Equipped with the right information, an investor stands a better chance of understanding material changes in the markets. With this information, they might be able to avert a portfolio disaster by selling a security before a collapse in its value, or make gains by choosing a promising new stock ahead of the crowd.
Of course, all that is easier said than done. Investment research is an industry of its own, with countless data providers competing for the attention of market participants. As a result, investors can have a hard time working out which bits of data – and which data sources – are the most appropriate for particular portfolios, investment styles and asset classes.
Where to start: Key economic indicators
Fortunately, some data are pertinent to nearly all investors. These are the key economic indicators, including inflation rates, gross domestic product, unemployment, consumer confidence, changes in manufacturing and housing, and so on. These measures of macroeconomic performance are the first port of call for investors hoping to understand the health of a given economy and will prove useful for the majority of asset classes. Whether you’re a phone investor with a 100% allocation to Apple or a trader of niche derivatives, you need to know the inflation rate.
Leading indicators
There are several types of key economic indicators. ‘Leading’ indicators, which are some of the most closely watched measures, can help investors make assessments about the future state of the economy.
Measures of consumer confidence, for instance, are normally seen as leading. An optimistic outlook among respondents can mean higher spending, while pessimism can suggest the opposite. Firms in the retail, leisure and hospitality sectors – which are dependent on customer traffic – pay close attention to consumer confidence.
Housing data can also be used to make forecasts. Data on new builds, home sales and prices can help investors understand the potential health of a wide range of industries. These could include construction and contracting firms, as well as home goods suppliers and financial companies, such as mortgage and loan providers.
While leading indicators are enormously useful and a staple for most investors, they should not be taken as a foolproof, direct read of the future.
Concurrent and lagging indicators
‘Concurrent’ or ‘coincident’ indicators give real-time readings. A leading indicator normally has a relationship with one or more concurrent indicators – a rise in the leading indicator might typically be followed by an increase in the concurrent, for example.
Finally, lagging indicators tend to show changes in the economy after they have happened. These indicators are used to confirm economic trends.
Unemployment is a lagging indicator. It rises when companies are feeling the pinch and laying off workers, and is a sign of a weakening economy. Similar to other measures, lagging indicators often have relationships with various metrics: rising unemployment follows reduced consumer spending, for example. Falling unemployment, meanwhile, might accompany increased consumer spending – and higher corporate profits.
Outside of the key indicator types, an intimidating range of economic data is available to investors globally, including international trade data (showing changes in supply chains, imports and exports); commodity prices (which affect energy and manufacturing costs); political information, such as details of trade deals – or indeed breakdowns in such deals; regional regulatory frameworks; tax policies; and so on.
While the sheer number of economic indicators available can seem daunting, the data they provide are essential for investment decision-making - more so, most investors argue, than the torrent of headlines one encounters during the daily ‘doomscroll’. Perusing economic indicators as part of your news habit can provide additional clarity that you might not find in a newspaper.
Taking it to the next level: Company reports
Along with the macroeconomic indicators explored above, successful equity investing requires immersion in company-level information. You want to feel secure in your investment, and confident that the companies you are targeting are going to provide attractive long-term returns; as such, it’s important to develop a solid understanding of the firms that interest you, ideally ahead of deploying any capital.
Say you’re interested in Capcom, the Japanese developer and publisher of video games, because you’re a fan of their products. Before investing, it would be sensible to familiarise yourself with the firm’s financial statements, including its balance sheet, as well as income and cash flow reports. These statements will help you understand the financial health of the company and its key expenses. Capcom might spend a large amount on game development, and on hiring artists and programmers; if the sales of its products are proportionally strong, you might feel satisfied with the company’s strategy. If its products sell poorly, you might want to consider alternatives.
Earnings reports will also feature analysis sections, which can help you understand the firm’s decision-making processes, corporate architecture and business objectives. Risks to the company’s performance should also be shown, enabling you to assess the challenges it – and your investment – might face. The analysis might show Capcom dominating its market – good news, though news you should be sure to confirm independently. Be aware that companies often ‘massage’ statistics to present themselves in the best light, or bury unflattering information in obscure corners of their reports.
Staying up to date through social media
Social media is fast becoming a valuable information source for investors. Often it may be first to deliver breaking financial news and give first-rate access to some of the investing world’s brightest minds. You need to have your wits about you due to the unregulated nature of the forum, but you can be sure that the savviest investors of our age are making intelligent use of these networks to gain an invaluable investment edge.
Most of the major channels – including LinkedIn, Twitter and YouTube – are rich sources of information. The information they carry ranges from company news announcements, to blogs by insightful experts, opinion forums and news about specific stocks.
Access expert opinions
For example, with just over 142’000 followers, Julius Baer’s LinkedIn channel broadcasts regular views from experts on topics that have recently ranged from inflation, to the global economy and the Turkish lira. If you are interested in specific asset classes, some leading asset managers write blogs on dedicated web sites, updating them several times a week with their insights.
On Twitter, you can follow the daily views of famous economists or financial news columnists as they tweet their opinions. For example, Robert Shiller, the Yale University economist and 2013 Nobel Laureate, broadcasts his views most weeks to over 192 000 followers. But Twitter can become overwhelming, so crowdsourcing can help by showing you what other investors are finding useful. For example, StockTwits is a US investment crowdfunding site that can be followed on Instagram.
When it comes to following individual stocks, you can follow their fortunes on a variety of social media platforms, sourcing both official news and the comments of platform users. For example, #appleshares gives you regular tweets about the tech giant’s progress. Turning to other platforms, a search for ‘investing in Alibaba’ on YouTube turns up a range of videos with insights about the giant Chinese ecommerce platform.
Three things to consider
All of this said, social media is a self-policing space and so you would be wise to judge their trustworthiness with care, following the following three guidelines:
- Opinions from big companies such as large asset management companies will be subject to rigorous quality control and scrupulously objective.
- Similarly, you should be able to trust the views and information from well-known people or news outlets.
- However, just as non-financial information on the internet should be treated with care, the same is true of financial information. Some of the opinions carried may be gossipy and ill-informed, while the motives of some lesser known pundits might be unclear.