Tools for the Equity Research Toolbox

When I was a kid, I would always remember commercials for a school called Apex Tech. One of their taglines was “look over the professional tools you get to keep when you finish your training”. It’s a lot like that today. Google News, along with Yahoo! Pipes are two tools that analysts, traders, and salespeople are discovering and using.

Today the NYTimes pointed to the slow growth of ad revenue as a disappointment to Google on it’s news site see – “At Google, Slow Growth in News Site”

In digging through the article I saw this quote that really outlines what Google News is about for people like me, those of us that live in the news.

Google executives defend the news site, saying traffic is not a paramount goal. Google News, they say, helps the company produce better search results and helps users find news sources that they might not know about otherwise.

“For us, news is about search and helping people find information,” said Marissa Mayer, Google’s vice president for search and user experience, who oversees Google News.

This idea of finding “other” news sources is the key.

One of the paramount abilities of a good analyst is to spot trends early and realize their potential impact on a company or industry. What analysts are usually searching for is any hint of weakness or strength in competitive advantage. Sometimes the smallest trends start in the local newspapers. Google News makes locating those topics and stories much easier.

If you pair Google News with the enhanced filtering ability of Yahoo! Pipes, and your favorite feed reader; you can create some worthwhile tools that help your trend seeking abilities.

I am a big fan of some of the ideas behind Microtrends by Mark Penn. Mark is known for spotting the ‘soccer moms’ impact on the 1996 Clinton campaign. Basically his idea centers around identifying trends that begin when 1% of a population begins to adopt. So if 1% of the US population (3 million people) starts saying something you need to pay attention. The trick as an analyst is to identify topics that may be on their way to that benchmark.

My current interest is in the debate on energy policy as it relates to Oil exploration. What I’m really concerned with is the indirect results and unintended consequences of a change in the current energy policy. Any change from today’s policy will cause all companies to respond. This will allow me to set up a group of scenarios which I can watch and be prepared for as a trend develops. A cardinal rule in investment research is to make sure you have as much relevant data as possible. You never want to be blindsided. You can discount information at your own discretion — but being ignorant is hazardous to your portfolio.

Here is an example I’ve been working on as part of a wider range of investment ideas on Oil.

My first approach was to set up a search in Google News that highlighted anytime OIL was in the title of a story. You can do that with the ‘allintitle’ operator and since I wanted US based sources I added the ‘location’ operator with USA as the source- it looks like this in the Google search window.
http://news.google.com/news?hl=en&ned=us&q=allintitle:oil+location:USA&ie=UTF-8&scoring=n

To see more useful operators check out the Google Cheat Sheet

There are choices on the page to make this search into an RSS feed. Clicking a link on the page will create a feed url in either RSS 2.0 or Atom. You can then take that feed and do further refining in Yahoo! Pipes. I like to create a broad search from Google News and then apply a layer of filters in Pipes for key terms that I think are important. Once I have configured Pipes to my liking it becomes a feed for my RSS reader. I also created a pipe that looks at the opinion and editorial feeds from certain newspapers. Those in the analyst community will recognize this technique as a kin to using Google alerts. Using RSS is the better mousetrap and it doesn’t clog you mailbox.

So what did I find from my pipes that I think is interesting, below are some examples:

175 in House Sign Westmoreland Pledge to Vote to Increase Oil Production
Oil prices put Plastic industry under pressure
Point/Counterpoint: Oil drilling
Oil drilling question looms as election issue
Calls for crack down on oil speculation increase
McCain’s policies will not help oil crisis, curb climate change

With two candidates on opposite sides of the issue. Stories and opinion pages are pointing to the key arguments that each side will make. Two of the resident themes are drill now, and oil speculation. Being apolitical here, if there is one thing you can count on — somewhere along the line– both of these candidates are going to introduce some type of energy legislation as part of their platforms. The sentiment in the stories, on either side, is just too high for either campaign to ignore as a differentiating issue. With further enhancement, I can track these issues on a regular basis without having to subscribe to every newspaper RSS feed. And as a side benefit to the newspapers involved, to get the full story, I need to go their site – display advertising anyone?

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  • http://www.mymeemz.com Alex Tolley

    The tools that you describe clearly start to level the playing field between professionals with access to news feeds and the rest of us, much as we saw with the dissemination of price data around a decade ago.

    However, to be useful, the news you are collecting must be both relatively unknown to the market and of pricing relevance. You’ve made the case previously that this might be possible, although I am still highly skeptical that this can be done reliably.

    To take your oil example, are the news items you selected even relevant to the price of oil? As you know, oil traders and investors have specialist analytical services that focus mainly on information about supply and demand. So for example, even if you picked an obscure article on oil that suggested that ANWR or US coastal drilling would now be increased, you still need to know what that means in terms of supply (amount and timing) and how that might impact demand (SUVs sales stop falling?) and hence price. You would also need to know what is driving the current oil price (Supply/Demand vs speculation and if speculation, what are the key beliefs that need to change).

    My sense is that to capture something new in teh news, you need to be doing something fundamentally different than what is being done today. This might be something more akin to the “collective intelligence” idea – perhaps something as simple as correlating the frequency of oil related words e.g. “oil + crisis” with previous oil price movements. Perhaps you can create new data, e.g. extracting road accident reports, news articles on traffic reports or drivers driving more slowly b(as they appear to be doing where I live in the Bay Area), or dealer closures (or sales), which can be used to estimate demand changes before the official statistics are in.

    This is more in line with Peter Lynch’s suggestion of doing your own research. His apocryphal story of a broker telling a woman investor to buy a clothing retailer stock based on previous quarters sales and profit growth – she goes out checks the store and refuses to invest because the local stores have almost no traffic and therefore not likely to do well in the next quarter.

  • http://sm2.techrigy.com Martin Edic

    Want to find a trend a lot earlier in the process? Use social media monitoring based on multiple keyword phrases that return you results on a periodic basis via RSS or email. These results are conversations across blogs, wikis, microblogs like Twitter, social networks, user-generated content, etc. and include analysis tools that offer directions for sentiment, gender, age, geo-location, etc. And they are far closer to real time than traditional search results.
    Throw in the ability to categorize by rules, define authority ranking of various participants and you have what, I think, will be a powerful new tool for tracking trends, brands, reputations for a variety of purposes including investing…

  • http://www.mymeemz.com Alex Tolley

    Martin – is this just speculation or do you have some evidence that you won’t drown in the noise?

  • http://radar.oreilly.com/2008/06/tools-for-the-equity-research-toolbox.html great9126

    This might be something more akin to the “collective intelligence” idea – perhaps something as simple as correlating the frequency of oil related words e.g. “oil + crisis” with previous oil price movements.

    These results are conversations across blogs, wikis, microblogs like Twitter, social networks, user-generated content, etc. and include analysis tools that offer directions for sentiment, gender, age, geo-location, etc. And they are far closer to real time than traditional search results.

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  • http://www.dansuleiman.com Dan Suleiman

    right…and how many times has the NYTimes been wrong!?