We’re doing something a little different with this interview.In the wake of the announcement that Google ($GOOG) was buying Motorola Mobility ($MMI), I wanted to understand the deal dynamics better.
I spoke with Dan Hoffman, CEO and President of M5, a managed VOIP solutions provider.Dan’s an Internet pioneer, founding an early ISP. M5 services enterprise clients with cloud telephony, on the forefront of telecommunications service.
In this interview, we address
trends in software, hardware, and cloud
value of the Motorola patent portfolio
how Dan’s firm is leveraging technology advances, regardless of who ultimately wins
This transcript is of a conversation I had with Dr Joey Engelberg, Professor of Finance at the University of North Carolina’s Kenan-Flagler Business School (listen to the podcast). You can always subscribe to Tradestreaming Radio on iTunes.
In my book, Tradestreamingand on my website, I talk a lot about what I call collateral research. This is information that’s inherently non-financial in nature, but that investors are using to aid in their investment decisions.
One example I talk about in the book specifically is Amazon sales data. You can go onto Amazon.com, look up best selling computers, and you can get a list at that moment in time, updated hourly, of what’s selling well. So, if you were an investor in Apple, and Apple was introducing a new product to the market, that information, although it doesn’t say specific sales numbers, of what Apple itself is seeing through selling on Amazon, that information is at least important in the sense of how well a product may be received into the market.
Another area of concern for investors, of interest, is Google search data. Google recognizes that itself, and launched about two years ago on Google Finance something called Google domestic search trends, GDST. That’s a mouthful. What that is basically is Google itself is looking at a vertical search, something about the auto industry, unemployment, something where there are a series of search terms around a particular category, and then mapping them against the volume of other search queries.
So, you can get a feel for, qualitatively, how a certain search term or industry is trending vis a vis the rest of the search market. You can then overlay that information on top of an ETF or a mutual fund that may track that industry, and you can get a view for how well some of that data may, or may not influence future price movements.
Today’s guest on the podcast is Joey Engelberg, who studied this actually quite intensely. He’s a Professor of Finance at the University of North Carolina, the Kenan-Flagler Business School. He previously worked at the SEC, as a research specialist.
He recently produced a paper that caught my eye, called In Search of Attention. That basically looks at Google search data and tries to map it to future price movements. He actually did find a correlation that certain abnormal trends in search data can lead to abnormal returns in the stock market.
In my book, Tradestream, I talk a lot about what I call “Co-lateral Research”. This is information inherently non-financial in its nature that investors can use to make better investment decisions.
Take Amazon Sales Ranking, for example. Amazon provides almost real-time ranking of its best selling items. While Amazon won’t reveal exactly how many units of Apple’s ($AAPL) iPad it’s selling, investors can get a qualitative feel for how well products are moving.
Summary
UNC Professor Joey Engelberg has been studying another form of co-lateral research, Google search data. He’s been studying search trends for stocks (ie $PCLN or $NFLX) as a way to measure investor attention. Prof Engelberg has found a linkage between changes in search volume and subsequent moves in stock prices. He joins us for this installment of Tradestreaming Radio.
We discuss
which particular stocks investors pay attention do during the trading day
the demand side of news and information for stocks
how Google search volume is correlated to stock pricing
a trading strategy that uses search volume to beat the market
A wealth of information creates a poverty of attention
Smart investors avail themselves of all valuable resources as inputs into the investment research process. I write about this faculty in my book Tradestream in the chapter “Co-lateral Research“. What co-lateral research means is all the non-financial/non-traditional sources of information that can be used by investors to connect-the-dots.
Among our sample of Russell 3000 stocks, stocks that experienced an increase in ASVI [me: abnormal search volume index reading] this week are associated with an outperformance of more than30 basis points (bps) on a characteristic-adjusted basis during the subsequent two weeks. This initial positive price pressure is almost completely reversed by the end of the year.
The paper also finds that increased search volume leading up to hot IPOs may be responsible for that big first-day pop! that such issues experience.
As the first paper that has really looked at search data from an investing standpoint, this should be piped and smoked. In fact, the authors conclude the paper with a somewhat foretelling statement:
Search volume is an objective way to reveal and quantify the interests of investors and therefore should have many other potential applications in fi nance. We leave those for future research.
Oh, also, cool what you did to the “supposed” adult supervision afforded by (well, ex-) CEO Eric Schmidt. It’s pretty sick how Larry just wrested control away from him and sidelined him to take back the company. I’d give all my 24 hr access to fruitloops on the Googleplex to see the look on his face when you dropped that bomb on him.
For me, it didn’t really rock my world. From the word on the Street (or at least on campus here), he never really had any control anyway. Like when you guys bought Android and didn’t even tell him. That was awesome.
Eric may of had to go — I mean, with over 90% search dominance in so many markets, yet the inability to really monetize anything else and the makings of a Microsoft-type ($MSFT) European anti-trust inquisition mounting against the search firm, the company needed some fresh blood.
But this peep isn’t exactly sure that a return to its roots is what the firm needs. With the growth in the company over the past few years (23k f’in Googlers, baby!), we’re kinda all over the place. Add a lame attempt at buying Groupon — we need new leadership. I mean, the last thing we want is to pull a Yang or Ballmer and bring back the lifeblood of our startup days — our founders — to steer these ships that have certainly outgrown their own abilities to manage such large organizations.
Oops — is that what just happened? $YHOO’s Carol Bartz maybe-coulda-woulda been a better choice?? Maybe not.
overlayed on top of stock index charts. GDT 