An Early Look into the Internet and Investment

For as long as I can remember, I was blown away by what Bloomberg had to offer - real-time market data, news, and a powerful analytics platform for helping make sense of all the information coming at me (the Bloomberg Mail feature was never a primary mode of communication for me). And for years this was enough. Until now. What Bloomberg has, while cool, is pretty much a commodity. Market prices, what I'll call "Tier 1" news, PR Newswire and the like together with core analytics is available to all from multiple vendors, all of whom are competing to squeeze just a little more out of that old, desiccated lemon. Even algorithmic trading is viewing a live news feed as a "new frontier" around which to design trading strategies. Kind of seems to me like a lot of people are living in the past. 

While we all know that the Internet has changed the world and that we're not going back, one place where the Internet has been conspicuously underutilized, IMHO, is in the investment community and on Wall Street. Sure, every firm has their intranet, their extranet, their electronic trading platform, blah, blah, blah, but this is not what I'm talking about. I'm talking about harnessing the power of information - "long-tail" information in the Chris Anderson sense - and extracting value from it. Why haven't people - mutual fund managers, hedge fund managers, Wall Street prop traders, sell-side research analysts - been trying to get at this information, since gaining an information advantage (NB: see the name of my blog) and monetizing this advantage is what the game is about? I'll tell you why - BECAUSE IT IS HARD AND BECAUSE IT IS NEW.

But with all the brains on the buy- and sell-sides, and the billions spent on Wall Street IT every year, how come this nut hasn't yet been cracked? To be sure there are those who are clearly working on this problem, on both the buy- and sell-sides. Banks in particular have spent enormous sums installing enterprise software to mine data from internal databases, with an eye towards better communication and coordination across credit, investment banking and trading. But data mining is only one piece of the puzzle. This information is largely structured, often of homogenous format, and generally static. This is a world of difference from processing thousands of documents containing unstructured data of different formats - in real time - every minute. But wait, you need to know when to go out and pull in the data, when an actual change has occurred. Oh, then you need to actually pull this information in so you can do something with it. But wait, where did this information come from? Can we trust the source? And also, is the information coming in actually meaningful to me? How do I make sense of all this? And how do I sort through this sea of information, especially when I am already suffering from information overload?

It is this magnitude of complexity that is very off-putting and, well, kind of a headache. That said, the payoff could be staggering.

Think about three inexorable forces that will drive people to solve this problem:

1. More and better information is being put out on the internet every day, from companies, governments, nobel laureates, scientists, citizen journalists, unions, customers, local publications, trade associations, and the list goes on. This trend will not stop.


2. Search technology has dramatically improved and is continuing to improve at a rapid rate. This is a function of several factors, including: (a) the massive investment by governments in the wake of 9/11 in signal intercept technology (which is addressing a problem similar to that one of finding that investable nugget amidst a sea of dreck), and; (b) the fact that search has become "sexy" due to Google's dramatic success in monetizing this aspect of technology.


3. It is getting harder to make money. As AUM rockets and traders and analysts everywhere are looking for an edge, where better to do so in the one medium that is changing the world that has not yet been adequately harnessed for the investor - the Internet.

My old boss from Deutsche Bank, Kevin Parker, is a guy who was very hip very early on to the power of technology and had the desire to win by taking visionary and powerful leaps forward. At the time I was watching this (I'd call it his second act - he had already completed his first successful act at Morgan Stanley), I didn't really get it. I mean I got it intellectually, but I wasn't able to internalize his instinct that marginal improvements - merely staying with the pack - weren’t going to do it. There needed to be some risk taking, and the biggest risk was not placing a variety of well-thought out bets on what the future might look like in technology.

I am firmly convinced that the Internet is the next great step forward - a vast, ugly, exponentially increasing data set that is hard to work with but which holds untold riches for those with enough persistence and vision to figure it out. The edge used to be getting news first via carrier pigeons and then undersea cables via Reuters. It was then access to real-time ticker plant data and leveraging client server technology via Bloomberg. The Internet is the next frontier. I can't wait to see how the rest of the story unfolds.