How does DATA help us make Investment Decisions?
In this week’s Flash Briefing we will dive into how we use data as part of the Creekmur Wealth Investment process. We have found that good, quality data points and clear, unbiased analysis help us make the highest quality investment decisions for our clients.Our country, and really the whole world, is incredibly polarized surrounding the correct response to COVID-19. These polar opposite view points are further driven by voices in the media and opinions on social media most of whom claim to be using "data" to arrive at their conclusions. To thrive as investors in this environment, it is critical to track and review unbiased data points to help cut through the noise.
Internally at Creekmur Wealth we have spent years developing a broad data base to help sort through the chatter and determine the best step forward for our clients. We could write thousands of words about this process, but for the time being let's focus on the most relevant items for our clients today:
- HIGH FREQUENCY DATA (HFD)
High Frequency Data points are compiled on a monthly or even weekly basis to help us determine how quickly a trend may be changing. For example, hotel occupancy rates were up 9.1% over the last month. This allows us to infer that a small portion of the nation has begun to travel again, which is an indicator that some regions of our country are beginning to "open" for business.
We can track data ranging from the number of people filing for unemployment to how many people are making reservations at restaurants. To some this amount of data may seem excessive, however we have found that having excessive data allows us to make consistent and proven investment decisions in our portfolios. At the end of the day, consistency in investing is the long-term indicator of success.
- Social Media Mentions
"Purchase Intent of Consumers via their Social Media Feeds" is one of my favorite data points that we use when making investment decisions for individual stocks or sectors. A great example of how Social Media Purchase Intent can be utilized is with Peloton Interactive. Peloton provides web-based fitness classes and sell private branded treadmills and stationary bikes for those classes for consumers to use at home. As you can imagine, Peloton has seen a spike in business as gyms have been closed nationwide.
Year to Date Peloton Interactive Stock is +63%. And since March 15th Peloton Interactive is +136%.1
If you were to overlay on the chart below an additional chart of the number of mentions on Social Media about Peloton or the number of mentions on Social Media about purchasing a Peloton product since the month of March you would see a spike that is almost perfectly in line with the how the stock of Peloton has performed since March.
While not always a perfect indicator of a stock’s performance, tracking Social Media chatter regarding a company or industry sector does provide a snapshot about the momentum of the item in question. By identifying a stock like Peloton or a sector like Cloud Computing that is gaining momentum in the number of people discussing it positively on social media, you are able to allocate funds to an area of growth with a heightened sense of conviction.
- Federal Reserve Commentary
The final area we'll mention today as part of the investment decison process are comments made by the Federal Reserve Board members. While these comments are not traditional data points, they do provide broad indication of how the largest monetary body in our country believes the economy and markets are trending. This can be a critical factor to understanding the level of risk ahead as the Federal Reserve has taken a leading role in propping up the economy during the recent COVID-19 shutdowns.
For example – on 60 Minutes this Sunday the Chairman of the Federal Reserve Jerome Powell discussed what areas of the economy are being most impacted by this shutdown, how the Federal Reserve will continue to support the economy, and the risks to the economy that are on the horizon. Mr. Powell went on to state that the Federal Reserve believes it is a reasonable expectation that there will be economic growth in the second half of 2020, albeit at a much slower rate than we were experiencing in our economy prior to this shutdown.2
What does all of this tell us as investors? Well, first this provides further confirmation of the High Frequency Data that we are tracking as the Federal Reserve is publicly confirming the positive trends we are seeing. This confirmation helps us in assessing the sectors or companies that stand to benefit from these shoots of growth. Second, these comments allow us to dig further into the risks outlined by Mr. Powell to determine steps we may need to take inside of portfolios to reduce risk where appropriate.
Our global economy and stock markets are incredibly interconnected and ever-changing. To navigate this complicated web and make informed, non-emotional decisions as investors we have found that clean, easy-to-digest data is the ultimate equalizer for making prudent investments. No single investor is correct 100% of the time, however those who remove emotion, utilize data, and stick to a proven investment process have shown the ability to outperform over the long run. If you have a question about this investment process give us a call or shoot over an email and we would love to dive deeper with you.
Creekmur Wealth Advisors may be reached at 866-358-4441 or Info@Creekmurwealth.com.