What do Investment Professionals Read to Gain Investment Insights and Edge?
Anyone can do the same as the Pros
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The following article was one of my earliest investment writings. I have updated it as of December 18, 2023.
What you will find in this piece:
One — How do Pros and Individuals Invest?
Two — Reducing Your Portfolio Risk by Diversifying and Knowing Yourself
Three — Do All Investors Need Bloomberg, FactSet, and Refinitiv for News Sources and Analysis?
Four — Where’s the Relevant Data? (1) Know the Macro Picture (2) Follow Economic and Market Insights (3) Listen to the Advice of the Market Guru/Influencers (4) Uncover the Innovative Trends (5) Company Research (6) Alternative Sources of Data and New Voices (7) Events and Conferences
According to the CFA Institute, there were 1.05 million core professional investors globally at the end of 2018.
Assume 2% of the world’s 8 billion population has a brokerage account, which will be 160 million trading accounts.
There are many more individual investors like you!
How can individual investors leverage open sources to find investment ideas and gain an edge?
With an open mind, independent thinking, attention management, and due diligence, individual investors can make money in the markets.
How Do Pros and Individuals Invest?
The 3 essential investment functions for fundamental investors are (1) generating investment ideas, (2) portfolio construction — finding the right asset class mix (stocks, bonds, real estate, etc.) and buying an optimal amount for each position, and (3) risk measurement and monitoring.
All investors, whether Pros or retail, need to do (1) and (2). The Pros will model their risks with more quantitative tools using Excel, Bloomberg portfolio analytics, and other software, which can be costly.
In particular, the quantitative investors do (1), (2) signal research (transforming and implementing the investment ideas into quantitative signals using models, and (3) portfolio construction and management (with risk measurement being part of the construction.)
Reducing Your Portfolio Risk by Diversifying and Knowing Yourself
The best way for individual investors to reduce risk in their portfolio is to diversify — across asset classes, countries, sectors, industries, and factors (for example, growth, value, dividend, etc.). Investors can also do dollar-cost averaging to take advantage of a drop in stock price to add to their positions.
Another strategy is to adopt passive investing using Index Funds (ETFs), which hold a basket of stocks following a particular index such as the S&P 500 (the U.S.) or Hang Seng (Hong Kong) for diversification and lower taxes.
Knowing your risk profile also helps. Here I don’t mean how much risk or loss you can tolerate but your risk needs and investment objective—how much you want to make, your investment horizon (less than 1 year, 1 to 5 years, or longer), and your investment goal (capital preservation vs. accumulation vs. aggressive growth). Also, consider your risk-taking capacity. Is your investment portfolio over 33% of your entire net worth? That will lower your risk-taking capacity.
Now, let’s get back to the main topic of what to read and what data to follow.
Be prepared to click on a lot of links!
Do all Investors Need Bloomberg, FactSet, and Refinitiv for News Sources and Analysis?
The answer is NO.
Bloomberg, FactSet, Refinitiv, and S&P Global are all well-recognized data and financial software, providing news and tons of portfolio and risk analytics to investment analysts and managers.
Given the proliferation of information from credible news sources and economic websites, let’s delve into the various areas an investor can source their intelligence.
Where’s the Relevant Data?
(1) Know the Macro Picture
We live in an interconnected world with the supply chain problems emulating from China affecting manufacturing and consumption in many parts of the world.
When oil prices rocket, some companies, and countries are beneficiaries while others are losers.
Is The U.S. or China a more indebted country?
Why are economists more concerned with core inflation rather than CPI?
Some helpful (and free) data sources are:
· International Monetary Fund (IMF) blog and the World Economic Outlook database.
· The World Bank’s databank.
· The United Nations (UN) data.
· Atlanta Fed GDPNow and San Francisco Fed Data Explorer.
· Statista infographics and Visual Capitalist (provide great visualizations to help you understand the world). The beautiful and interesting storytelling from Chartr is worth following.
(2) Follow Economic and Market Insights
These financial and business newspapers are excellent sources of market and economic information.
· Bloomberg Businessweek (a comprehensive and real-time analysis of the global markets).
· The Financial Times (check out The Lex Column @FTLex)
· The Wall Street Journal (sign up for The Intelligent Investor)
· The Economist and the “Daily Chart”
· CNN for economic, business, and geopolitical news.
· Koyfin for market data and dashboards.
· Finviz for financial and market visualizations and screeners.
I particularly like Bloomberg's Five Things You Need to Know to Start Your Day. You can subscribe to the U.S., European, and Asian editions. You can also sign up for CNN 5 Things to know top-of-mind news or the S&P Global Market Intelligence for its daily or weekly market news. You can receive alerts for topics you are interested in.
Monitor these market indicators:
· VIX (the volatility of the S&P 500 Index) to see the market risk appetite
· MOVE (the volatility of the US Govt Bonds)
· US Yield Curve (the 10-year Treasury minus the 2-year Treasury rate) to understand where economic conditions are heading
You can download Yahoo Finance data for free and monitor all the U.S. Treasury interest rates.
For macroeconomics lovers, you can visit TheGlobalEconomy.com to view macro and country graphs and download free data. They have 300 indicators to choose from.
(3) Listen to the Advice of the Market Guru/Influencers
These individuals have long-time investment experiences (and so they have experienced all sorts of market cycles). What they say and do can move the markets.
