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Market Sentiment Data

Although valuations drive stock prices in the long term, short term market movements are driven by sentiment. The stock market anticipates price movements. Positive sentiment is based on the belief that stocks will go up and negative sentiment is based on the belief that stocks will go down. By the use of market sentiment data, traders and investors find profitable points of entry into and exit from their positions. At the base, market sentiment is driven by fear of loss and greed for profits. These provide useful market sentiment data.

VIX Index
Put Call Ratio
Safe haven assets
“Risk on” assets
High / Low Index
Stock price breadth
CNN’s Fear and Greed Index

Current Market Sentiment

Current market sentiment is a mixture of bullish optimism and fundamentals-based bearish pessimism. The market crashed at the onset of the Covid-19 pandemic. From February 20 to March 23 the S&P 500 lost ground from 3,386 to 2,237. The worst-hit were airlines, hospitality, and anyone in the travel industry. Tech stocks suffered the least and have led the charge as the S&P 500 recovered to 3,580 by September 2. Along the way, the airlines, aircraft makers like Boeing and folks in restaurants, hotels, and travel have made only slight gains. Optimistic investors believe that the Covid-19 crisis will go away with vaccines while at the same time the economy is in awful shape with millions unemployed and millions more running out of money. With these factors in play, current market sentiment is a mixed bag.

Best Market Sentiment Indicators

Because the stock market always looks forward, we would like to use the best market sentiment indicators to help sort out how to invest in the coming weeks, months, and even years. The most popular indicators of market sentiment are The CBOE VIX, High-Low Index, Bullish Percent Index (BPI), and important moving averages. The VIX is also known as the fear index. It looks at options trades as a measure of how much the market is protecting against risk. The High-Low index tells us when many stocks are trading at their 52-week highs which indicates a bull market versus how many trading at their 52-week lows indicating a bear market. The use of moving averages helps put this information into perspective.

Market Sentiment Graph

For many, if not most of us, it is easier to read market sentiment data from a market sentiment graph than from a written explanation. And, on a graph, it is possible to combine information in order to give a better picture of the market sentiment data the graph contains.  As such a graph can contain information from the CBOE Put/Call Ratio, AAll Bull Ratio, Bullish ratio, NAAIM Survey, and current High/Low ratios. This snapshot gives the investor an up to date picture of market sentiment in order to guide their purchase and sale of stocks.

Market Sentiment Data - Graph
Courtesy Business Insider

Cryptocurrency Market Sentiment

Reading cryptocurrency market sentiment is a bit different than following market sentiment data for stocks. Volume and volatility of trading read at 15 minute intra-day intervals and the use of Ravenpack to see sentiment in non-scheduled news reports about Bitcoin and 6 fiat currencies. It is of note that many investors experience positive returns over time irrespective of the news and prevailing cryptocurrency market sentiment. In this respect, we can sort out cryptocurrency traders versus long term investors and the effects of current sentiment on each.

CNN Market Sentiment

CNN Money provides a useful measure of market sentiment. Their Fear and Greed Index is based on seven indicators: junk bond demand, put and call options, market momentum, stock price strength, stock price breadth, market volatility, and safe haven demand.

This composite of market sentiment data shows very clearly the greed and bullish sentiment at the end of 2019 followed by the bearish fear that came on with the Covid-19 pandemic followed by the hope and greed that drove the market back up while the economy suffered in 2020.

Daily FX Market Sentiment

Data used to indicate the daily FX market sentiment are similar to what is used for the stock market. However, the news has a broader scope than the US stock market because it has to do with currencies and nations scattered across the globe and a market that is open twenty-four hours a day on working days all year long. Global politics, as well as the relations of one nation to another, are important in FX trading as currencies are traded in pairs. Nevertheless, market volatility, volume, and moving averages work just as well as indicators in the FX market as they do with stocks.

Risk Off Market Sentiment

Optimistic investor sentiment goes with good news about the economy, industry, global politics, and steady profits. This leads to a risk on investing environment in which investors pick riskier assets in hopes of big profits. When things turn around and investing looks chancier, it leads to a risk off environment in which investors shun risk and prefer stocks over bonds and value stocks over growth stocks. Risk off market sentiment is generally easy to spot as the entire market pivots to value instead of growth and bonds instead of stocks.

How Negative Yield Bonds Work

A bond has a negative yield when the investor collects less money when the bond is mature than they paid to buy the bond. In short, the bond issuer is paid for issuing the bond. The buyer of the bond is paying for holding the bond. The reasons for buying a negative yield bond are several. In normal times, a bond may trade at a greater price than when it was issued due to interest rate fluctuations. And, in times of deflation, money increases in purchasing power and negative yield bonds become the norm.

