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Can Predictive Data Revolutionize Capital Markets?

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Can Predictive Data Revolutionize Capital Markets?

Can Predictive Data Revolutionize Capital Markets?

For investors around the world, the information age presents a double-edged sword.

On one hand, all this data can be harnessed to make intelligent and timely investment decisions. However, with data growing at exponential rates, this also means that there is a lot of noise – and finding the right signal can be like looking for a needle in a haystack.

Today’s infographic from Mergalim shows how the power of predictive data analytics is growing, and using tools like AI and Bayesian inference to anticipate the outcome of events before they happen is more feasible and applicable than ever.

The Big Data Landscape

Before we get into predictive analytics, let’s look at what investors are up against in the first place.

Volume: The rate of data creation is accelerating so fast, that in 2017 there will be more data created than the previous 5,000 years combined. To put this in perspective: in the U.S. alone, approximately 2,657,000 GB of data is created every minute.

Variety: Data is not uniform, and there are many types of data. With data coming from many sources simultaneously, useful analysis can be very difficult.

Velocity: Especially in the markets, data needs to be monitored in real-time to be useful. Getting information too late could mean zero liquidity for a portfolio in some sort of crisis.

In other words, one missed data signal can cause irreparable harm to a portfolio in a situation where things go awry. Therefore, along with having a smart allocation of assets, it can be advantageous to also be one step ahead of the game to know what’s coming.

The Power of Predictive Data

Predictive analytics is defined as:

“The branch of advanced analytics used to make predictions about unknown future events. It uses techniques from data mining, statistics, modelling, machine learning, and artificial intelligence to make predictions about the future.”

This kind of predictive power is already widely used by companies like Amazon, which uses algorithms to sort through billions of data points, your buying history, and current trends to recommend to you the items that you are most likely to buy. In fact, experts estimate that 35% of Amazon’s revenue comes from this practice of anticipating exactly what you want.

Not surprisingly, Wall Street has jumped on this bandwagon too.

  • Goldman Sachs famously employs more engineers than Facebook, Twitter, or LinkedIn.
  • Citadel, a secretive hedge fund, calculates the outcomes of more than 500 “doomsday scenarios” per day to assess potential risk for the firm from geopolitical and other potential crises
  • Quantitative traders use streams of data and complex algorithms to create models of the market to find predictable patterns, and create machine-derived forecasts

But there is one possible limitation with these approaches. Markets are complex systems and need to be analyzed as such. After all, human decision makers can be irrational, events can be “triggered” by seemingly random factors, and traditional mathematical models can fall apart when markets get volatile.

A Multi-Disciplinary Approach?

One solution to this limitation may be to borrow ideas from the intelligence industry, which must anticipate irrational or “random” human actions before they happen.

As an example of this, intelligence agencies like the CIA have already been working to apply other disciplines to the techniques already widely used in predictive data:

Bayesian Inference: A formula in which the probability for the hypothesis is updated based on new data.

Behavioral Psychology: The science behind how responses to environmental stimuli shape people’s actions.

Complexity Theory: Born in the 1960s, the science around how complex systems work is now well established.

Fuzzy Cognitive Maps: A way of representing social scientific knowledge and modelling decision making in systems.

Historical Perspective: Applying knowledge of past events and subject matter experts to these other disciplinary fields.

Artificial Intelligence: Today’s deep learning now allows AI to instantly recognize and process all types of previously impenetrable data.

If predictive data analytics becomes the norm and its potential is fully realized, having data only in real-time may not be enough for many active market participants. In turn, this could set up a very different landscape than exists today.

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Companies Going Public in 2021: Visualizing IPO Valuations

Tracking the companies that have gone public in 2021 so far, their valuation, and how they did it.

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Companies Going Public in 2021 08 Share

Companies Going Public in 2021: Visualizing Valuations

The beginning of the year has been a productive one for global markets, and companies going public in 2021 have benefited.

