Fred's Got It

In Fred Wilson's post today, titled Transparency, Markets and the Internet, he gets right to the point of how the dissemination of information has evolved and how the playing field will never be the same:

So that’s a quick trip through my journey toward the land of transparency in financial markets. The days of schmoozing the CFO so you can get the call before the other analysts is over. Put to its grave by the cleanup of wall street in the aftermath of the last bubble. So you have to get the facts some other way. It’s good that we have this thing called the Internet that is ideally suited to out every secret, fast forward every rumor, and route it to the very people who need that information to trade on it.

Schmoozing is out. Crawling is in. MBAs with a spreadsheet are a dime a dozen. But the kid who knows how to mashup 1000 rss feeds, tag them on the fly, and cross index them with the crawler he hacked the other night at three in the morning is in high demand.

While Fred focuses on the issue of increasing transparency and its great leap forward over the past decade, I'd like to comment on the other trend that mirrors this - the great leap forward in technology. Think about what we've seen since the late 1990s - the advent of advanced search, RSS, massive harvesting and ping aggregation and notification, advanced visualization and analysis tools for getting a handle on seemingly unmanageable amounts of data, tagging, social networks - the list goes on.

As mentioned in a prior post about the internet and investment, I make the point that we are witnessing a tectonic change in the way investors will seek to discover, analyze and act upon web data. Technology has now run so far, so fast that tools previously available only to governments and large corporations are available to all. This does, as Fred notes, increase transparency, and, in fact, the democratization of the investment landscape. The gap between the haves and the have nots is shrinking by the day, and the day will come in the not-too-distant future when true alpha - one created through investment skill and better ideas and analysis, be it human or computer-driven, and not through insider tips or cozy conversations off-the-record - is readily observable. This will be a great day for all.

Comments

[Jordan]

There is all the difference in the world between trust formed out of self-preservation and trust formed out of the pursuit of a common goal.

[Roger]

Jordan, as it stands now, most analysts DO NOT "...earn their living by building trust with a select circle of insiders." This was deemed inappropriate and unfair by the SEC which promulgated Regulation FD to address this specific issue. I strongly believe that you have hit on a very important issue - trust - that is an essential element of the dialogue around investment. The problem is that the trust of which you speak - insider/outsider through a tight circle of confidantes - creates an unbalanced playing field that skews the results towards a select group of well-connected people. The trust many of us are looking for relates to our ability to trust executives and their advisors - accountants, lawyers, consultants - and that the data and commentary we receive are accurate, clear and informative. As illustrated by the stock options back-dating scandal and many other examples of corporate malfeasance, we are far, far away from this point. The untapped value, as far as I am concerned, is realized by smart, ingenious analysts collecting data on the true drivers of a business (using feet, phone, air travel and leading-edge web harvesting and filtering technology) and making an informed investment decision in light of their own research and accurate communications from management - not from taking their pals to another exclusive golf club and getting an investable tidbit in advance of everyone else.

[Jordan]

Roger, I really like the gist of your argument, but I'm not sure I agree with the confidence you place in the conclusion:

As it stands now, many analysts earn their living by building trust with a select circle of insiders.

On the other hand, many entrepreneurs earn their living by building trust with a select circle of outsiders.

The key in either case is that markets are driven by trust and conversation. Only where trust exists can humans come together to create untapped value. Business isn't just a numbers game.

What I look forward to is the day that everyone can be open and transparent with the numbers they posesss. That is, they don't feel they have to misconstrue information to certain parties to protect constituencies.

[Roger]

Robert, i love Tradesports and Hedgestreet. These sites, from my perspective, are an excellent application of the long tail concept to the markets, aggregating prices and serving as a clearinghouse for a virtually limitless number of small (or not so small) bets people want to make on a virtually limitless number of variables. While my earlier post on internet and investment focused more on the aggregation of data , your post appropriately raises the issue of the aggregation of demand. It is an excellent point focused on a fascinating area that I am sure will encounter the same kind of growth the data aggregation world is experiencing (note the sites prosper and zopa and what they are doing in the realm of long tail lending). Thanks again, Roger

[Robert Tsai]

What's your view on predictive markets like Tradesports or Hedgestreet?

[Robert Passarella]

Not only transparency but structure. What happened over 20 years ago on the analytics side, with Bloomberg and their release of Marketmaster is a parallel.

Bloomberg brought a common language to analyzing financial data and made it available to the market. He who could quickly envision a "Quantitative Strategy or Advantage" would use Bloomberg to push the edge.

The same is about to happen on the information side. RSS feeds make it possible but no one yet has a common language to view, explore and capitalize on the "Qualitative Analytics" of text data for Wall Street. Once that happens talented people will be able to push the boundaries and piece together "information advantage" strategies, by analyzing primary and secondary sources on the Internet through news and blogs.