Why Investors Buy Bonds With Negative Yields

At times when an economy is weak, deflation may set in. Money increases its purchasing power over time instead of losing it as happens with inflation. At such times, a bond with a small negative yield might be expected to gain in purchasing power by the time it is redeemed. Likewise, when an investor expects to see a currency rise in value against others, buying negative interest rate bonds in the currency that will strengthen will result in a profit when converted into a weaker currency. Other reasons include insurance companies that must hold part of their assets as bonds no matter how poor the yield is.

Corporate Bonds With Negative Yields

Investment grade corporate bonds with negative yields have become common in the European Union and Great Britain. In June of 2020 negative yield corporate bonds tripled in value over the previous month. About 332 billion euros worth of the 3.39 trillion investment-grade bonds in the EU had negative yields. This compares to 61% of government bonds in the EU and 48% of government bonds in the UK. The companies issuing these bonds are blue chips like Siemens that issues $1.6 billion in negative yield bonds recently.

How Can a Bond Have a Negative Yield?

Because we usually think of bonds as something that gives us a safe return on our investment over a specific period of time, negative yield bonds seem like a contradiction in terms. A bond has a negative yield if you can expect to get less money back when the bond matures than you put into it when you purchased it. When this happens during normal times it is a result of interest rate changes and having to sell the bond before maturity. But, now with economies weakened across the globe, we can expect that the purchasing power of money will rise with deflation. Thus you can purchases bonds for which you will receive less money at maturity but which may give you better purchasing power.

How Do Bond Yields Go Negative?

Bond yields go negative in two ways. The first is that you purchase a bond at a low interest rate and the rate goes up. If you choose to or have to, sell the bond, you will have a negative yield. The second way, which we are seeing now, is when deflation hits an economy and interest rates fall. They may go so as to be negative. In this case, you buy a bond for which the interest rate is negative. When you hold the bond to maturity, you will receive less money than you spent to get the bond. Investors may consider this to be a safe haven investment in times when economic chaos drives down the stock and real estate markets, makes money scarce, and drives up the purchasing power of the currency.

Impact of Negative Bond Yields

There are two ways to look at the impact of negative bond yields. The first is that investors choose to lose a little bit of money instead of risking the loss of more money. They buy government bonds with a slight negative yield, secure in their belief that they will be paying a slight premium to avoid huge losses. The other view is that negative yields are a losing proposition. Which of these is true always depends on what happens next to a currency, interest rates, stocks, real estate, precious metals, and cryptocurrencies. And, all of these depend on the stability of the economy, the markets, and today on the coronavirus.

Negative Bond Yield History

Japan has years of negative yield bond history. This was first tied to the deflation that hit the country around 1990 when its economic boom collapsed in the wake of a crisis of hidden debt. More recently, negative rates have occurred in the EU and UK as well. Negative yields have always been the end result of slowing economies, progressively lower rates, and a slide into negative territory. In almost all cases, negative yields are accepted as a way to protect money against loss by accepting a small “fee” for having the government or a corporation hold and “protect” your money.

Who Buys Negative Yield Bonds?

Investors who want a safe haven in weak economies often accept negative yields as an alternative to risking a stock market or real estate crash that would result in huge losses. And, insurance companies that are required to hold a portion of their assets as bonds are also faced with the necessity of buying and holding negative yield bonds when there are no safe alternatives. When rates for investment grade debt are negative, there are also positive yields to be found if you are comfortable with junk-grade bonds.

Risk of Greater Fool Investing

By many measures the current stock market highs are crazy. We wrote months ago about how the stock market is ignoring the economy. Unemployment is still at historic lows, congress is not coming across with another stimulus, and people are running out of money. This will result in families tightening their belts, buying as little as possible, and driving the financials of many companies downward. Nevertheless, many investors seem to be ignoring the fundamentals and trying to eke out more profits before taking their profits. This approach of trying to hang in for the last bit of a bull market is sometimes called greater fool investing. The investor knows that at some level he or she is a fool for hanging around as the market gets risky but the profits are addicting. They plan to sell to a greater fool at the last moment. The risk of greater fool investing lies in the difficulty of predicting when the hammer will fall and the market will fall like a rock.

Risk of Greater Fool Investing

Will Investors Lose Like in the Dot Com or 1929 Crashes?

Market Watch writes about the same issue in their article about a bubble like the late 1990s or 1929.

