1) Great thread. Alternative data is table stakes rather than an alpha source in most cases and suspect it has generated negative alpha so far this quarter in aggregate. Amazed at how successful some large fundamentally oriented HF’s have been in marketing it as an advantage.
2) *Everyone* has alternative data today – biggest difference vs. my prior life. Dramatic change in only 2 years – cannot remember another time the landscape changed so much so fast. Every alternative data provider has scale based pricing so even small funds can be at parity
3) Alternative data is just one part of the toolkit. It is most valuable in combination with fundamentals, technicals and valuation. It’s not a magic bullet.
4) All stocks will be driven over the long term by growth/decline in FCF/share. Alternative data mostly about quarters, which often leads to short term thinking and this is the most efficient/competitive time horizon in the market today.
5) Areas where alternative data are most helpful are around doing cohort analysis on public companies which is generally not possible without credit card data and assessing private competitors to public co’s where there is minimal data otherwise.
6) If a fund is not paying multiple data scientists over $20m per year and doesn’t have proprietary datasets along the lines of Renaissance, alternative data is unlikely to be a sustained source of alpha and competitive advantage.
7) IMHO, alternative data leads to overconfidence given there are many other variables – i.e. costs/margins/international/changes in competitive environment. This overconfidence generally leads to crowding.
8) Crowded longs and crowded shorts with supportive alternative data have been great contrarian opportunities this quarter. Every component of FANG that has reported so far has traded the opposite of what the alternative data was suggesting.
9) If one had accurate positioning data, as suggested by @SuperMugatu, I think could generate a lot of alpha just by taking the other side of every single crowded name where alt data was suggesting a beat or a miss.
10) So am super amused to consistently hear that some fundamentally oriented large hedge funds – who are dramatically under resourced vs. the much larger quant funds where alt data likely does generate alpha – are pointing to alternative data as a scale based source of advantage.
