Investment research is the time spent by investors studying and analyzing the performance of financial assets in order to create a list of well-performing assets. In other words, it is a preliminary stage in investment in which both individual investors and investment banking companies search, find, and study information related to stocks or other assets to find investment opportunities.
This week, let’s find out more about the crucial role #investmentresearch has on investing.
Why is investment research important?
One of the main purposes of investment research is to allow investors to gain more knowledge about specific company information, may it be growth, stocks, technological advancement, or more. Once this #data is collected, it helps investors build a more complete picture of the company’s performance and decide about an investment opportunity.
Many investors tend to make financial decisions based on common beliefs or theoretical assumptions, such as growth means high risk, efficient market theory, or value stocks versus growth stocks. These common assumptions and theories aim to speed up the decision-making process. However, it's a poor practice in terms of risk management since sustainableinvestingrequires thorough research and analysis.
Careful analysis
Unfortunately, the dynamics of emerging markets can completely contradict such concepts. For instance, selecting #stocks according to their size is not an efficient investment strategy as there is no indication of future performance. One example would be Kodak, along with many other giants that crashed despite their size.
Kodak's biggest mistakewas turning away from new and evolving technology and trying to convince the competition that the film cameras were better than up-and-coming digital ones. They ignored all the media and market news altogether and crumbled down despite its size.
External factors
Other investors also expose themselves to a broad range of information obtained through methods of authority. In this case, individuals make investment decisions based on what other authoritative sources, such as news media, recommend without doing their own research. In this case, investors are heavily exposed to biases and external influence.
Long-term investors, such as family offices, know that they need to do their own research or choose data providers that are reliable, accurate, and professional. Independent investment research requires not only effort and time but also quality data inputs. The information can be then analyzed through scientific methods, such as statistical methods, algorithms, and more.
Benefits of investment research
Increased accuracy of business valuations
As mentioned before, investment research refers to asset management. Asset managers are responsible for making investment decisions on behalf of asset owners; therefore, research and analysis are required to accurately evaluate certain assets and make educated decisions. As a result, it supports the foundation of the investment process: business valuation.
Although there are numerous strategies and approaches for #businessvaluation, investors now use sophisticated methods to conduct this critical stage, such as analyzing public web data using computer models, along with traditional data.
For instance, many private firms in the United States do not have public financial information available. In this case, investors leverage a combination offirmographic,technographic,company funding, and other data types to conduct a financial evaluation on the prospect.
Data-driven decisions
When your investment decisions are based on intuition, guesswork, or others’ recommendations, you are likely to experience distress. This is because you may not fully understand the risk, rewards, and other important aspects that will be reflected in your portfolio.
Many investors tend to make rushed decisions, but these will be highly likely to underperform. Instead, experienced investors know that they need time to focus, research, and make each decision based on facts and data.
Investment research will help you become more confident knowing that all of your hard-earned money is invested according to your own research, knowledge, and on your terms.
There are six main steps that you can take in order to establish a sophisticated research process to make sure that all your investing-related decisions are well-informed and properly executed. See the infographic below for more information on those steps.
Investment research trends
1. The focus on investment research
Perhaps one of the most prevalent trends in this field is the increased focus on investment research. As the pandemic started to affect all economies in 2020, investors were challenged by uncertainty, market volatility, and, subsequently, great risks of losing their investments.
Many people focused more on researching stocks to invest in, what companies may benefit from the pandemic, and what industries are safer. This trend is likely to remain in the future, especially as investors have started to demand higher-quality, detailed information.
2. Public web data
Private equity and venture capital firms are looking for growth signals in early-stage businesses for more security. Sometimes financial metrics alone do not portray the full picture. As a result, investment professionals rely on data to fill in the missing gaps of information in business performance.
This might refer to:
3. Artificial intelligence and machine-learning methods
With such an abundant amount of information we can find online, investors can be easily overwhelmed. One of the main trends refers to the adoption of emerging technologies, such as #artificialintelligence, in order to be able to collect and analyze all of this information.
This is because technology allows investors to automatically interpret structured or unstructured information and find new patterns and trends on which they can easily capitalize. The surge in public web data usage is undoubtedly associated with a similar surge in AI adoption, so investors can quickly obtain actionable insights from large datasets.
For instance, one major example of #AI implementation in investing would bealgorithmic trading. It is one of the most used tools in the financial industry. The algorithm consists of complex mathematical models that select theoretically profitable transactions without human interference.
Want to learn about the history of investment research, #investment types, and major stages? Read our blog post. 👇
Coresignal is a leading public business data provider in the web data sphere with an extensive focus on firmographic data and public employee profiles. Leveraging data of 660M professional profiles and 98M company records enables companies to build data-driven products and generate actionable insights. Coresignal is exceptional in terms of data freshness, with 284M records updated monthly for unprecedented accuracy and relevance.
