From a trading desk in London, Paul Hawtin monitors the fire hose of more than 340 million Twitter posts flying around the world each day to try to assess the collective mood of the populace.
The computer program he uses generates a global sentiment score from 1 to 50 based on how pessimistic or optimistic people seem to be from their online conversations. Hawtin, chief executive of Derwent Capital Markets, buys and trades millions of dollars of stocks for private investors based on that number: When everyone appears happy, he generally buys. When anxiety runs high, he sells short.
Hawtin has seen a gain of more than 7 percent in the first quarter of this year, and his method shows the advantage individuals, companies and governments are gaining as they take hold of the unprecedented amount of data online. Traders such as Hawtin say analyzing mathematical trends on the Web delivers insights and news faster than traditional investment approaches.
The explosion in the use of Google, Facebook, Twitter and other services has resulted in the generation of some 2.5 quintillion bytes each day, according to IBM.
“Big data,” as it has been dubbed by researchers, has become so valuable that the World Economic Forum, in a report published last year, deemed it a new class of economic asset, like oil.
“Business boundaries are being redrawn,” the report said. Companies with the ability to mine the data are becoming the most powerful, it added.
While the human brain cannot comprehend that much information at once, advances in computer power and analytics have made it possible for machines to tease out patterns in topics of conversation, calling habits, purchasing trends, use of language, popularity of sports, spread of disease and other expressions of daily life.
“This is changing the world in a big way. It enables us to watch changes in society in real time and make decisions in a way we haven’t been able to ever before,” said Gary King, a social science professor at Harvard University and a co-founder of Crimson Hexagon, a data analysis firm based in Boston.
The Obama campaign employs rows of people manning computers that monitor Twitter sentiment about the candidates in key states. Google scientists are working with the Centers for Disease Control and Prevention to track the spread of flu around the world by analyzing what people are typing in to search. And the United Nations is measuring inflation through computers that analyze the price of bread advertised in online supermarkets across Latin America.
Many questions about big data remain unanswered. Concerns are being raised about personal privacy and how consumers can ensure that their information is being used fairly. Some worry that savvy technologists could use Twitter or Google to create false trends and manipulate markets.
Even so, sociologists, software engineers, economists, policy analysts and others in nearly every field are jumping into the fray. And nowhere has big data been as transformative as it has been in finance.
Wall Street is all about information advantage. Every little bit could mean the difference between a bonanza or a devastating loss, and so big data is being fed into computers to power high-frequency trading algorithms — and directly to traders in every way imaginable.
Hedge funds are experimenting with scanning comments on Amazon product pages to try to predict sales. Banks are tallying job listings on Monster as an indicator of hiring. Investment firms are conducting computer analyses of the financial statements of public companies to search for signs of a bankruptcy.
Why wait for the government to release official numbers on auto sales, home sales and retail sales when the trends could be gleaned weeks or even months earlier by analyzing publicly available data online?
Five years ago, only 2 percent of investment firms were incorporating Twitter analysis and other forms of “unstructured” data into their trading decisions, according to a report by Adam Honore, a research director at Aite, a financial services consulting group based in Boston. By 2010, the share of companies experimenting with this technology jumped to 35 percent. Today, Honore said, that number is closer to 50 percent.
“Big data is fundamentally changing how we trade,” Honore said.
‘Data in motion’
Richard Tibbetts, chief technology officer at StreamBase, a Lexington, Mass., company that provides tools for analyzing large amounts of data, calls it “examining data in motion.” The trick is to be able to find the digital smoke signals amid all the other stuff. Traders who were analyzing Twitter for unusual activity, for instance, were able to get the news of Osama bin Laden’s death and a massacre in Norway hours before the information was officially confirmed, giving them a significant jump on their colleagues who learned of the events through traditional news sources.