Money.net’s Morgan Downey: ‘You can’t compete solely on price’

Hundreds of millions of dollars — and in some cases, billions – have been spent trying to create a Bloomberg killer. So far, no one’s come close to succeeding. But there’s a chink in Bloomberg’s armor. Except for 2009 in the throes of the financial crisis, for the first time since its founding in the early 80s, Bloomberg terminal sales declined last year.

To Money.net‘s Morgan Downey that’s Bloomberg’s “Blackberry Moment,” the inflection point that shows that consumers are now able and willing to leave a legacy product. Downey should know — until relatively recently, he ran Bloomberg’s commodity division before stepping out to create his own Bloomberg competitor, Money.net.

Downey joined on the Tearsheet Podcast to discuss the market for financial data, Bloomberg’s strengths and weaknesses, and where he things the market for financial data is headed in the future.

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Trends in financial data
“If you’re working in any part of finance — a hedge fund, a bank, or a CFO in a corporation— the raw materials to do your job (financial statements, market prices, economic data) has to be delivered to you via some type of mechanism to do your job. Whether you’re working on a merger or an acquisition, or a investment or trade, you have to get financial information to your desktop or your mobile device.

It’s not an industry that many people outside of finance know about. It’s a $28 billion a year industry. The biggest players include Bloomberg, a private company and my former employer, Thomson Reuters, and Factset. The industry is dominated by a few, very large entities with a very large demand for a disruptive company to deliver a more intuitive, affordable product.”

Why it’s so hard to unseat Bloomberg
“It’s a market where the last major disruption happened in the 1990s when Quotron went out of business. You have two major players — Bloomberg and TR — with roughly 80 percent of the market. It’s a duopoly to a certain extent.

Financial terminals have very high fixed costs which acts as a major barrier to entry for new competitors. There’s a huge number of things you have to build before you get a single dollar of revenue from a customer. There’s a whole back end system which needs to deal with huge amounts of data and news in ultra real time. We’re kind of like a cable company in the sense that we have to license all this data on behalf of our customers.

It’s a very daunting industry to enter. People have tried. Some have spent hundreds of millions of dollars, billions even, building new entrants.

But Bloomberg is going through its own ‘Blackberry Moment’. Last year, 2016, was the first year (except 2009’s financial crisis) since the founding of the company in the early 1980s that Bloomberg’s terminal sales — their software licenses — declined by a couple of percent. That inflection point is similar to what happened with Blackberry in 2011. For a technology company, it shows that the market is willing and able to move away from legacy products.”

 

What wins over clients in a bakeoff
“The challenge with the financial data industry is that you can’t compete solely on price. It’s great being 10x less expensive, but you have to have a compelling reason for someone to use you for your job. Our customers aren’t using us for entertainment — they’re using us to do their jobs better. You have to have a better product and be significantly less expensive.

I always bring the analogy of NASA to SpaceX. NASA lifts a payload for $300 million. SpaceX tried to do it for just $30 million. But SpaceX also tried to land a rocket. That’s what we’re trying to do: be a more affordable product and much more intuitive product than incumbents.”

Hi 5! The top five fintech stories we’re following today

top 5 weekly fintech stories

Can fintech drive new auto lending?

Startups smell money as the auto industry has bounced back post-2007 (there is an estimated $1 trillion in auto loans outstanding in the U.S.) New partnerships, like the kind Ford struck with AutoFi this past week, are being inked between auto lenders and fintechs. There are still plenty of opportunities to improve the buying, lending, and payment experience in the car market.

 

Forget fintechs. Focus on GAAF

It’s becoming a more common theme. The financial industry is waking up to the fact that today’s tech giants, Google, Apple, Amazon, and Facebook, are interested in securing their piece of the financial industry pie. A recent Accenture survey polled investors found that a lot of people were definitely open to receiving investment advice from their favorite tech firms.

Whoever wins the race for the future of fintech, it’s about humans. And has the potential to be massively more inclusive than our system today. And may be located in…Florida?

State of the business: Online lending

online loan growth for SMBs

There are a lot of new options for businesses to go online to access working capital. Even so, very few businesses are turning to these alternative sources and that means they’re struggling with cashflow. That may begin to change as more alternative lenders and banks collaborate.

Financial media generates growth

Technology hasn’t been kind to the media industry. Financial media also suffers from the same trends impacting the industry as a whole: decreasing engagement, struggling ad sales, and noisy alternatives. But Bloomberg has found a way to restart traffic to its homepage.

