trends all combined with increasingly powerful computers and their processing power are all changing how people are able to make decisions. This includes decisions by companies regarding pricing, customer, suppliers and by shareholders/ stakeholders about who they want to do business with.
Algorithms are at the center of this. The issue then, becomes one of trust…how much can you trust the algorithms and the data processed within them? This becomes more important when we stop doing the leg work and reviewing the data ourselves and leave it to the technology to do the graft.
For now, it seems to be very much the case that Investors using the algorithms and the big data back it up or confirm their findings using the more traditional review channels and subsequently use that to fine tune the algorithms.
For the Company putting itself out there for whatever reason (sale, new supplier relationship, merger, new market opportunity), they need to think about what data is out there about them, how it will be consumed and used and what the consequences are for them..watch this space!
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