Keeping the Edge

What makes one hedge fund more profitable than another? Knowledge. A person who knows information that can impact the value of a traded asset prior to other consumers can purchase or sell those assets at a time to make the most profit. They call this the Edge. There are degrees of the Edge. They can range from Extreme which is known as insider trading, and can put you in jail, to public where the information is published in SEC filings available to all. There are grey areas in between.

The point is, with trading assets, your profitability is impacted by your ability to predict future activity. The wise man works extremely hard to make those predictions in a legal fashion with the most accuracy.

The same kind of knowledge can be used to improve the profitability of other kinds of revenue. Manufacturing, service companies, educators, etc. can all use the Edge to predict trends leading to better profit through higher sales or reduced cost. There are two things which make this kind of data mining available to even the average small business today.

The internet of things is a growing data commodity. You can acquire it yourself in some cases. In others, you purchase this data from aggregators such as Google, Amazon, Credit Bureaus, Health Insurance, etc. There have been many data sources for decades. Think of insurance companies and their actuarial. They base their premiums on predictions of a person’s future based on history of other similar individuals. Their predictions are incredibly accurate.

Today companies are determining how to lay out their stores based on the predictions from data collected by real customers. Others are predicting preventive maintenance schedules based on data collected from smart devices connected through the internet. Utilities are able to leverage their purchases based on prediction models of consumption. Having access to real time data allows those predictive models to become more accurate with even shorter cycles that we’ve experienced before.

Just like information that enables Hedge funds to make profitable decisions, there will be data that is questionable and data that is freely available to the world. IOT is one of those data sources where individuals freely provide actionable data because of services provided.

The second tool that is rapidly changing the way a business plans is the ability to quickly build predictive models from large sets of data. Tools such as the Azure Machine Learning suite bring the capability of analyzing data to mere mortals. No longer do you need to be an actuarial to create meaningful, actionable data. Sure, it doesn’t hurt. But the capabilities now available in Machine Learning would have can be done in a few hours to weeks that would take months or years for conventional methods.

The revolution is here. It is predicted that a business is going to have to learn how to use these technologies to survive. Sure, there will be the few businesses that continue, just like those that hang on after the industrial revolution. There are still many cottage industries. There are still many niche companies making low volume, high cost items. You are more likely to find companies using as much automation as possible to reduce costs and increase quality, etc.It’s pretty clear that the Company that has the best Edge, the best predictive information of the future within legal means, is going to be leading the rest.

If you’re looking for job skills that are going to last into the next wave of software, I would estimate that learning to implement software enabling IOT and Predictive Modeling is an area that is very hot now, and hot on the horizon.