As media firms have become leaner, that’s meant there are fewer people on staff to work on new products. The FT created a new special projects editor to help bring good ideas to life. Early results look promising.

The year of the 1099er

As the gig economy includes more people taking on project-based work, a growing number of Americans file 1099 forms when they do their taxes. The online tax software industry is all over this trend, launching new products to service DIYers. Many of these services have free versions, like Credit Karma’s new offering. Credit Karma will make money, just like it does with the 60 million users of its free credit scoring service, by making referral offers for credit cards and loans.

Financial firms are trying to connect our financial dots. That’s why the JPM-Intuit partnership is a big step for data sharing.

How Bloomberg is fighting to reclaim homepage traffic

By Lucia Moses

Publishers are struggling with the decline in home page traffic across the board. Bloomberg Media thinks it has found a remedy: When it relaunched its technology vertical in October, Bloomberg decided to ditch the infinite scroll at the end of articles and send people to the vertical’s homepage instead.

“The trend across media is the slow decline of direct traffic to homepages,” said M. Scott Havens, global head of digital for Bloomberg Media. “In the process of building our new Bloomberg Technology vertical, we asked ourselves: How can we bring the homepage to users?”

Three months in, Bloomberg is encouraged by the new feature, which it called Boomerang. The hack has only so far been applied to the tech vertical, where it has seen a sevenfold increase in monthly page views in the three months after the channel’s launch compared to the six months before the launch.

Engagement has also gone up. People who were served the homepage on average have viewed 28 percent more pages per visit than those who were served another article via an algorithm-driven infinite scroll.

“The main thing I wanted to see is, we got people more engaged by exposing them to not one article that’s probably the wrong one, but a bevy of articles,” Havens said.

Based on the initial results of Boomerang, Havens said Bloomberg will probably roll it out to its other verticals, which include opinion and politics. From a sales perspective, having higher impressions and engagement rates is a good selling point with advertisers, and more homepage visits mean more opportunity to sell high-impact ad units.

Bloomberg isn’t alone in rethinking or giving up on the infinite scroll to keep readers more engaged. The Atlantic ditched the infinite scroll when it redesigned its site in 2015 in favor of other tactics to keep people on site longer. Forbes also got rid of the feature recently after finding it didn’t do much to get people reading more articles.

Boomerang also challenges the idea that many publishers are chasing, that personalization is the key to keeping people around longer. That finding has implications beyond the editorial side, Havens said.

“It goes for the advertising side — are we overtargeting people versus brand advertising and reaching an audience that’s not exposed to a product?” he said. “You go deep personalization, and algorithms can be wrong. You can’t get into someone’s mind at any given time.”

This article originally appeared on our sister site, Digiday.

‘Apps are the new magazines’: Why Bloomberg’s doubling down on apps

By Sahil Patel

Forget the mobile web or social platforms: Bloomberg Media’s betting its mobile future on apps.

Starting with its redesigned flagship mobile app, Bloomberg plans to launch several new apps in the coming year with a focus on delivering personalized content to users in a more seamless and controllable fashion than what’s currently available on the mobile web and inside social platforms.

“Apps are the new magazines and newspapers,” said Scott Havens, global head of digital for Bloomberg Media. “I know if I have brand affinity [for a publisher], it’s because I get what I need and I find it a useful part of my daily media diet — that’s the underlying philosophy for the app.”

Six months in the making, the new Bloomberg app has a completely overhauled interface. It replaces the previous app’s pared-down, black-and-white design with more color and imagery. And instead of a “hamburger”-based navigation menu, the new app comes with tabs on the bottom of the screen — similar to the current Facebook app. (This is intentional as Havens said the previous setup wasn’t working that well. “Who better to copy than the biggest platform in the world?” he said.)

bloomberg-new-app
New Bloomberg app.
bloomberg-old-app
Old Bloomberg app.

There are also practical reasons for the new design. The previous version of the app did not do a good job of highlighting Bloomberg’s media and markets content — the new one does. For instance, the media tab curates Bloomberg’s library of on-demand videos, radio streams, podcasts and even its TV channel. On the home tab, Bloomberg also posts markets data as banners at the top of the screen, which users can click on to quickly access the markets page.

The ad experience has also been given more thought as advertisers will now have the option to run ads in-between pieces of editorial content as users scroll down the page. This set-up also allows for sponsored posts to be embedded within the page.

