The last two years have been a frenetic pace of product development – I’ll write a separate post on our approach there because it’s highly iterative and a little different – and customer appreciation of our product is very rewarding for the team. I have sent a letter (in email) to every production user thanking them for their business, for helping FirstRain get to this point and letting them know the new capabilities that will be in their hands in September.
The press release is on our web site – and has several customers named in it. However, the buyside is a secretive world and so most customers won’t let us use their names. I’m grateful to the customers listed who will!
I completely understand from their point of view – their research process is their critical IP – but it’s tough from a marketing perspective to not be able to name names. The press always wants to talk to a live person who is using and I have yet to find a portfolio manager who has the time or the inclination to take a lot of calls, unless they are a board member or an advisor. So be it – we just have to be persistent and creative in our marketing.
We’re in sales training all day today and Keith McCullough of Research Edge came to talk to the sales team about the “tectonic shift” that is happening in investment research today and why he loves our service.
He gave us two terrific concepts that apply to our role in the shift.
1. “the edge is in the question – what question you ask and when you ask it”. It’s no longer speed, it’s no longer whisper, it’s about having the rigorous research process that you ask the question at the right time. FirstRain in the process stimulates continuous, valuable questions.
2. “the internet is the disintermediator”. He thinks there is a generational change happening. Technology is dramatically changing the way people get information. Why did Obama beat the Clintons? (whatever your politics Obama took a new, tactical, technology driven approach). It’s Google vs. the ad agencies – the old style is “coming down” and whole industries are being rebuilt – and Wall St is one of them.
Very inspiring stuff for our sales people. Keith is one of the very high performers on the street – well known for his performance – so he has great credibility with my team. He told them they are selling a hot product, on the leading edge, creating a market as the industry goes through radical change – heady stuff.
Our system has been picking up an interesting counter-cyclical trend on an investment approach that has been buffered from the credit crunch recently – Sharia or Islamic compliant investing.
This is a practise that started in Malaysia three decades ago and it has been growing as the assets available have been growing in the Middle Eastern oil rich nations. New funds are being started – like the first of several new sharia-compliant hedge funds being started by Dubai based Millennium . As Reuters reports
The S&P global shariah index returned 3.61 percent in the second quarter, while the equivalent world index fell by 1.49 percent.
Banking stocks have been hammered by the credit crunch and exposure to the U.S. mortgage market. But as Islamic law prohibits the paying of interest, shariah investors — most from Gulf states which are reaping the benefit of record oil prices — cannot hold such stocks and have therefore been immune.
Katherine Heires wrote an in-depth article on the new space we’re pioneering yesterday – Blogging Filters Bringing Order to Chaotic Content. She’s done a good analysis of the new systems being developed to help investors make money from the web.
As blog postings and other content about stocks, market sectors, products and company actions permeate the Internet, time-pressed portfolio managers, traders and research analysts are finding it harder and harder to keep pace. But a new generation of research providers is working to change that with algorithms and pattern-matching technology that aggregates and analyzes a seemingly impenetrable body of information.
“In a market where prices are changing all the time, the person who has the best information about any event that might impact a trading price has an advantage–and that includes unstructured data that has been filtered for quality, reliability and relevance,” says Patricia McGinnis, research director with IDC affiliate Financial Insights and co-author of a June report on the subject.
Katherine has interviewed me several times now and I was pleased with the section of her article about FirstRain.
“Blogs are where many of the most intriguing questions, trends and ideas first come to light,” notes FirstRain CEO Penny Herscher, who calls them a “blind spot” for institutional investors. “Manually finding the meaningful information from the volume of meaningless chatter is just not practical, even for the largest firms.”
Foster City, Calif.-based FirstRain last month introduced Blog Monitor, which uses an algorithm that looks at “prominence, reach and authority” to identify the most influential sites. A standard search engine relies on popularity as a measure, says Herscher.
“There is a big difference between working with a standard search engine, where you have to put in a query to get a response, and a continuous search service–which is what we do–that is reading all the blogs for you, prioritizing the information, normalizing it and proactively reporting information to you, for example, when there has been a volume change of activity,” adds Herscher.
For the service, eight-year-old FirstRain built a Web-results database, prioritizing and pulling out trends from blogs, according to Herscher, who says the task wasn’t easy. “The Web is so junky and chaotic and full of duplicate information,” she observes, “but now that we have the database built, we can keep adding relevant analytics.” The service, which allows users to select pertinent companies and topics, currently offers impact reports on the investing, technology, energy and health care sectors.
We track topics for our clients – which means finding documents that match their interests – and one of the hot tech topics is “cloud computing”. We call ourselves a SaaS – software as a service – application.
