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My mostly uninformed hunch is that much of the fancy "public information" analysis that hedge funds claim to do to have their edge is actually parallel construc

My mostly uninformed hunch is that much of the fancy "public information" analysis that hedge funds claim to do to have their edge is actually parallel construction for insider tips. I've heard it claimed that some funds have flown helicopters over oil storage fields to measure the shadows in the tanks to know how much oil is stored, or bought satellite photos to analyze the parking lot use of major retailers during the Christmas season. These things sound way too specific to just perform on a hunch, and even then, you might get the analysis wrong if you don't have the insider tip to check your math. But it's probably enough to keep the SEC investigator from having a case unless they find the insider link directly.

throwup238 2y ago
> I've heard it claimed that some funds have flown helicopters over oil storage fields to measure the shadows in the tanks to know how much oil is stored, or bought satellite photos to analyze the parking lot use of major retailers during the Christmas season. This is really common and basically table stakes for sophisticated firms now (those that invest in relevant sectors). They track everything from parking lots to freighters and oil tankers to crop yields via satellite imagery and flyovers. It's gotten cheaper with drones so more important areas like major ports might get daily fly bys to track containers and boat traffic. Some have static cameras pointed at these things
- Loughla 2y ago
  The only thing I can speak to is crop yields. Satellite imagery S flyovers won't really teach you a lot outside of a binary yes/no r field is alive. The technology farmers use teams yields to the square foot. I'm betting you can buy that from John Deere and others. That's probably where they get that?
  - throwup238 2y ago
    I don't know how effective the project was because I left before it finished but we were working on using the normalized difference vegetation index, normalized difference water index, and a bunch of other data points to try to predict crop yields. Farmers might get that kind of stuff from flyovers for the extra resolution but that was cost prohibitive for our purposes except when validating data from the satellites.
    - greenavocado 2y ago
      Yeah good luck getting accurate NDVI measurements down to the square foot from satellites.
      - throwup238 2y ago
        Luckily corn fields go on for miles so we didn’t need that resolution.
        Loughla 2y ago
        Fields vary wildly within relatively small spaces. Just because it looks uniform doesn't mean it is uniform. Our 100 acre bottom field this year averaged 274 bushels of corn per acre. Some places were around 360, some were around 50. If you're trying to predict crop yields to beat the market, granularity is wildly important.
      - amarcheschi 2y ago
        This year in university I took a course where I had to imagine creating a startup and we ended up mocking up an agritech business that dealt with drones and satellites data. We discovered that Sentinel 2, a European satellite, has a resolution for ndvi that goes as low as 10/20m. This improves nasa's modis sitting at a resolution of ~250m. Furthermore, this is free. There are companies providing paid images with higher resolution from their own satellites (Constellr comes to mind). I'm sure the resolution isn't going to be exact to the square foot, but for some cases you probably don't need such a high resolution
- FireBeyond 2y ago
  > major ports might get daily fly bys to track containers and boat traffic Shipping traffic has transponders these days, no different to air. Don't even need drones.
- nostromo 2y ago
  Don’t forget the easiest dataset to use: they buy consumer transaction data directly from Visa and Mastercard. With that in hand it’d be pretty easy to know if, say, Apple will beat or miss revenue for a given quarter.
  - irjustin 2y ago
    > With that in hand it’d be pretty easy to know if, say, Apple will beat or miss revenue for a given quarter. Wow, seems so easy! That's not how the market works though. You've got to know if Apple's going to beat the analysts' expectations of how Apple is going to do. All the analysts have access to that data and that's table stakes. Apple's guidance on revenue is only like 30% of the equation.
    - cherryteastain 2y ago
      Typically, because they make so many bets, a hedge fund needs to be only 53-54% accurate with their predictions to make money. The stock of every company will move a decently large amount on the day quarterly revenues are published, whether it's Apple or a smaller firm. You can make a lot of money via options maturing on such days. When you need to be right only 53% of the time, these signals _really_ add up.
      - NickC25 2y ago
        >Typically, because they make so many bets, a hedge fund needs to be only 53-54% accurate with their predictions to make money. Wouldn't that imply that every bet the fund makes is roughly of the same $$ value? I would figure more senior traders or more successful ones would vary the size of their bets relative to certainty or uncertainty of an event outcome (could be quarterly earnings, a political/geopolitical event, etc)?
        cherryteastain 2y ago
        Don't think of it like buying a stock on the spot market like retail investors typically do. Many hedge funds place their bets by using the options market, which limits the downside on a bad bet (see e.g. the butterfly strategy [1]). The size of the bet also depends on a lot of factors. Many hedge funds don't work like monolithic entities, rather they have a bunch of portfolio managers (PMs) who have their own allocated pools of assets from investors. These PMs decide on placing their bets based on lots of different things like their liquidity position (e.g. you don't want to lock up your cash in one position even if you're sure it'll make money when there's a risk of being margin called because of another trade) in addition to signals such as the one dicussed above. [1] https://en.m.wikipedia.org/wiki/Butterfly_(options) https://en.m.wikipedia.org/wiki/Butterfly_(options)
- bostik 2y ago
  The use of aerial imagery for institutional asset tracking is older and much more widespread than we'd think. Back in 2005/2006 my university maths professor (in Finland) had an established side gig in the US. He had polished a process to manufacture aerial drones - still called UAVs at the time - and had put together a fairly slick software pipeline to combine GPS tracking with digital imagery. One of his longer-term clients at the time was Harvard University; they had contracted his firm to get routine data on how their land endowments were doing. An associate professor at the CS department has had a similar thing going on since ~2005. His company does drone imagery for land owners in Finland. Rather surprisingly a notable fraction of his business at the time was coming in from families and corporate offices wanting "just" nice looking shots of their various farm buildings. At the time the university in question was rather well known for their computer vision unit.
  - jnordwick 2y ago
    Try 1910's. Reminiscences of a Stock Operator describes Jesse Livermore collecting unique public data on shops and use for trading. The founder at my first trading job gave me this book to read, and I am eternally grateful.
46Bit 2y ago
Ordering satellite imagery and counting cars is just a weekend project. The last time I looked at ordering imagery, the main obstacle was the minimum order size, so it'd actually scale better for monitoring every store car park than for looking at a single car park.
- avidiax 2y ago
  So if Macy's parking lots have 11% more cars than the same time last year, is that a buy or a sell? Are people actually buying more, or are they more cash strapped and spending more time looking for value?
  - aurareturn 2y ago
    You’d have to have historical data to see if more cars mean more spending.
  - baxtr 2y ago
    What if Macy‘s parking lots have fewer cars but they’re selling more and more online now?
    - fragmede 2y ago
      you buy data flow data from ISPs at all tiers, so even though they're encrypted, knowing how much traffic is going to Macy's.com vs JCPenney.com gives you information you can act on. We know this is being done, because of reports that say Netflix is X% of Internet traffic. The undredacted reports from those same data sources have much more detail. It's also why some apps that don't appear to have any business model are actually quite valuable.
    - helsinkiandrew 2y ago
      How busy are the car parks by their dispatch center? are the cars staying longer because people are working overtime? how many UPS trucks are visiting?
      - 2y ago
supportengineer 2y ago
>> parallel construction for insider tips That is almost certainly the case.
underlipton 2y ago
The SEC could still have a case - timeline, corroborating intrigue, etc. - but as an underfunded revolving door, there's little pushing them to even try to hold these firms accountable. The exchange between a congressperson/senator and an SEC rep a few years ago - "How many cases do you take to trial?" "It's more efficient for us to settle," or something along those lines - was pretty damning. (I apologize, the exact details escape me and every single search function on the internet has apparently been degraded into uselessness.)
quietbritishjim 2y ago
> I've heard it claimed that some funds have flown helicopters over oil storage fields to measure the shadows in the tanks to know how much oil is stored, or bought satellite photos to analyze the parking lot use of major retailers during the Christmas season. That actually is public information. I know it's hard for your typical member of the public to obtain, but the key thing is that it didn't wasn't communicated directly by someone working at the company. That's legitimate and no parallel construction is needed (except to mislead your competitors – maybe that's the real motivation).
- rawling 2y ago
  > These things sound way too specific to just perform on a hunch, and even then, you might get the analysis wrong if you don't have the insider tip to check your math. This is suggested as the parallel construction for the actual insider info.
fph 2y ago
The helicopter and satellite tricks though are legal, right? They do not involve any leaks from insiders.
uoaei 2y ago
I know a guy who's been making and winning steep-odds bets on baseball games based on wind patterns at stadiums on game days.
aitium12 2y ago
[dead]
Nasrudith 2y ago
Personally I think those things sound like the natural result of ex-intelligence agents wind up working in finance, sort of like the advertising boom seen from the ex-WW2 propagandists.