The goal of the new design is to increase usage. The app currently receives 2.5 million unique visitors per month, a number that’s remained relatively flat for some time now, according to Bloomberg. “The rise of mobile and social and our lack of investment in redoing the app over the past few years contributed to us treading water,” Havens said.

The company hopes to double or triple the audience in the coming year. One way the publisher plans to do it is by introducing so-called day-parted content. Within the main tab, users will now get a personalized stream of three to five relevant stories depending on what time of day it is — morning, afternoon or evening — and where they’re accessing the app (users in Europe will get the afternoon diet while U.S. users get the morning feed).

The app was built by Bloomberg’s 20-person mobile apps team, which includes four full-time mobile editors. This group will also work on a new video app that will “rethink” how on-demand video and live video can function in streaming environments, Havens said.

Overall on mobile, the mobile web still dominates apps in terms of pure scale. Research released earlier this year by comScore found that among the top 1,000 mobile apps and mobile sites, mobile sites averaged three times as many users as apps and were growing twice as fast. That said, apps still dominate in terms of prolonged usage, averaging 87 percent of mobile time spent in the U.S. for the last two years, according to comScore. What’s more, the same report said the number of U.S. apps with 5 million downloads or more grew by 8 percent year over year — all suggesting there’s a healthy market for publishers that choose to develop apps instead of focusing on mobile web or publishing inside social apps.

“You can’t outsource your future as a publisher,” Havens said. “We’re not walking away from social platforms; there are a lot of potential app downloads that can come from Facebook. But we want to bring users into a direct relationship. To forego that is essentially waving a white flag.”

How Bloomberg’s 20-person graphics team visualizes the news

How Bloomberg’s 20-person graphics team visualizes the news

By Jordan Valinsky

Last month, Washington D.C.’s Metro system experienced an unprecedented situation: It was shutting down for a whole work day leaving 700,000 people without a way to conveniently get to work. A massive surge of people clamored to hitch a ride, including on the city’s bike system and ride-hailing apps.

As commuter chaos swallowed the city, Bloomberg Graphics lept into action. The team created an interactive graphic called “Virtual Gridlock: Relive the Agony of D.C.’s Metro Shutdown.” For two of the maps (one showed the traffic during the morning commute and the other showed how many — or few — bikes were available on the Capital Bikeshare), the team pulled in publicly accessible data and overlaid it on a map.

uber

A screenshot of Uber’s surge pricing. (Source: Bloomberg)

“It was a low-tech and primitive way of getting data,” Ingold told Digiday. “But the reader doesn’t care, they just care about getting the stories.”

Ingold is one of 20 people working at Bloomberg Graphics, with reporters and illustrators spread across four bureaus including London, New York, D.C. and Hong Kong. The team collaborates with each other and Bloomberg’s reporters to create original graphics and interactives as well as graphics that supplement stories and broadens Bloomberg’s appeal.

Recent illustration subjects include health, science, politics, sports and pop culture. The team isn’t under a mandate to exclusively publish graphics directly relating to stories published on Bloomberg, either. They can go after headlines and trending topics on their own.

“What’s going on in the world is what we’re going after,” Ingold said. “Our content can bridge gaps when there’s not any big business stories too.”

All Bloomberg reporters have an internal tool, called Toaster, that can whip together simple charts and graphs, but often go straight to Bloomberg Graphics if their stories are steeped in more complex data. “More often than not, reporters are excited to see their stories told visually,” said Chloe Whiteaker, a D.C.-based Bloomberg graphics reporter.

From there, the graphics teams pull out insights from the data that can inform an interactive, which can take days or even weeks. Sometimes, the data is pulled from algorithms they’ve created on their own to give them an edge over the growing number of upstarts focused on visual journalism. “If you’re the only person with the data, it’s easier to compete against competitors,” Ingold said.

The team’s original focus was to “make data beautiful,” Ingold said. Increasingly, they pepper in their own additional reporting into the graphics so people not only learn from their pieces but share it. The goal is to arrive at a minimum of one big takeaway, something that will inform and entertain readers, who will in turn feel compelled to share or embed the graphic on social.

bloomberg sports

“How to Have the Greatest Weekend in Sports” (Source: Bloomberg)

The graphics team has a “good relationship” with homepage editors, where their work is often placed prominently on Bloomberg’s homepage. Traffic is funneled in from various platforms outside of Bloomberg’s owned and operated sites, with Facebook, Twitter, Reddit and even Hacker News chief among them. Roughly half of traffic is from mobile devices. Sometimes, the graphics are discussed on its radio network or shown on Bloomberg Television.

