A data-driven investor is an investor that consults to data prior to making an investment. Accordingly, the approach the investor follows is called data-driven investing.
More importantly, what differs from this type of investor to another? Basically, a data-driven investor fully utilizes the power of data and technology in the decision-making process. However, there is more.
This type of investor always sticks to a specific portfolio, namely, a data-driven portfolio. The weekly-updated portfolio encompasses both qualitative and quantitative considerations.
Therefore, it is incorrect to generalize this type of investor as a theory follower like the others. In addition, the theory is somewhat conventional for this type of investment.
To begin with, the financial theory did contribute to various successes for investors in the past. However, there are also numerous cases where theories lead to losses.
Accordingly, this is what data-driven investing attempts to tackle. The reliance on theory alone will not make an investor flexible to adjust to the market’s conditions.
Also Read: 3 Ways Big Data Revolutionizes Fintech
Data-Driven Investor vs the Model-Led Investor
Among the cases, there is a specific case marking the rise of data-driven investing. It was the case of JCPenney during the Q2 of 2015.
Accordingly, many people did not expect that, at that time, the US retail giant would gain so many profits. Even many experts and analysts incorrectly predicted the company’s financial results.
Following the financial publication, two days later, the stock price of the retail sharply jumped 10%, a leap that was considerably big. The stock price escalation shocked almost everybody, but not all.
RSMetrics, a big data intelligence firm for businesses and investors, foresaw the escalation by using satellite imagery. By rigorously examining the store’s parking lots, the firm confirmed that the buyers were increasing.
Following the publication, several people bought the stocks prior to the escalation. As a result, they were able to sell back the stocks when the price was already up.