Filtering the noise and creating the signal | FT Alphaville

Filtering the noise and creating the signal

Many of the more interesting presentations at the Money:Tech conference dealt with the topic of data overload, with an emphasis on how best to mine the Web and related online resources for “investment-grade information.”

One of challenges of such data mining – or finding Alpha through algorithms, if you will – is determining what is relevant to a given investment strategy. Or as Kevin Pomplun, founder and chief executive of SkyGrid, put it: “the firehose of data out there makes it difficult to find the news.”

Mr Pomplun’s platform, like its peers Monitor 110 and InfoNGen, is designed to trawl the Internet and filter out the “investable” signals from the noise generated by some 10m blogs, RSS feeds, websites, forums and message boards.

The investment banks and quant hedge funds that subscribe to the web-based service – which Mr Pomplun says costs less than $1,000 a month – tailor it to display news and information sorted by reputation, sentiment and volume. Everything about SkyGrid is automated – there are no humans editing or filtering the data that ultimately appears on one’s screen. It is, in effect, a seriously customised and powerful search engine coupled with Bloomberg-esque analytics.

SkyGrid’s creator insists the service is designed as a complement to, rather than a replacement for, Bloomberg et al. Still, he says:

We do believe that anything we would consider “news” can be effectively delivered through Skygrid

The company is backed by some heavy-hitting venture capitalist types, including Esther Dyson and DFJ’s Tim Draper (who funded both Skype and Baidu).

But while SkyGrid works well within the Wall Street theorem of (proprietary research + black box)-(structured finance exposure) = profit, it is beyond the reach of the retail investor or day trader.

Enter Wikinvest, a recent entrant to the financial research arena dominated by sites like Yahoo Finance and Market Watch.

Wikinvest (Wiki + invest, get it?) adheres to the “information should be free and freely distributed” school of thought that investment banks and hedge funds find so upsetting.

Or as co-founder Parker Conrad says: “We’re not just leaning toward the democratization of information. We are absolutely, 100 per cent committed to it.”

His colleague Mike Sha is equally open about the goal of the site, which is to be the Wikipedia of equity research. “We want to be huge,” he says. To which Mr Conrad amends, “Eventually, we want to offer coverage of more stocks than Goldman Sachs, Lehman Brothers and Bear Stearns combined.”

The site is designed to be a one-stop shop for equity research – including historical prices and charts – and one to which anyone can contribute.

This approach, of course, is not without risks: Wikipedia’s entries, for instance, can be and often are vandalized or written to reflect a particularly partisan view. An entry that mis-states the date of birth of an obscure historical figure is one thing; mistakes in financial data – if used as the basis of a trade or investment decision – are quite another.

Still, Wiki are by nature self-correcting – eventually. And Wikinvest requires any changes or additions to company data to refer to a trusted source – like an SEC filing.

There is also a reputation algorithm, which ranks users based on contributions and the rate at which their work is amended – or not.
The most interesting feature of Wikinvest is one that will be rolled out next week, and that will allow users interested in a specific sector or industry to quickly compare relevant industry metrics.

So those interested in the beleaguered US homebuilding sector will be able to compare new home sales or cancelled contracts, while airline buffs can look up specifics of fuel costs and load factors (also known as the bums-on-seats metric).

Says Mr Conrad: “What we offer is a narrative: here’s what you need to know and understand to make better investment decisions, all in one place and nicely packaged.”

Wikinvest has already seeded the site with some of this data, gleaned from various 8-Ks and 10-Qs, but it’s far from complete (that’s where the users come in) and biased toward US stocks.

Still, the design is excellent, as is the ease of use. There are already quite comprehensive entries on a number of topics, inlcuding subprime lending and Rock Band vs Guitar Hero.

This latter entry provides a compelling example of the attractiveness of alternative research sites like Wikinvest – FT Alphaville hasn’t seen any broker notes recently that highlight the companies benefiting from the success of these titles.

Rock on.