As such, the graphics team exposes Bloomberg to people who normally wouldn’t read the website. Their success has given the team “a lot of leeway to go for it,” Ingold said. Sometimes the more complex the issue is, the better.

“People are lazy,” half-joked Ingled. “We’ve done the work of finding the insights.”

This article originally appeared on Digiday.

The antidote to poor investing returns

investing in growth stage fintech

One of the holy grails of financial research is to be able to identify those traits that make for better investors.

Why?

Because if we can isolate those skills top investors have, we can strengthen our own investment activity accordingly.

A recent study looked at the connection between IQ and stock market participation.

The real results aren’t what everyone is focused on…

Continue reading “The antidote to poor investing returns”

Bloomberg’s BusinessWeek app launches to mixed reviews

Bloomberg Businessweek announced the launch of a beta version of its new Businessweek iPad app, available as an iTunes subscription for $2.99/month.

Pro

Dan Frommer is a pretty glowing in his admiration of the app, actually impressed with Bloomberg Businessweek’s new iPad app.

Bigger picture: While you could say that weekly business magazines are already irrelevant in the Twitter era, Bloomberg is at least spending money on making good products. (That’s the beauty of having a cash-printing terminal business with which to fund Bloomberg TV, magazines, etc.)

Con

TechCrunch’s Erick Schonfield is underwhelmed, calling the app nothing more than a digital reproduction of the magazine.

But with the iPad app, I am not getting all of that. It is nothing more than a digital reproduction of the print magazine. The news changes only once a week. In a world where news changes every minute, that lag time is one legacy you don’t want to bring over from print. And Businessweek doesn’t have to either. It’s website changes every day, and there is no reason those articles shouldn’t show up in the iPad app. Even the search function in the app only works for iPad issues in your archives. It doesn’t return results from the website.

By making its iPad app less informative than its website, Bloomberg Businessweek is signaling to readers that if they want to stay up to date they will be better off simply going to the website, which is free. So Bloomberg Businessweek thinks readers will want to pay $2.99 a month for less information that is presented in a prettier format. What readers end up paying for, essentially, is the tablet experience and bigger fonts.

Bloomberg’s app for Businessweek joins a host of other magazines trying to recreate themselves in the age of social media, apps, and mobile devices. From the Financial Times to Elle to Popular Science, publishers are signing on to Apple’s subscription service (or intend to).

Best way to trade the rumors? Bloomberg (and Tradestream) says short ’em

To a philosopher, all news as it is called, is gossip, and they who edit and read it are old women over their tea — Henry David Thoreau

Gossip is called gossip because it’s not always the truth — Justin Timberlake

With stocks, there is so much noise and pumping going on that investors can feel like they’re at a Motley Crue concert again.  So, how do investors using smart strategies and historical data profit from rumors?

Bloomberg is out with proprietary data today that suggests shorting stocks caught up in merger rumors is a viable, profitable strategy.

Electronic news services, brokerages and newspapers reported at least 1,875 rumors about potential buyouts of 717 companies between 2005 and 2010, according to data compiled by Bloomberg. A total of 104, or 14.5 percent, were acquired, the data show. While stocks that were the subject of takeover speculation initially jumped 2.9 percent, betting on declines yielded average profits of 1.2 percent in the next month, an annualized gain of 14 percent.

In Tradestream, I devote an entire chapter, Grind the Rumor Mill, to rumor mongering and how that plays out for investments – essentially short-selling a basket of M&A rumors.  This strategy works because while real acquisition targets see above-average appreciation, most rumored M&As don’t actually come to fruition.

I included a rumor model developed by Nudge’s Cass Sunstein that he used in his recent book, On Rumors: How Falsehoods Spread, Why We Believe Them, What Can Be Done (affiliate link).  This included identifying propagators, qualifying their prior beliefs, and predicting the cascading effect from any change/reinforcement of those priors.