I was interested to see a thought provoking blog post in my daily report today on the difference between cloud computing and SaaS, but like many blog posts it got me thinking but didn’t help me answer the question about how FirstRain fits.
The premise of the post is based on a Gartner report which says that the basic difference between the two is massive scalability. But that doesn’t make pragmatic sense to me. Where do you draw the line between scalable, and massively scalable and does it mean anything practical in today’s world of apps with hundreds to millions of users?
I think the difference may lie in security. KMWorld’s recent article “Cloud computing and the issue of privacy” concludes that the heart of the issue is where the customer’s data resides and how security is handled. On the one hand you have professional apps like Salesforce – and FirstRain – that use a SaaS business model (subscription), manage massively scalable data centers and store user confidential data on their systems, on the other you have the consumer apps.
Professional apps are paranoid about security – our customer’s data is incredibly sensitive (we store user’s portfolios of stocks and their investment themes – Salesforce stores the customer base and business pipeline) and so we have extensive processes to control the security of the data. Without it we would not deserve our customer’s trust.
In contrast, Facebook and Google are relatively speaking pretty loose about security. From the KMWorld article
“I’m a trusting soul, but I have worked in and around online systems for more than 30 years. I have sitting not 10 feet from me a person who can write a script and suck content from any system to which she can get or has access. Privacy just like security is only as good as its weakest link.”
I agree. I won’t let my team use Google desktop search – I have friends who won’t use Firefox – Facebook has stumbled several times already on privacy. The more you know about the weak links in security the more you know the public apps are not secure.
So I like security as the heart of the difference. Cloud computing implies a massively scalable off-site compute environment – I agree. But SaaS implies a professional app with all the attendant security and service that implies.
We have a client who is CMO of a large enterprise software company – and he and his team’s use of FirstRain is an excellent example of the power of the web as a database for corporate decision making.
In this case we have build a model of the company and it’s ecosystem that includes
- the company itself
- each of it’s major competitors
- important industry trends (like business models and delivery mechanisms) and standards
- all web sources – both differentiated like blogs and industry media, plus the commodity like PR and news wires – effectively organizing all possible sources of information
- industry events
- industry trade shows
- companies of personal interest to the executives (you never know what someone will want to track)
The result is a rich intelligence system for the team that not only
a) finds them interesting information about their market and their competitors that they would have missed that impacts their product decisions, and
b) categorizes all information so it is useful, easily accessible and stored for historical review, but
c) also helps them shine in front of their peers because of the information they have at their finger tips when debating decisions.
And we have a happy customer which is what we care about.
Guest post from Keith McCullough CEO/Chief Investment Officer at ResearchEdge
I posted on Keith’s interesting new transparency model a few days ago – here’s his thinking on the interaction of your brain and alpha in this bear market.
Mathematically speaking, “edge” is often alluded to in the investment community as “alpha”. We like alpha. Our team eats it for breakfast and washes it down with criticism and compliments alike. We know that as long as its taste remains in our bellies, we have something that will drive us toward getting up tomorrow morning.
This morning, and on those of the past few weeks, I have been waking up to increasing confirmation that we have had the “macro call” right. It’s been nine months since I left Wall Street, and while I sincerely hope that you don’t interpret my recent work as “I told you so”, I realize full well that hope is not an investment model. I have zero control over the dopamine and serotonin levels in your brain, particularly when it comes to colliding with the emotions associated with your making, saving, or losing money.
When it comes to money, the emotional impact on your brain is well researched. Richard Peterson wrote a fantastic book last year titled “Inside The Investor’s Brain – The Power Of Mind Over Money”, and I highly recommend it to anyone who is serious about trading this bear market actively. One of my favorite chapters is called “Overconfidence & Hubris”, and there you’ll find a discussion on the neurochemical balance of your investment thought processes. If you’ve already studied this, at a very basic level you know that there is a decrease in your brain’s dopamine levels at the exact time you thought you were going to be right, and weren’t. Yes, this is why some people do “dope”, it takes those worries away in the immediate term.
There is, of course, a legal solution to upping your dopamine levels – be right! As Peterson points out, “when a reward is found dopamine neurons reinforce the reward producing behavior… this is a process of learning via the dopamine pathway.” However he goes on to explain that the music of you’re being right can effectively stop, and “if a behavior is no longer rewarding, then norepinephrine levels increase in the brain. Norepinephrine stimulates scanning for new opportunities.”
These psychological facts should make perfect sense. If they don’t, you may be blessed with some Mr. Spock like “Vulcan” attributes that Peterson has some fun with. Most of us are human however, and should be very much aware that we are all going to be right and wrong over the span of an investment career. All the while, the art in making (or saving) money when others can’t lies in respecting that there are sciences at work within this complex global market ecosystem.