A “greater fool” stock market might be at hand if a popular valuation measure continues to press higher, potentially kicking off another bubble to rival the late 1920s and 1990s, warned a Wall Street veteran who called the market’s rally off the March lows.

Barry Bannister, head of institutional equity strategy at Stifel, noted that the cyclically adjusted price-to-earnings, or CAPE, ratio was at or near levels last seen in the final two years of the 1920s and 1990s rallies. The CAPE ratio, devised by Nobel laureate economist Robert Shiller, measures the price of the S&P 500 SPX, -0.81% divided by average corporate earnings over the previous decade. By taking such a long view, its proponents argue that it smooths out cyclical variations and gives a better view of where valuations stand versus history.

We believe that the CAPE underestimates the problem because earnings have been excellent over the last decade and earnings going forward are highly suspect as the Covid-19 virus continues to damage the economy. Many businesses will not come back to previous levels and that will come back to haunt investors who seem to believe that the big tech companies can keep making money when all of their customers run out of cash and quit buying!

We previously quoted Warren Buffett when he compared the pre-dot com crash market to folks planning to dance until midnight at Cinderella’s ball but failing to notice that the clock on the wall had no hands.

At some point, smart investors will follow Jim Cramer’s old advice which is that you do not have a profit in the market until you take a profit. Those that start taking a profit now will have done quite nicely since the Covid-19 crash and recovery but will do even better if they start hedging their bets now instead of hoping for a greater fool to bail them out at the last minute before the next stock market crash.

Dividend Yield Strategy

Many investors choose dividend stocks based on their dividend yield. This dividend yield strategy can be risky as companies that are failing may choose to pay high dividends in order to keep shareholders from selling shares as the price falls. A dividend is a cash payment from company profit to shareholders who are eligible, usually on a quarterly basis. As a rule, dividends are a sign that a company is making money, has a strong margin of safety, and is a safe place to invest your money. The caveat is that when a company starts to falter, it may continue paying the same dividend. The rate goes up because the stock price falls. Investors who only look at the dividend yield may be fooled into thinking that a failing stock is a good investment.

Dividend Yield per Month

A company will always show its dividend yield as the amount of money paid in dividends for one share of stock divided by the value of one share. This is always expressed as a percentage. To calculate the dividend yield per month, simply divide the annual dividend yield by twelve. It should be noted, however, dividends are rarely if ever paid per month. Quarterly is most common but some companies pay dividends twice or even once a year. However, the dividend yield per month is useful for retires as it gives you a clearer idea of how much money will be available for expenses every month.

Dow Jones Historical Dividend Yield

When devising a dividend yield strategy, it is useful to have a little perspective. For example, the Dow Jones historical dividend yield is a good place to start. All of the current Dow companies pay dividends. The current range of dividend yields in this group is 0.66% to 5.7% per year. The average number of years the companies have been paying dividends is 70 years with JPMorgan Chase & Company at the long end at 192 years. Within this group, the average number of years that companies have increased dividends every year is 18 years.

Dividend Rate and Yield

Make sure that you know the difference between rate and yield when dividend investing. The rate of the dividend is the amount of money you receive per year in dividend payments. The yield is that amount divided by the share price and expresses as a percentage. When you are looking for a good return for your investment, look for dividend yield. But, when calculating how much you will receive, or be able to reinvest, look at the dividend rate! The rate is important to look at when you see the stock price going down but the yield going up. This means that the company is buying your allegiance with dividends when they are not growing but rather shrinking!

Dividend Yield Model

Some investors use a dividend yield model or dividend discount model to assess the value of a stock based on its forward-looking dividend payments. This approach is similar to the assessment of intrinsic stock value as it attempts to predict the future earnings and dividend payments of a company. The point of this approach is that you can arrive at a fair market value based on dividends instead of variable market sentiment. This approach is especially useful for companies that have paid dividends for decades and usually increased dividends on a yearly basis.

Dividend Yield Factor

Our stock investments are always based on several factors. These include the prospect of growth of the company and the growth of its stock price. Companies are rising to dominance in their sectors, companies with a strong margin of safety, and companies with a lock on given technologies are all ones with strong factors that we take into consideration when investing. The dividend yield factor plays into this as well. Companies whose dividend yield keeps going up along with their stock price are ones that are doing things right and likely to reward your investment for years to come.

Dividend Yield Enhancement

Many investors view dividend stocks as an alternative to bonds and make the mistake of thinking these sorts of investments are the same. They are not. When you choose well when buying dividend stocks you not only get a dividend that is comparable to a bond but you get the likelihood of dividend yield enhancement. As we noted, the average number of years that stocks in the Dow have increased their dividend payment every year is 18. With this sort of dividend yield enhancement, you get a better return for your original investment as a stock that is probably growing in price as well!