Much of the guts and data behind this strategy was documented by Gao and Oler in “Rumors and Pre-Announcement Trading: Why Sell Target Stocks Before Acquisition Announcements?” (June 2008)

Data

The Strategy

  • Research: Scan the WSJ’s Heard on the Street for reported, but unsubstantiated merger and acquisition rumors
  • Adjust for market cap: The strategy works better when you remove companies with market cap >$20B
  • Short basket trade: Short sell a basket of these rumored targets and hold for 70 days after the rumor first appeared.  Cover.  Hedge if you like.
  • Timing best for hot M&A years: if M&A heats up (like now, right), the data show the strategy works even better

Last thing

The Bloomberg research found that this short-the-rumor strategy worked (+14%) even when it coincided with other contradictory bullish signals like call buying.

Call volume in New York-based Jefferies Group Inc. jumped amid unconfirmed takeover reports on Feb. 27, 2008. Calls on the company changed hands 12,692 times that day, 24 times the four- week average and the most in almost a year, and the shares gained 3.7 percent. A deal never occurred and Jefferies dropped 3.4 percent the next day, 10 percent the next week and 20 percent in 30 days. The S&P 500 lost 4.7 percent in a month.

Caveat emptor: I have not actually used this strategy in portfolios (I’m pretty much long only) and I think it would take balls of steel to really stick to it.

Further Reading on Investing and Rumors:

Insider Trading Dashboard: Everything you need to know

With the daily news of hedge funds being raided and expert networks being investigated, I wanted to put together a resource sheet for those looking to delve a bit further into the insider trading game.

Research

Decoding Insider Trading (Cohen): This new paper looks at a methodology to isolate insider traders acting on good information from noisy trades.  By looking at individual trades — versus looking at all insider activity — investors can mimic better-performing trades, boosting performance of insider trading strategies.

Law and Economics of Insider Trading: A Comprehesive Primer (Bainbridge) 84 pages of insider trading awesomeness.  This 2001 paper deals with everything from the origins of current laws prohibiting insider trading to defining an insider to making a case for and against regulating insider trading. For a smaller, more concise paper on insider trading, see Bainbridge’s Insider Trading: An Overview

Stock Market Anomalies: What can we learn from repurchases and insider trading (Core, Guay, Richardson, Verdi)

How Informative are Analyst Recommendations and Insider Trading (Hsieh, Ng, and Wang) Evidence points to insider trading and analyst recommendations giving conflicting signals.  This paper documents that and provides theory why this may be the case.

What Insiders Know about Future Earnings and How They Use It: Evidence from Insider Trades (Ke, Huddart, Petroni) Insiders do trade on this stuff up to 2 years before public release.

Do Insider Trades Reflect Superior Knowledge About Future Cash Flow Realizations (Piotroski, Roulstone) Short answer: yes.

Insider Trade Disclosure, Market Efficiency, and Liquidity (Buffa): Policy implications after finding that informational efficiency and liquidity are lower in more transparent markets

Institutional Investors and Insider Trading Profitability (Markarian, Bricker) Insider profits are inversely related to presence of institutional ownership.  Hedge funds/mutual funds may provide monitoring effect.

MSM (Mainstream Media) on Insider Trading

WSJ on Insider Trading (sub. req’d)

Bloomberg.com: Insider Trading

Google fastflip on Insider Trading

Tradestreaming on Insider Trading

Dealbreaker’s Insider Trading Fest(ivus)

NYT on Insider Trading

Dealbook on Insider Trading

Books on Insider Trading Strategies

Investment Intelligence from Insider Trading: If this book is the bible of insider trading strategies and research, its author, Professor Seyhun is Moses.  Great research into strategies for following insiders.

Profit from Legal Insider Trading: Invest Today on Tomorrow’s News

The Vital Few vs. the Trivial Many : Invest with the Insiders, Not the Masses

Videos on Insider Trading

Stock-bond correlation falling, bullish for stocks?

Bloomberg out with a piece on the falling correlation between bonds and stocks.

Pioneer Investments, Security Global Investors and Citigroup Inc. say the broken connection is bullish as the greatest number of S&P 500 companies in a decade post earnings growth. During the bull market from 2002 to 2007 when the S&P 500’s price and profits doubled, the correlation averaged 0.15, data compiled by Bloomberg show.

The article believes that this change derives from a change in investor behavior — no longer are investors buying and selling based on macroeconomic factors but instead are returning to invest based upon profits and prospects.

Could be — the truth though — like everything in life — is probably somewhere in the middle.  The story of a change in correlation here is probably more about the dislodging of the bond market than about a return to proper pricing of equities.

Source: Greed beats fear with stock-bond correlation falling (Bloomberg)