From much-hyped tech initial public offerings (IPOs) to food and healthcare services, many companies with already large followings have gone public this year. Some were supposed to go public in 2020 but got delayed due to the pandemic, and others saw the opportunity to take advantage of a strong current market.

This graphic measures 47 companies that have gone public just past the first half of 2021 (from January to July)— including IPOs, SPACs, and Direct Listings—as well as their subsequent valuations after listing.

Who’s Gone Public in 2021 So Far?

Historically, companies that wanted to go public employed one main method above others: the initial public offering (IPO).

But companies going public today readily choose from one of three different options, depending on market situations, associated costs, and shareholder preference:

  • Initial Public Offering (IPO): A private company creates new shares which are underwritten by a financial organization and sold to the public.
  • Special Purpose Acquisition Company (SPAC): A separate company with no operations is created strictly to raise capital to acquire the company going public. SPACs are the fastest method of going public, and have become popular in recent years.
  • Direct Listing: A private company enters a market with only existing, outstanding shares being traded and no new shares created. The cost is lower than that of an IPO, since no fees need to be paid for underwriting.

So far, the majority of companies going public in 2021 have chosen the IPO route, but some of the biggest valuations have resulted from direct listings.

Listing DateCompanyValuation ($B)Listing Type
08-Jan-21Clover Health$7.0SPAC
13-Jan-21Affirm$11.9IPO
13-Jan-21Billtrust$1.3SPAC
14-Jan-21Poshmark$3.0IPO
15-Jan-21Playtika$11.0IPO
21-Jan-21Hims and Hers Health$1.6SPAC
28-Jan-21Qualtrics$15.0IPO
09-Feb-21Metromile-SPAC
11-Feb-21Bumble$8.2IPO
26-Feb-21ChargePoint Holdings$0.45SPAC
03-Mar-21Oscar Health$7.9IPO
10-Mar-21Roblox$30.0Direct Listing
11-Mar-21Coupang$60.0IPO
23-Mar-21DigitalOcean$5.0IPO
25-Mar-21VIZIO$3.9IPO
26-Mar-21ThredUp$1.3IPO
31-Mar-21Coursera$4.3IPO
01-Apr-21Compass$8.0IPO
14-Apr-21Coinbase$86.0Direct Listing
15-Apr-21AppLovin$28.6IPO
21-Apr-21UiPath$35.0IPO
21-Apr-21DoubleVerify$4.2IPO
05-May-21The Honest Company$1.4IPO
07-May-21Lightning eMotors$0.82SPAC
07-May-21Blade Air Mobility$0.83SPAC
19-May-21Squarespace$7.4Direct Listing
19-May-21Procore$9.6IPO
19-May-21Oatly$10.0IPO
26-May-21ZipRecruiter$2.4IPO
26-May-21FIGS$4.4IPO
01-Jun-21SoFi$8.7SPAC
02-Jun-21BarkBox$1.6SPAC
08-Jun-21Marqueta$15.0IPO
10-Jun-21Monday.com$7.5IPO
16-Jun-21WalkMe$2.5IPO
22-Jun-21Sprinklr$3.7IPO
24-Jun-21Confluent$9.1IPO
29-Jun-21Clear$4.5IPO
30-Jun-21SentinelOne$10.0IPO
30-Jun-21LegalZoom$7.0IPO
30-Jun-21Didi Chuxing$73.0IPO
16-Jul-21Blend$4IPO
21-Jul-21Kaltura$1.24IPO
21-Jul-21DISCO$2.5IPO
21-Jul-21Couchbase$1.4IPO
23-Jul-21Vtex$3.5IPO
23-Jul-21Outbrain$1.1IPO

Though there are many well-known names in the list, one of the biggest through lines continues to be the importance of tech.

A majority of 2021’s newly public companies have been in tech, including multiple mobile apps, websites, and online services. The two biggest IPOs so far were South Korea’s Coupang, an online marketplace valued at $60 billion after going public, and China’s ride-hailing app Didi Chuxing, the year’s largest post-IPO valuation at $73 billion.

