I have seen literally hundreds of analysts, pundits and wannabes describe how they are “data dependent” in their approach to investing the past few years as the “big data” industry has made splicing and dicing numbers easier and easier. I have to say, I am not impressed with over 80% of these folks, roughly the same number I wasn’t impressed with before the “data” drive to differentiate.
What I know is that no matter how much data you have, the effectiveness of an investor lies with how they interpret that data. In that regard, most people get it wrong, most of the time. Why is that? Simply, they don’t understand the businesses or business sectors that they are trying to invest in. Because of that, they not only interpret the data wrong, but they often look at the wrong data to begin with.
Don’t get me wrong though, data is very valuable when it’s the right data for the right question. For example, I have been trading and investing in a particular oil and gas company for about six years now and most folks have no idea what the company is worth. They point to current free cash flow, current debt, yesterday’s pipeline obligations and a host of other “data” to support their view of the company’s share price, whether long or short the stock.
There’s one critical piece of data that virtually nobody has bothered with and that is the value of the company’s assets with more normal prices of gas and oil. It seems to me that after liquidity – which is important just to stay in business short-term – that knowing what a commodity company’s assets are worth would be pretty important. Regardless of how important it is, that analysis, which has been done by a few folks, is very hard to find online. In fact, right now it’s impossible without a very expensive subscription to one particular service or an account at a few very tight lipped investment firms.
I bring up what I’m seeing with the oil and gas company to make a more important point about the data you get presented online. There are three types of data:
- Easy to get data that’s free.
- Easy to get data that requires a subscription.
- Hard to get data at any price, but can be found with an extreme level of effort.
There’s a problem with all three sorts of data and various benefits to each type.
The free data is sometimes not deep enough to be of value, that’s for sure. However, very often, the free data is all you need. “Free” gets dumped on by many sellers of services though because, well, they’re trying to sell you something else.
With as much data as the SEC requires of companies to be made public, free data and a little leg work is all you need to analyze many companies. Don’t think for a minute that if you have the time, you can’t find most of the data you need. It’ll just take digging and a working knowledge of Excel.
The subscription based data is an outflow of the “big data” era. Pundits and professors of all sorts want you to believe because they can make a pretty chart out of their “exclusive” data that you need to subscribe to them. Bah-humbug. Most of that data is just an offshoot of free data, but it’s wrapped in pretty charts. Again, if you can do a little digging and know how to use Excel, you can do almost anything the subscription services can.
The benefit of subscription services is the ease of compiling data. I subscribe to YCharts and a few others not because they can do something I can’t, I subscribe because they can do it so much faster. The analysis still falls to me. The data is just data. If I analyze the data wrong, or look at the wrong data to begin with, what good am I? Oh yeah, I have pretty charts. Focus on the analysis of data, not the acquisition of data, that’s mostly easy, even if it costs a few bucks.
The hard to get data is actually where you can get rich. Usually, subscription services don’t have this. Hard to get data is usually a result of digging deep into public information and answering an important question that somebody else hasn’t. It’s rare to hit a home run here because often you’ll work and work to find nothing. That stinks.
The fault many make once they find nothing is to suffer some regret because they worked so hard and push through to a conclusion that’s not founded by the evidence. I go back to the oil and gas company whose assets I have been valuing for the past six months. I did not know what I was going to find out about the value of that company’s assets when I started (well that’s not entirely true as I did the exercise six years ago too when their assets were much different though), luckily it was what I believed it would be and my long thesis is confirmed.
In literally dozens of deep digs I have done, often taking months at a time, I have come away with nothing for either a short or long thesis. That’s part of being an investor, sometimes you work and there is no work product that you can use. That’s part of the game. Accept it. Don’t let what you want cloud what you find. The data is a tool, not an end.