This morning for breakfast, as we scour the world and our respective models for those elusive “Alpha” bits, I wish you the best of luck. Our cumulative knowledge is more powerful than our individual emotions. Given that the 1st Nobel Prize in Economics was not awarded until 1969, there is plenty of creative destruction to look forward to. The evolution of investing is a process, not a point.
KM
As we announced today – I’ve joined the board of the non-profit group Investorside. This is a trade association with a mission to “increase investor and pensioner trust in the U.S. capital markets system through the promotion and use of investment research that is financially aligned with investor interests”.
The need for a group like Investorside grew out of the mistrust investors felt for research after the research/banking conflicts became visible in 2001. Sellside researchers were promoting stocks long after they knew they were a bad investment, in order to keep the investment banking fees, and so their own fees going.
Today the group’s members are investment research firms “providing research that works purely for investors”.
FirstRain is used by investors and by corporations today – both when the goal is to do institutional grade research from the web. When I was approached to get involved in Investorside, and to serve on the board, I thought it was a very good fit. It’s an opportunity for me to help the research community using my experience in web 2.0 and growing markets, and it’s an opportunity for me (and FirstRain) to continue to grow in our understanding of the research needs of the investment community.
Here’s the expanded mission:
The Investorside Research Association serves its members through three primary functions:
Certifying Research Providers — Investorside certifies that its members are free of investment banking, consulting, and research-for-hire conflicts and provides certified member firms with the trademarked Investorside Seal.
Promoting the Growth of Independent Research — Through Investorside.org, annual conferences and regular media communication, Investorside markets its member firms to individual and institutional investors.
Promoting Government Policy that Encourages the Use of Independent Research — Investorside represents its members’ interests before regulators, law-makers and members-of-industry, promoting the use of investment research that is aligned with investor interests.
I was struck by the juxtaposition of two articles in the last 24 hours
- Thomson Reuters plan to take share from Bloomberg and
- NYSE releasing real time quotes to the public.
Seemingly unrelated right?
Underlying both is a theme of how the ongoing trend to free content is shaping their competitive strategies and responses.
Thomson Reuters believes it can use price to take Bloomberg market share – Bloomberg being notorious for having fixed pricing and not discounting – and being expensive as a result. And the impact of free web content impacts how users view the terminals:
Neither company has sorted out a strategy for competing with online services. Michael F. Holland, the chairman of Holland & Company and the former chief executive of First Boston’s asset management division, said he can no longer justify a Bloomberg terminal for his current role and often turns to the Web for data. He first used a terminal in the 1980s and remains a fan: “There really is nothing else that’s quite like the Bloomberg,” he said. “From the beginning, it has provided incredible information. But at a very high price.”
And when asked what Google Finance and Yahoo Finance might mean for Bloomberg’s future over time, Mr. Grauer paused. “I don’t know how to answer that,” he said. “I really don’t know how to answer that.”
And John Blossom’s comment in his summary of NYSE’s move is right on:
It is, unfortunately, a familiar refrain in the content industry: major institution covets proprietary content revenues, squeezes them out for as long as possible while the markets move to find both acceptable substitutes and better ways of doing business. Publishing is in essence a very conservative business, so it’s not surprising that NYSE would try to keep this formula going for so long. But in an era when the buyers of securities have and demand information at least as good as most selling institutions failing to serve the buy side in financial markets effectively is to ignore the fundamental shift in the content industry that empowers people with independent access to content from around the world. Your content may seem safe as a proprietary asset, but if it’s not driving your clients’ profits in its most valuable user-defined contexts it is far from a safe bet in today’s content markets.
One of the technology capabilities we have in our system is looking for patterns in streams of data coming from the web. We use it to tag events, detect events and as a result pull interesting documents out of the web for our clients.
But we’re not alone in this kind of work, obviously. Wired has an article this week about how the EUs joint research team has developed the EMM: European Media Monitor which is designed to detect patterns in the stream of data.
So what patterns does EMM find? Besides sending SMS and email news alerts to eurocrats and regular people alike, EMM counts the number of stories on a given topic and looks for the names of people and places to create geotagged “clusters” for given events, like food riots in Haiti or political unrest in Zimbabwe. Burgeoning clusters and increasing numbers of stories indicate a topic of growing importance or severity. Right now EMM looks for plain old violence; project manager Erik van der Goot is tweaking the software to pick up natural and humanitarian disasters, too. “That has crisis-room applications, where you have a bunch of people trying to monitor a situation,” Van der Goot says. “We map a cluster of news reports on a screen in the front of the room — they love that.”
Clustering technology is being used in ever wider applications to find what’s interesting from the petabytes of data we now see on the web. We’re just one cool application of it, but the technology space itself is fascinating and fast paced.