· Warren Buffett, CEO of Berkshire Hathaway, known as one of the most successful investors of all time, and his right-hand man, Charlie Munger, Vice-Chairman of Berkshire Hathaway. Read the Berkshire Hathaway annual shareholder letters and view some of the highlights and wisdom of Warren Buffett at the Warren Buffett Archive.
· Ray Dalio, Founder & Co-CEO of Bridgewater Associates, the largest hedge fund firm in the world. Check out this free PDF chart and bonus chapter for his new book, “Principles for Dealing with The Changing World Order” and his famous “Principles” book.
· Howard Marks, Chairman of Oaktree Capital, a distressed debt asset manager. Many investors and individuals subscribe to his memos on investing.
· Larry Fink, the Co-Founder, and CEO of BlackRock, the world’s largest money manager as of the end of 2021.
· Cathie Wood, Founder of ARK Invest, the innovative active ETFs investment manager.
· Federal Reserve chairman/chairwoman. Why should investors “Follow the Fed” or “Don’t Fight the Fed”? It is because, with changes in interest rate policy and the expansion or contraction of the Fed’s balance sheet, the Fed has a tremendous influence on the market liquidity, which affects the future returns and paths of your investment allocations. Read about the Fed Dot Plot.
(4) Uncover the Innovative Trends
Technology and data are transforming the world. In the U.S., e-commerce jumped 50.5% during the Pandemic from 2019 to the end of 2021 while global venture capital funding more than doubled during 2021, fueling the growth of innovative companies.
Follow which trends the venture capitalists and technologists are seeing to find the next Amazon.
· AVC
· A16z
· Bessemer Venture Partners (The Memos)
· Sequoia
(5) Company Research
If you want to learn about any publicly traded company quickly, go to the Investor Relations section of the company’s website.
You will find earnings announcements, investor presentations, annual reports, etc. Read the “Management Discussion and Analysis” section and the Chairman's letter to the shareholders in the annual report.
In the U.S., the Securities and Exchange Commission (SEC) requires publicly listed companies to file reports — 10Q (quarterly) and 10K (annually) to detail their financial and operating results as well as the risks they face. They can be found under EDGAR company filings.
(6) Alternative Sources of Data and New Voices
The Investment professionals (buy-side) usually spend their investment research budget on (1) sell-side analysts’ research directly through payment or indirectly through trading or (2) independent research.
Buy-side refers to those financial institutions which invest directly in the market on behalf of clients. “Sell-side” refers to the investment bankers, stockbrokers, and analysts who create and promote trading products to the public. Independent research is offered by individuals not involved in investment banking activities and is seen as free of conflicts.
Over the years, many independent research firms have sprung up while management consultant firms and alternative news sources provide valuable insights on the business, industry, and market trends or curated unique perspectives. Here is what I follow:
· DataTrek, daily discussing market, data, and disruption.
· Morning Brew and Emerging Tech Brew
· Vetta Fi | ETF Trends (this piece discusses choosing to buy between stocks vs. ETFs)
· The Information (unique technology stories and the weekly newsletter is insightful)
· CB Insights (future of technology)
· Reddit communities on investing (I believe many investment professionals are also posting and chatting on Reddit)
· Longbow’s daily market insight curated from major financial news sources and Wall Street research houses by a female fedge fund manager.
· Dot Macro’s newsletter on substack on real-time inflation, Apricitas Economics on the global economy, Kyla Scanlon’s insights into the US economy and consumer behaviour (and her bite-sized videos and longer ones). I am watching this space as many former Federal Reserve or governmental economists are prolific on substack.
· Voices on X (formerly Twitter) including technologists and investors Paul Graham, Chamath Palihapitiya, and Ben Thompson, and economists/academia including Diane Swonk, Niall Ferguson, Paul Krugman, and Aswath Damodaran.
(The Morning Brew, Emerging Tech Brew, Refind, and 1440 are my invitation links.)
(7) Events and Conferences
Investment managers love to go to industry events and broker’s investment conferences to network with peers and hear the latest ideas. Often, you are a client or member attending these investment conferences.
However, I recommend serious investors join your local CFA Society, which is in 160 global financial markets. You will network with investment professionals, attend members-only investment events and even sit for a CFA exam to gain the CFA charter.
Bloomberg offers a lot of events to the public globally, covering topics on sustainability, thought leadership, business, finance, technology, and lifestyle.
Barron’s is the investor’s favourite investment news journal. You can attend their events here to level up your investment ideas and knowledge.
Gartner, known for its research into business and technology trends tailored for executives, put up complimentary events and data-driven insights.
I have overwhelmed you with a lot of information; however, investing boils down to due diligence, discipline, and common sense.
“And if you can’t explain to a 10-year-old in 2 minutes or less why you own a stock, you shouldn’t own it.” Peter Lynch
Thank you to Jia Liu for her valuable input to this article.
Epilogue: I started my buy-side investment career in the mid-1990s as a fixed-income analyst in an international mutual fund company right after my MBA graduation and became a CFA. Since then I have been a keen student of the market.
The original article was published in DataDrivenInvestor on Medium.
Sequel to this article:
Lots of great info here!
Great stuff.
You mentioned some great resources but some of the news sources can get pretty expensive. Something I’ve been pushing on all my friends is an Apple News+ subscription. It’s like $12 month and you get most of the big financial publications from WSJ, Business Insider, Barron’s, Morningstar, Forbes, Fortune, etc. Also handy to have a news aggregator that picks up all the good stuff that’s behind paywalls.