Despite the abundance of online data, many individual investors choose asset managers to make all the investment decisions on their behalf. Picking the right stocks used to be challenging, time-consuming, and even tedious. However, the era of big data changes everything as long-term investors only need to understand trends and invest in them to beat the market. Let’s see why you should understand investing trends and how you can use this information to improve your portfolio returns.
Why are Investing Trends Important?
Last year was marked by numerous challenges for investors and businesses alike. Despite this, investors have always been able to adapt to any challenges and incorporate new technologies in order to drive portfolio returns, as these top trends in venture capital indicate.
A study shows that 20% of all the stock market returns since 1924 came from only 14 companies. This is perhaps the most astonishing statistics as, if you could identify any of these 14 stocks, you did not have to spend your time researching hundreds of other companies that entered and exited the market over nearly 100 years. Even more surprising, some of these companies are still great investment decisions, such as Microsoft, Apple, and Amazon.
This small sample of companies shows us that most of the market returns generated in this period had nothing to do with investment theories. However, to achieve these returns, you need to know which stocks to choose or, in other words, to identify and understand investing trends. Once you identify a trend, you can act on it and enjoy the returns.
For example, two market leaders that created trends that still exist today are Microsoft and Apple. In the case of the first business, investors were well-rewarded as Microsoft turned into a monopoly, creating the first computer for personal use. Then, Apple identified the trends towards quicker mobility and fast connection speeds; needless to say, Apple investors were also rewarded for their investments in the company. Finally, as people had more access to computers or hand-held devices, Amazon disrupted the retail industry implementing its low-cost model with virtually endless potential.
However, for some time already, more and more investors have analyzed more than simple financial data to identify these trends. This is known as alternative data or information that comes in endless variety as it is collected from a broad array of sources. This is perhaps one of the most important trends in the investment universe as it offers access to unlimited opportunities.
Understanding the Role of Alternative Data in Investing Trends
One main question is how to identify these investing trends on time and act on them. At the same time, some of the 14 companies mentioned above, such as GM and AT&T, filed for bankruptcy. It is not surprising that some high-earning trends can fade, too, so timing is key, both for investing and exit strategies.
Alternative data refers to non-traditional information from different sources, including social media, e-commerce portals, financial transactions, satellites, mobile devices, and even web traffic. This data type has become a crucial aspect that offers investors a better method of evaluating investment opportunities.
Individuals can use it to identify ongoing or new trends. For example, social and sentiment data collected from social media and mobile phone applications can be analyzed to find companies whose products and services resonate well with users. This may also be used to understand new consumer behavior trends, preferences, and even interests that belong to different groups of people or regions.
What’s Next for 2021?
As we’ve discussed the importance of understanding investing trends to drive portfolio returns, there are still numerous questions that may put pressure on investors: will life return to normal, or are working at home and online shopping our a new reality? Knowing the answers to these questions could help you identify new trends. For instance, returning to the pre-pandemic life would mean that the leisure sector will boom. Otherwise, if vaccines do not roll out fast enough, people will remain in their homes, while investors will most likely look for “stay-at-home” companies, such as food delivery stocks.
Although predictions in 2021 and beyond can be challenging even for professional analysts, investors now source alternative data to drive their decisions and find these answers. Understanding investing trends is crucial to be prepared for any outcome, and there is only one way to do so: to obtain access to fresh, granular alternative data that keep you informed.
All in all, you cannot overestimate the importance of understanding investing trends. Whether you make short- or long-term investments, staying up to date in such a fast-paced world is crucial to determine the right timing and decisions to boost your returns. Using alternative data to gain a competitive edge has never been more critical, especially in today’s uncertain and dynamic environment.