Dividend Yield Calculation Example

Value investors looking for reliable dividend income should look at dividend yield as it tells you what a company pays to shareholders each year in relation to its share price. Here is a dividend yield calculation example. Start with the dollar value of the yearly dividend and divide by the price of one share.

In June of 2020, Microsoft announced a dividend of $0.51 a share per quarter or $2.04 per year with the first payment at this level to start September 10, 2020, to shareholders of record on August 20, 2020. The current yearly dividend of Microsoft is $2.04 and the current share price in September 2020 is $214.25.

Thus the dividend yield of MSFT is $2.04/$214.25 = 0.9%.

Where to Invest During the Next Market Crash

 The stock market has gotten ahead of any economic recovery and is at risk of a correction or crash. We noted some time back that the stock market seems to be ignoring the economy. This should concern investors. Where to invest during the next market crash is something to seriously consider. For that matter, investors should give some thought to where they should invest before a likely correction. Here are a few thoughts on the subject.

Where to Put Your Money before the Market Crashes

Investors who are staying short can put their capital into short term bonds or CDs. This will protect your money and allow it to be available for investments when the market goes down. Another good idea is to pay off debts. Getting a better return on your investments than the rate for credit card interest can be difficult. Getting rid of high-interest-rate debt is an excellent idea during uncertain times. Long term investors may consider dividend stocks with a good margin of safety.

Where to Invest during the Next Market Crash - pay off credit card debt
Paying Off Credit Card Debt Is a Good Investment

Best Investments during Stock Market Crash

The Motley Fool has a good article about where to invest during the next market crash. They suggest companies with high margins of profit, a large cash reserve, and the prospect of good cash flow to cover ongoing operations and debt service. Three that they suggest are MasterCard, VISA, and PayPal Holdings. Consumer goods stocks generally do well during a recession but as unemployment levels continue at Depression era levels, people will start to budget their money and only those selling necessary items will do well.

Real Estate Investing during Recession

Those with substantial cash and experience in real estate may consider these sorts of investments during a recession and market crash. The most important part is the ability to understand all aspects of real estate investment and have the management skills (and time) needed to carry projects through to completion. Having a good sense of where growth and profits will be over the coming years is necessary before looking for good real estate deals as many cheap properties are cheap for good reasons.

What to Buy during Market Crash

There are two strategies for investing during a stock market crash. One aims for short term profits and the other aims at picking up long term investments at bargain prices. In our article about safe investments if the pandemic gets worse we mentioned a company that makes Covid-19 tests. They are likely to do very well no matter how the market does and probably go up in price during a crash. But, when Covid-19 subsides, so will their stock. This could a good short term investment during a market crash. On the other hand a company like Microsoft has gone up from $150 a share to $230 a share this year. Their rally in the face of the pandemic is partially because of the movement to online work which is very likely to continue once the pandemic subsides. Companies have found ways to function just as well as before and with fewer expenses by having their employees “telecommute.” Microsoft is therefore a good long term bet and could be picked up at an attractive price when the next crash occurs.

Define Investment Risk

Risk and reward go hand in hand when you are investing. You need to be able to define investment risk for every investment that you engage in. In any investment, the risk is the chance that your investment gains will be different from the outcome you expect. That risk always includes the chance that you will lose some or all of your investment capital. In trying to determine risk before going into an investment, the most common way is to look at how the same type of investment usually turns out. Using tools such as the standard deviation, investors get a sense of just how risky or safe an investment likely is.

Different Types of Investment Risk

Some types of investment risk have to do with the type of investments you make. Some have to do with things like your age, how long you plan to stay invested, and how long you may need to accumulate capital for things like starting your own business or having money for retirement that does not run out. Here are the usual investment risks:

Market Risk

This group of risks includes changes in interest rates, relative currency valuations, and the prices of stocks that you purchase.

Liquidity Risk

This is the risk of not being able to get out of an investment when it goes bad. One of the strongest reasons for investing in US stocks on the NYSE or NASDAQ is that they generally trade with a good degree of liquidity. Nevertheless when an overpriced market corrects, you will generally have to take a loss when getting out unless you have protected yourself with put options.

Concentration Risk

This risk is why most investors diversify their investments. When all of your capital is tied up in one stock, one real estate project, or one type of bond, you will lose across the board with the investment goes bad. Diversification can be investing in several stock sectors, real estate, and in different countries.