And there were many apps and services going public through other means as well. Gaming company Roblox went public through a direct listing, earning a valuation of $30 billion, and cryptocurrency platform Coinbase has earned the year’s largest valuation so far, with an $86 billion valuation following its direct listing.

Big Companies Going Public in Late 2021

As with every year, some of the biggest companies going public are lined up for the later half.

Tech will continue to be the talk of the markets. Payment processing firm Stripe is setting up to be the year’s biggest IPO with an estimated valuation of $95 billion, and now-notorious trading platform Robinhood is looking to go public with an estimated valuation of $12 billion.

But other big players are lined up to capture hot market sentiments as well.

Electric truck startup Rivian Automotive (backed by Amazon) is estimated to earn a public valuation around $70 billion, which would make it one of the world’s largest automakers by market cap. Likewise, online grocery delivery platform InstaCart, which saw a big upswing in traction due to the pandemic, is looking at an estimated valuation of at least $39 billion.

Of course, there’s always a chance that potential public listings and offerings fall through. Whether they get delayed due to weak market conditions or cancelled at the last minute, anything can happen when it comes to public markets.

This post will be periodically updated throughout the year.

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Ranked: The Most Innovative Companies in 2021

In today’s fast-paced market, companies have to be innovative constantly. Here’s a look at the top 50 most innovative companies in 2021.

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Most Innovative Companies 2021

Ranked: the Top 50 Most Innovative Companies in 2021

This year has been rife with pandemic-induced changes that have shifted corporate priorities—and yet, innovation has remained a top concern among corporations worldwide.

Using data from the annual ranking done by Boston Consulting Group (BCG) using a poll of 1,600 global innovation professionals, this graphic ranks the top 50 most innovative companies in 2021.

We’ll dig into a few of the leading companies, along with their innovative practices, below.

Most Innovative Companies: A Breakdown of the Leaderboard

To create the top 50 innovative company ranking, BCG uses four variables:

  • Global “Mindshare”: The number of votes from all innovation executives.
  • Industry Peer Review: The number of votes from executives in a company’s industry.
  • Industry Disruption: A diversity index to measure votes across industries.
  • Value Creation: Total share return.

For the second year in a row, Apple claims the top spot on this list. Here’s a look at the full ranking for 2021:

 CompanyIndustryHQChange from 2020
1AppleTechnology🇺🇸 U.S.--
2AlphabetTechnology🇺🇸 U.S.--
3AmazonConsumer Goods🇺🇸 U.S.--
4MicrosoftTechnology🇺🇸 U.S.--
5TeslaTransport & Energy🇺🇸 U.S.+6
6SamsungTechnology🇰🇷 South Korea-1
7IBMTechnology🇺🇸 U.S.+1
8HuaweiTechnology🇨🇳 China-2
9SonyConsumer Goods🇯🇵 Japan--
10PfizerHealthcare🇺🇸 U.S.Return
11SiemensTechnology🇩🇪 Germany+10
12LG ElectronicsConsumer Goods🇰🇷 South Korea+6
13FacebookTechnology🇺🇸 U.S.-3
14AlibabaConsumer Goods🇨🇳 China-7
15OracleTechnology🇺🇸 U.S.+10
16DellTechnology🇺🇸 U.S.+4
17Cisco SystemsTechnology🇺🇸 U.S.-5
18TargetConsumer Goods🇺🇸 U.S.+4
19HP Inc.Technology🇺🇸 U.S.-4
20Johnson & JohnsonHealthcare🇺🇸 U.S.+6
21ToyotaTransport & Energy🇯🇵 Japan+20
22SalesforceTechnology🇺🇸 U.S.+13
23WalmartConsumer Goods🇺🇸 U.S.-10
24NikeConsumer Goods🇺🇸 U.S.-8
25LenovoTechnology🇭🇰 Hong Kong SARReturn
26TencentConsumer Goods🇨🇳 China-12
27Procter & GambleConsumer Goods🇺🇸 U.S.+12
28Coca-ColaConsumer Goods🇺🇸 U.S.+20
29Abbott LabsHealthcare🇺🇸 U.S.New
30BoschTransport & Energy🇩🇪 Germany+3
31XiaomiTechnology🇨🇳 China-7
32IkeaConsumer Goods🇳🇱 NetherlandsReturn
33Fast RetailingConsumer Goods🇯🇵 JapanReturn
34AdidasConsumer Goods🇩🇪 GermanyReturn
35Merck & Co.Healthcare🇺🇸 U.S.Return
36NovartisHealthcare🇨🇭 Switzerland+11
37EbayConsumer Goods🇺🇸 U.S.Return
38PepsiCoConsumer Goods🇺🇸 U.S.Return
39HyundaiTransport & Energy🇰🇷 South KoreaReturn
40SAPTechnology🇩🇪 Germany-13
41InditexConsumer Goods🇪🇸 SpainReturn
42ModernaHealthcare🇺🇸 U.S.New
43PhilipsHealthcare🇳🇱 Netherlands-20
44DisneyMedia & Telecomms🇺🇸 U.S.Return
45MitsubishiTransport & Energy🇯🇵 JapanNew
46ComcastMedia & Telecomms🇺🇸 U.S.New
47GETransport & Energy🇺🇸 U.S.Return
48RocheHealthcare🇨🇭 SwitzerlandReturn
49AstraZenecaHealthcare🇬🇧 UKNew
50BayerHealthcare🇩🇪 Germany-12

