1. What Will The Stock Market
Do?
Big Data Powering The Future Of
Prediction

2. What Will The Stock Market Do,
Mr. Morgan?
“It will
fluctuate”

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. The Automated Insight Funnel: Past
Market
Prices
Models
Alerts
“know the price of everything and the value of nothing”

5. Meanwhile In An Office With A Ton Of Paper….
Fundamental
Value Models
But Beware The “Value Trap”
Cut & Paste From
SEC Documents

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. Predicting the
future is a
ridiculous idea,
best left to science
fiction writers

9. in
in
becomes
Complex Systems such as the weather can seem chaotic

10. in
in
becomes
Complex Systems such as the financial markets can seem
chaotic

11. 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

12. Why These Are Interesting
Times
1. Massive cheap or free data sets
available online
2. Massive, cheap computational power
available online

13. The Automated Insight Funnel:Longer Term Future
Market
Prices
Models
Alerts
Traders Live On Numbers
XBRL Turning Text
Into
Numbers

14. 3 Current Techniques
1. Sentiment Analysis
2. Finding the fundamental pin in the
haystack
3. Faster macroeconomic trend data

15. 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

16. 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

17. 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

18. 3 Ways To Profit From This
1. Package & Sell Research
2. Trade on your proprietary data
3. Sell tools to the above 2

19. 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

20. 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)