What Will The Stock Market
Do?
Big Data Powering The Future Of
Prediction
What Will The Stock Market Do,
Mr. Morgan?
“It will
fluctuate”
Your Parents Recent Past Today
High Frequency
Trading
Microseconds,
maybe seconds
Days, maybe
weeks
Momentum
Trading
Funda...
The Automated Insight Funnel: Past
Market
Prices
Models
Alerts
“know the price of everything and the value of nothing”
Meanwhile In An Office With A Ton Of Paper….
Fundamental
Value Models
But Beware The “Value Trap”
Cut & Paste From
SEC Doc...
The Automated Insight Funnel:Near Future
Market
Prices
Models
Alerts
The Commoditization Of Fundamental Analysis Will Brin...
Predicting the
future is a
ridiculous idea,
best left to science
fiction writers
in
in
becomes
Complex Systems such as the weather can seem chaotic
in
in
becomes
Complex Systems such as the financial markets can seem
chaotic
Brief History Of Weather
Forecasting
• 1.0: farmers & sailors interpret local signs
• 2.0: primitive systems that Eisenhow...
Why These Are Interesting
Times
1. Massive cheap or free data sets
available online
2. Massive, cheap computational power
...
The Automated Insight Funnel:Longer Term Future
Market
Prices
Models
Alerts
Traders Live On Numbers
XBRL Turning Text
Into...
3 Current Techniques
1. Sentiment Analysis
2. Finding the fundamental pin in the
haystack
3. Faster macroeconomic trend da...
Turning Sentiment Analysis
Into A Tradable Number
• “What is the herd thinking”?
• We are still years away from
the 80% ac...
Finding The Fundamental Pin
In The Haystack
• Real use cases
• signs that a company is
about to default
• signs that a con...
Faster Macroeconomic Trends
(employment, consumer spend)
• Current system is broken
• quarterly lag
• small sample
• Huge ...
3 Ways To Profit From This
1. Package & Sell Research
2. Trade on your proprietary data
3. Sell tools to the above 2
Warren Buffet’s World Is
Changing
• The Newspaper As Toll Booth Theory
Worked…..Until It Stopped Working
• You cannot anal...
Some “Eternal Verities” Remain
• Check the weather forecast….but also expect
the unexpected
• Build good ships (choosing t...
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Bernard Lunn Presentation

  1. 1. What Will The Stock Market Do? Big Data Powering The Future Of Prediction
  2. 2. What Will The Stock Market Do, Mr. Morgan? “It will fluctuate”
  3. 3. Your Parents Recent Past Today High Frequency Trading Microseconds, maybe seconds Days, maybe weeks Momentum Trading Fundamental Investing Years, maybe decades Warren Buffet Couple of techies in New Jersey Hedgies & Day Traders Buy cheap stocks, hold “the trend is your friend” “latency arbitrage”
  4. 4. The Automated Insight Funnel: Past Market Prices Models Alerts “know the price of everything and the value of nothing”
  5. 5. Meanwhile In An Office With A Ton Of Paper…. Fundamental Value Models But Beware The “Value Trap” Cut & Paste From SEC Documents
  6. 6. The Automated Insight Funnel:Near Future Market Prices Models Alerts The Commoditization Of Fundamental Analysis Will Bring Back Value Investing (Until Automation Squeezes The Arbitrage Gap) Fundamentals Via XBRL
  7. 7. Predicting the future is a ridiculous idea, best left to science fiction writers
  8. 8. in in becomes Complex Systems such as the weather can seem chaotic
  9. 9. in in becomes Complex Systems such as the financial markets can seem chaotic
  10. 10. Brief History Of Weather Forecasting • 1.0: farmers & sailors interpret local signs • 2.0: primitive systems that Eisenhower had to rely on before calling the date for the Normandy Invasion • 3.0: computer systems that can predict the weather in the next hour but take 2 hours to do all the calculations • 4.0: reasonably accurate
  11. 11. Why These Are Interesting Times 1. Massive cheap or free data sets available online 2. Massive, cheap computational power available online
  12. 12. The Automated Insight Funnel:Longer Term Future Market Prices Models Alerts Traders Live On Numbers XBRL Turning Text Into Numbers
  13. 13. 3 Current Techniques 1. Sentiment Analysis 2. Finding the fundamental pin in the haystack 3. Faster macroeconomic trend data
  14. 14. Turning Sentiment Analysis Into A Tradable Number • “What is the herd thinking”? • We are still years away from the 80% accuracy needed as an input to decision-making • At best this is a “soft” input (important for branding but weak for trading) Watch: Stocktwits
  15. 15. Finding The Fundamental Pin In The Haystack • Real use cases • signs that a company is about to default • signs that a consumer product is about to explode • This is very hard to do accurately • But the pay-off is big & fast Watch: First Rain
  16. 16. Faster Macroeconomic Trends (employment, consumer spend) • Current system is broken • quarterly lag • small sample • Huge payoff • The data is there, the algorithms are missing Watch: Intuit, New StartUps
  17. 17. 3 Ways To Profit From This 1. Package & Sell Research 2. Trade on your proprietary data 3. Sell tools to the above 2
  18. 18. Warren Buffet’s World Is Changing • The Newspaper As Toll Booth Theory Worked…..Until It Stopped Working • You cannot analyze Google Or Apple the same way you analyze Dairy Queen or Coca Cola • Google, Apple & other high value stocks are complex, real time adaptive ecosystems
  19. 19. Some “Eternal Verities” Remain • Check the weather forecast….but also expect the unexpected • Build good ships (choosing the right investing theme & building good models) • and trust in good sailors (invest in good management teams)

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