Credit Risk

This is the risk that a company or a country that issues bonds will not be able to pay. Investors assess credit risk by looking at credit rating. The best credit rating is AAA and in the USA only two companies have AAA ratings, Johnson & Johnson and Microsoft.

Reinvestment Risk

This risk has to do with interest rates. You purchased bonds at 5% interest and they have matured. But when you want to buy today the interest rates are nearly zero. This is the reinvestment risk associated with low interest rates in the current era. The same applies to reinvesting interest paid except when you simply spend the money!

Inflation Risk

Inflation risk is the loss of purchasing power of your money when the currency devalues. In the 1970s interest rates were high but inflation was higher. Thus investors lost purchasing power with bank accounts, bonds, and treasuries. Those who invested in stocks saw share prices go up and real estate kept up because prices rose. Gold was very popular and rose from $32 an ounce to nearly $800 before it corrected back to the $200 to $300 range.

Investment Horizon Risk

This risk has to do with how long you need to stay invested in order to see a profit. Stocks tend to outperform other investments over the long term but if you lose your job and need to sell stocks during a market correction you will lose money.

Other risks include devaluation of foreign currencies when you invest offshore and simply running out of money as you live long and use up your savings.

Investment Risk Reward

All investments have a potential risk to reward ratio. For example, an investment risk reward ratio of 1:5 means that you are willing to risk $1 for the possibility of making $5. In general, investors look for at least a 1 to 3 risk reward ratio when they are putting their capital at risk. However, folks who want to invest without losing any money will be happy with a bond that returns a set rate of interest and returns their capital when it has matured. Unfortunately, anyone with such investments needs to accept the risk of inflation eating up their purchasing power and the possibility that rates will get ever worse to go negative!

Investment Risk and Return Analysis

The first thing that most investors consider when investing is the history of a given type of investment. Well-chosen stocks tend to go up over time. The same applies to real estate and both also have their bubbles and crashes. The longer you plan to stay invested and the greater margin of safety you have, you can simply wait out the down times and expect to make money in the long term. If you are trying to time the market, you may become rich and you may lose everything. The key to avoiding such disasters is to start by assessing the intrinsic value of any investment and then paying close attention to the details along the way.

How to Calculate the Risk of an Investment

The first step in calculating investment risk is to look at how your type of investment has done over time. What is the maximum return you might expect and what is the worst case scenario? What the most common scenario and how often does that occur. Then to calculate the risk of an investment you need to look closely at the details associated with best case, worst case, and average scenarios. What conditions favor the best case and what situations will lead to an investment disaster? In short, you need to know exactly how a given investment works in order to make a profit!

Reducing Your Investment Risk

There are four good ways to reduce your risk when investing. The first is to avoid putting all of your eggs in one basket. Diversify and spread out your risk. The second is to be clear about your goals when you invest. Don’t find yourself holding a 10-year Treasury when you need the money in 5 years! Then, pay attention. We have writing about the pros and cons of dollar cost averaging. One risk of this approach is that you get lulled into a false sense of security and quit paying attention! A good approach for the average investor is to keep your portfolio small enough that you can easily keep track of each investment.

How to Minimize Risk in Investment

If you simply don’t want to deal with the risk of losing money in your investments you typically need to accept a lower projected rate of return. Folks going into retirement often move a larger part of their portfolio from stocks to bonds and treasuries as they are assured of an income without their principal being at risk. But this approach needs to be adjusted a bit at times like now when interest rates are likely to remain low for a long time. A better approach, in this case, may be secure dividend stocks that are both sources of steady income and likely to appreciate in value over the years.

Define Investment Risk - risk and reward
Reward Always Goes with Risk

Components of Investment Risk

When you read about the components of investment risk, you see lists of external risks like changes in interest rates, liquidity, and the economy. But, the biggest component of investment risk lies with the individual investor. Successful investing takes time, patience, experience, and sound judgment. A person who makes a good income in their profession will have money to invest. They have the same or great intelligence as successful investors. What they lack are the time to track their investments, patience needed to wait for good results, and experience. Taking time away from their work means lost income and investing without having the time and experience results in lost investments. Warren Buffett has suggested that most investors in this situation are best served by an ETF that tracks the S&P 500 than by trying to pick and choose individual investments!

Safe Investments if the Pandemic Gets Worse

The coronavirus pandemic continues and may even get worse when the fall flu season arrives. What are some safe investments if the pandemic gets worse? Investors have piled into tech stocks like the FAANG as these investments seem reasonably secure. But, these stocks are also high-priced and not immune to a correction if sales fall off. And, sales could fall off as more and more people continue being out of work and without any discretionary spending. There are some companies that have done well during the pandemic and which stand to prosper if things get worse.