One company worth touching on is Pfizer, a returnee from previous years that ranked 10th in this year’s ranking. It’s no surprise that Pfizer made the list, considering its instrumental role in the fight against COVID-19. In partnership with BioNTech, Pfizer produced a COVID-19 vaccine in less than a year. This is impressive considering that, historically, vaccine development could take up to a decade to complete.

Pfizer is just one of four COVID-19 vaccine producers to appear on the list this year—Moderna, Johnson & Johnson, and AstraZeneca also made the cut.

Meanwhile, in a completely different industry, Toyota snagged the 21st spot on this year’s list, up 20 places compared to the rankings in the previous year. This massive jump can be signified by the company’s recent $400 million investment into a company set to build flying electric cars.

While we often think of R&D and innovation as being synonymous, the former is just one innovation technique that’s helped companies earn a spot on the list. Other companies have innovated in different ways, like streamlining processes to increase efficiency.

For instance, in 2021, Coca-Cola performed an analysis of their beverage portfolio and ended up cutting their brand list in half, from 400 to 200 global brands. This ability to pare down and pivot could be a reason behind its 20 rank increase from 2020.

Innovation Creates Value

As this year’s ranking indicates, innovation comes in many forms. But, while there’s no one-size-fits-all approach, there is one fairly consistent innovation trend—the link between innovation and value.

In fact, according to historical data from BCG, the correlation between value and innovation has grown even stronger over the last two decades.

Most Innovative Companies 2021

For example, in 2020, a portfolio that was theoretically invested in BCG’s most innovative companies would have performed 17% better than the MSCI World Index—which wasn’t the case back in 2005.

And yet, despite innovation’s value, many companies can’t reap the benefits that innovation offers because they aren’t ready to scale their innovative practices.

The Innovation Readiness Gap

BCG uses several metrics to gauge a company’s “innovation readiness,” such as the strength of its talent and culture, its organization ecosystems, and its ability to track performance.

According to BCG’s analysis, only 20% of companies surveyed were ready to scale on innovation.

Scaling Innovation

What’s holding companies back from reaching their innovation potential? The most significant gap seems to be in what BCG calls innovation practices—things like project management or the ability to execute an idea that’s both efficient and consistent with an overarching strategy.

To overcome this obstacle, BCG says companies need to foster a “one-team mentality” to increase interdepartmental collaboration and align team incentives, so everyone is working towards the same goal.

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