Data Dependence

The investment world is more data dependent today than ever before. This applies to both
technical or fundamental data. The individual stock universe is comprised of approximately
16,000 stocks, of which 8,000 have quasi-reliable technical and fundamental data
available. Even a universe of 8,000 stocks is extremely large and very hard for any investor
to manage.

One of the risks with large amounts of data, of any type, is its quality. If you use low quality
data, it could create poor data outputs used in your investment decision process. There is
an old adage which applies here and most have heard it before: Garbage In – Garbage
Out. The quality of data and the ability to manage the data is paramount in the investment
management process.

Influential Factors on the Markets

It is a well-known fact approximately 90% of the volume in the equity markets come from
institutional investors. These investors include mutual funds, pension plans, insurance
companies and hedge funds Due to the large size of the portfolios they manage, it may
take weeks, if not months; for them to build a position in a stock. Remember, these
investors try to buy or sell in a stealth manner to avoid tipping their actions and having the
price pushed up or down before they have finished acquiring or disposing a position.

Since institutional investors have such a significant influence on the market, it only makes
sense to focus on the stocks they watch and trade. We conducted a survey to determine if
there were a common, and simple, set of criterion which could be used to narrow a list of
over 8,000 stocks. At the same time, try to determine what the average investment
manager’s universe of stocks is comprised of. Institutional analyst’s standards are high
when it comes data requirements. If those standards are missing from the data of a
company, they won’t consider the company for investment potential. Remember Data
Dependence from above. ‘Garbage In – Garbage Out’.