Safe Investments if the Pandemic Gets Worse

The Motley Fool suggests three stocks to buy ahead of a potential second wave of the virus. They are PayPal, Logitech, and Quidel.

PayPal has nearly doubled its stock price since the beginning of the year from $102 a share to $198. They are benefitting from the wholesale move of commerce online.

Logitech is a computer hardware maker that has also benefitted from the move of business and social activity online and from home. They have seen a nice stock price increase from $47 to $74 a share.

Safe Investments if the Pandemic Gets Worse - Covid-19 Vaccine

Making Covid-19 Tests is Profitable During the Pandemic

Quidel’s stock has gone from $74 a share to $241 a share since the first of the year. These folks make tests for Covid-19! Our opinion is that this company is in the best position of the three to do well if the pandemic worsens this fall. Their Lyra SARS-CoV-2 rapid assay test got emergency use authorization from the FDA in March and their Sofia 2 SARS Antigen FIA test that produces results in fifteen minutes was approved in May. As the Covid-19 virus reemerges as a problem across Europe, the UK, Japan, and other countries that had seen it subside, there will be a need for more testing across the globe. As the pandemic continues to grow out of control in the USA, the need in North America will be even greater. In the coming months and into at least 2021 one can expect to see Quidel to be a safe investment as the virus continues to be a major problem.

Other companies that make Covid-19 tests include Roche, Abbot Labs, and Thermo Fisher. However, these are larger companies for whom the benefit of making a Covid-19 is diluted by the success or failure of their other products and services.

How Long Will Covid-19-related Profits Last?

Companies that make tests for the Covid-19 virus and those that are developing vaccines are going to make money in the coming year or so. But, this may be a one-time occurrence no matter how dire the need is right now. If it turns out that the Covid-19 virus keeps mutating, there may be the need for vaccinations every year. Then, it will essentially be another “flu” shot. This can be a good business but not something exceptional. Thus, the companies like Quidel that are money-makers now will probably cool off in a year or two.

Safe Investments if the Pandemic Gets Worse – Slideshare

Safe Investments if the Pandemic Gets Worse – DOC

Safe Investments if the Pandemic Gets Worse – PDF

What Is Alternative Data in Finance?

Using alternative data in finance can help investors get ahead of the competition. What is alternative data in finance? A simple example is the relationship between Google searches and prices of individual stocks. In a broader sense, alternative data in finance include news feeds, social media, payments information, any non-financial information that indicates interest in, fear of, or the intention to buy equities. This sort of information gives investors insights into what drives decision making of those who buy and sell stocks. Hedge funds and private equity firms use this information to gain early knowledge of trends both positive and negative.

Types of Alternative Data

There are many useful types of alternative data. This list contains sources commonly used by investors and traders. The list is arranged alphabetically and does not reflect the relative importance of any of these kinds of alternative data.

Credit card transactions
Email receipts
Geolocation (foot traffic)
Internet activity and quality data
Mobile App or App Store analytics
Obscure city hall records
Online browsing activity
Point-of-sale transactions
Price trackers
Product reviews
Satellite images
Shipping container receipts
Shipping trackers
Social media posts
Tracking corporate jets
Web site usage

What Is Alternative Data in Finance?

Those who successfully use this sort of data do not forsake standard analytic tools like important moving averages but rather use them to indicate trends and investor thinking outside of “box” of standard analytic tools.

Top Alternative Data Providers

Using this sort of information can help investors, but where can you get it? What you can do is to use one of top alternative data providers who do all of the “legwork” for you. Datarade offers a list of their choices for the top 10 alternative data providers.

Brain Company
Exante Data

By using one of these services, you can get clues that will give you an advantage in the markets but not take up all of your time trying to track down many bits of information that may or may not be of value.

List of Alternative Data Providers

If none of the top list of alternative data providers offers the services that you want, there are many more such companies. In addition to the list we just provided, Arm Insight, Omni Sci, QuantCube Technology, Alternative Data Group, Crux, Preqin, Quandl, SEntieo, and Thasos, Group are excellent choices for providing extra information to give you an advantage in investing and trading. You may end up using one or two data providers before you settle on one that fits your unique investing and trading requirements.

Driving Investment Performance With Alternative Data

Although the use of alternative data in finance is becoming popular, you need to understand the benefits and potential drawbacks of your attempts at driving investment performance with alternative data. This data is unlike the sort of “hard” data that comes directly from analyzing market pricing, reading financial reports, and following the economy. This kind of information is partial, suggestive, and often incomplete. Too often the data is poor and difficult to verify. Most investors start with standard analytic tools and then use alternative data to fine tune or direct further research.

