The Importance of Crowd-Wisdom: Why Investors Should Always Ask the Audience

The notion that large groups of people can be smarter than an elite few, no matter how brilliant is an important idea behind what we do at Woozle Research


Large groups tend to be better at solving problems, fostering innovation, coming to wiser decisions, and crucially for investors – making more accurate and discerning predictions about the future.


One of the most well-known examples of crowd wisdom can be seen in the iconic TV game show “Who wants to be a Millionaire”. Participants unable to answer a question are given the option to either “phone a friend” or “ask the audience”. In the history of the show, phoning a friend resulted in the right answer 65% of the time while asking the audience returned a much more impressive 91% success rate. Why this discrepancy? Simply put, because bias is cumulative. Ask one person and he or she may be wrong. Ask a thousand people and the truth tends to manifest itself.


So how do we apply this wisdom of the crowds to equity research?


Firstly, we identify the key stakeholders in any particular business. Those who are most likely to have interesting insights into its operations and performance. Examples might include customers, suppliers, distributors, industry professionals and even tangible fixed assets such as property, plant and equipment.


Once we’ve taken time to understand the types of value-added insights key stakeholders might be able to provide to investors, we then look to source that information through various types of human intelligence gathering techniques. Some of the methods where we have a particularly strong competitive advantage include interviews, site visits, polls and on the ground surveillance.


Fundamentally, we view the world differently to most investors. We look at businesses, not solely as a series of data points nor financial formulas but rather as a network of dynamic human connections. At Woozle Research we can capture more than just short term financial metrics such as profitability and growth but also qualitative information that is often more important and more valuable, factors such as optimism, targets, and aspirations.


One of the points we often make to our new research analysts is that simply because something can be quantifiably measured doesn’t make it intrinsically valuable and equally, some of our top conviction long or short ideas are built on qualitative feedback that wasn’t even on the radar of most investors!


How does our research add value to clients? It depends. Broadly speaking, the unique value which we offer is that our research is leading and differentiated and consequently it can really help discretionary fund managers with idea generation, theses validation and identification of attractive risk/return payoffs where consensus may be under appreciating the real-world fundamentals which drive a particular stock.


Also important is the fact that our research methodology is completely unorthodox by design and therefore our insights tend to be uncorrelated to other research which they might be receiving from other vendors – something which is particularly important for quant funds but also increasingly so for discretionary fund managers given MIFID 2 implementations.


But, without doubt, the main value we add to clients is that our ideas are proven to generate alpha. And the reason why we have been able to consistently generate risk-adjusted alpha is wonderfully simple.


Stakeholders tend to know the most and be the first to know how a company is performing. The systematic collection of thousands of these independent insights, in real time, tends to result in leading, accurate and very often differentiated outlooks. 


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