Machine Learning and Alternative Data Approach to Investing

Artificial intelligence can be extremely useful in helping sort through large amounts of data in order to optimize your investment choices. In this regard, machine learning and the alternative data approach to investing fit well together. The value of alternative data is that you can pick up very useful information to guide your investing. The problem is that there is an awful lot of data available and sorting through it to see what is useful and is not can be time consuming and often useless. By having an artificial intelligence program do the sorting, you can get it done faster and more effectively.

Alternative Data Is Valued on Wall Street

What Is Alternative Data in Finance - google search and consumer behavior

When investors have to wait for official data such as unemployment numbers, they often look to alternative sources to get a head start on those who simply wait for the official figures. Thus alternative data is valued on Wall Street where any tiny advantage can be parlayed into big gains. Alternative data has been especially helpful in the Covid-19 era when companies have put off offering guidance and Congress dilly-dallies with stimulus money while millions are out of work and in danger of eviction. Likewise, the stock market has recovered while the epidemic persists and the economy is not well. Alternative data offers useful insights to guide investment decisions in these times.

Alternative Data Investment Management

Because alternative data can be helpful in making smart investment decisions, it is applicable to managing investments on a broad scale as much as for guiding single investment choices. Alternative data investment management should always be coupled with an artificial intelligence tool to make it more efficient. And, all such data should be (at times) taken with a grain of salt to make sure that you do not follow a lie propagated on social media and lose all of your investment capital.

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Investment Options 2020

The stock market is back to record highs while the economy is in trouble. What are your investment options in 2020? Folks are investing in stocks because they don’t anything else to invest in. Is that really the case and, especially, are stocks really a safe bet right now? Nobody has a crystal ball to predict exactly where the future will take us but we would nevertheless like to offer our thoughts about profitable and safe investment options for 2020 and beyond.

Best Place to Invest Money Right Now

This is what investors would always like to know but to know the perfect answer you need your crystal ball to predict the future. The issues today affecting investments include a stock market where investors are putting their money because interest rates are low and the market has been going up. However, the economy is not yet back on track and further growth in stocks will be tied to the shape of the economic recovery. Many investors are betting on a quick recovery with a “V” shape instead of a prolonged “U-shaped” recovery or an “L” shape that lasts for years.

Short Term, Safe Investments

If you are unsure about how this will turn out, short term investments might be your best bet. Bankrate has some useful advice about the best short term investments in August of 2020. They suggest the following:

Savings accounts
Short-term corporate bond funds
Short-term US government bond funds
Money market accounts
Certificates of deposit
Cash management accounts

Investment Options 2020 - US Treasury

As you will note, stocks are not on this list.

Investing for the Future (and Accepting Short Term Risk)

Bloomberg offers several options in their article about Where to Invest $10000 Right Now. It is a useful read and looks at where growth will be down the line. Here is where you need to apply the concept of intrinsic stock value and look out a few years. That will take away much of the concern about a second market crash in 2020. Artificial intelligence is mentioned in their article along with investment in the Eurozone and UK. If you are willing to take the risk of a short term correction, an ETF that follows the FAANG stocks and using a dollar cost averaging approach would be a sound approach.

Good ideas about where to invest money to get good returns in the short term can be found on the Bankrate list. And ideas about where to invest to benefit for the long term will be found in the Bloomberg article.
Finding safe investments with high returns is always a problem because there are always tradeoffs.

Investment Options 2020 - investment in AI

Investing Money for Beginners

The best advice for beginners who want to invest is to start early, invest regularly, do your homework and avoid “tips.” Pay down your credit cards before you start any serious investing because the odds of your finding a safe investment that outpaces the interest rates on credit cards is pretty remote. Unless you have the expertise and time to study the stock market and individual stocks, it is a good idea to start with an ETF (exchange traded fund) that tracks the S&P 500. These funds have outpaced most investment managers for the last decade. When you do start to pick your own investments whether in stocks, bonds, or real estate, follow the thinking of pros like Warren Buffett who only invests when he fully understands what a company or other investment does to make money and how its business plan will continue to reliably make money into the distant future.

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Buying Cryptocurrency 101

Cryptocurrencies have been with us since 2009 when Bitcoin was introduced. A cryptocurrency can be bought a sold via the internet using a decentralized network. It is an efficient way to transfer money and to hold wealth outside of the system of fiat currencies, precious metals, and property. Although Bitcoin was the only cryptocurrency to begin with, by 2020 there are more than 6,000 cryptocurrencies.  The value of various cryptocurrencies has gone up substantially over the years and at times has fluctuated widely. It can be hard to get a handle on all of this, how to buy, what to buy, and when to avoid cryptocurrencies completely. Here we present a brief explanation of what you need to know, Buying Cryptocurrencies 101.

Buy Cryptocurrency Without Bitcoin

Although Bitcoin is the oldest and best known cryptocurrency, there are many (more than 6,000) different cryptocurrencies. Unfortunately, there have been cryptocurrencies that have appeared and disappeared as their exchanges were hacked or simply mismanaged. Thus most who buy cryptocurrencies stick with the larger and better run exchanges and types. Here are the ten most popular if you would like to buy cryptocurrency without Bitcoin.

Bitcoin Cash
Bitcoin SV
Binance Coin

Buying Cryptocurrency 101

Each of these alternatives to Bitcoin has its pros and cons but all appear to be safe bets if you want to purchase cryptocurrencies and not have your wealth stolen overnight.

Challenges Facing Cryptocurrency

As cryptocurrencies have become increasingly popular, they have attracted the attention of regulators and law enforcement. Because monetary value is transferred via cryptocurrencies outside of the banking system and normal money transfer channels it has been used to move illegally gotten, intended, or hidden wealth (drug money, funding of terrorists, not paying taxes, etc.). Cryptocurrency exchanges in the USA now need to report to the IRS (IRS Form 8949, Schedule D). The main issue for those holding wealth in cryptocurrencies is security. Too many exchanges have folded, taking millions with them due to hacking or outright theft. And, unlike a US bank account, your money is not insured by anyone! Smart investors tend to stick with the best known and best run exchanges and cryptocurrencies to avoid losses.

Chart of Cryptocurrency Prices

Buying Cryptocurrency 101-Bitcoin Price Chart

Aside from the ease of transferring money with cryptocurrencies, an attractive feature is the prospect of the value of your Bitcoin or other cryptocurrency going up substantially. Here is a chart of cryptocurrency prices.

Bitcoin price at the far left in 2009 is $1 and the price in August 2020 is more than $12,000. As the chart shows, the cryptocurrency experienced a huge boom and bust from September 2017 to January 2018. It is going up again in response to the uncertainty generated by the current Covid-19 pandemic and its effects on global economies.

Breakout Cryptocurrency

Folks who want to speculate in cryptocurrencies can time their purchases to take advantage of changes in the global economy and specific events that drive fiat currencies down. Or they can look for a specific breakout cryptocurrency, which is typically a new one that gets a lot of attention. Forbes wrote about one particular breakout cryptocurrency earlier this year.

While bitcoin, the world’s original and most valuable cryptocurrency, has risen almost three-fold over the last 12 months, tezos has rallied some 400%, climbing from under $0.40 per tezos token in February 2019 to just over $2 today.

Thus, newness can lead to at least temporary popularity and a surge in price of a new breakout cryptocurrency.

Bullion Cryptocurrency

When the economy suffers and fiat currency values drop, both gold and cryptocurrencies go up. For those who would like to take advantage of this, it is possible to buy a bullion cryptocurrency. In fact, Bullion is the name of a cryptocurrency that is based on gold bullion and not the US dollar. This exchange has been in existence since 2013 and is promoted as an “ideal storage of wealth.” Thus, it is unlike Bitcoin and others which can grow wealth, or lose it, and are promoted as ideal ways to hold and exchange wealth. This bullion cryptocurrency is meant as a long term investment

Buy Cryptocurrency Penny Stocks

The investment community has ongoing concerns about the boom and bust quality of cryptocurrencies and the fact that there is nothing backing the currency. However, they are excited about the blockchain technology that underlies and many buy cryptocurrency penny stocks hoping to get in on the ground floor of big price surge or capitalize on a company’s important position in the technology that drives cryptocurrencies. Examples include Marathon Patent Group (MARA), Riot Blockchain, Inc. (RIOT), MGT Capital Investments, Inc. (MGTI), and DPW Holdings, Inc. (DPW) which are newer companies.

Buying Cryptocurrency for Someone Else

Many investors purchase stocks and other investments for their children or others. Buying cryptocurrency for someone else is typically done by making the purchase yourself and then sending to the other person’s account. Coinbase facilitates these sorts of purchase and transfer operations as do some other exchanges. This can be done as a gift or to start one of your kids out on the road to investing. Because cryptocurrency profits are now taxed in the USA, it may be to your advantage to gift to your children to be used for college or simply to make a wealth transfer far in advance of your death. To make sure that you do this correctly, check with a tax advisor who understands cryptocurrencies.

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