throwup238 2y ago

> I've heard it claimed that some funds have flown helicopters over oil storage fields to measure the shadows in the tanks to know how much oil is stored, or bought satellite photos to analyze the parking lot use of major retailers during the Christmas season. This is really common and basically table stakes for sophisticated firms now (those that invest in relevant sectors). They track everything from parking lots to freighters and oil tankers to crop yields via satellite imagery and flyovers. It's gotten cheaper with drones so more important areas like major ports might get daily fly bys to track containers and boat traffic. Some have static cameras pointed at these things

Loughla 2y ago
The only thing I can speak to is crop yields. Satellite imagery S flyovers won't really teach you a lot outside of a binary yes/no r field is alive. The technology farmers use teams yields to the square foot. I'm betting you can buy that from John Deere and others. That's probably where they get that?
- throwup238 2y ago
  I don't know how effective the project was because I left before it finished but we were working on using the normalized difference vegetation index, normalized difference water index, and a bunch of other data points to try to predict crop yields. Farmers might get that kind of stuff from flyovers for the extra resolution but that was cost prohibitive for our purposes except when validating data from the satellites.
  - greenavocado 2y ago
    Yeah good luck getting accurate NDVI measurements down to the square foot from satellites.
    - throwup238 2y ago
      Luckily corn fields go on for miles so we didn’t need that resolution.
      - Loughla 2y ago
        Fields vary wildly within relatively small spaces. Just because it looks uniform doesn't mean it is uniform. Our 100 acre bottom field this year averaged 274 bushels of corn per acre. Some places were around 360, some were around 50. If you're trying to predict crop yields to beat the market, granularity is wildly important.
    - amarcheschi 2y ago
      This year in university I took a course where I had to imagine creating a startup and we ended up mocking up an agritech business that dealt with drones and satellites data. We discovered that Sentinel 2, a European satellite, has a resolution for ndvi that goes as low as 10/20m. This improves nasa's modis sitting at a resolution of ~250m. Furthermore, this is free. There are companies providing paid images with higher resolution from their own satellites (Constellr comes to mind). I'm sure the resolution isn't going to be exact to the square foot, but for some cases you probably don't need such a high resolution
FireBeyond 2y ago
> major ports might get daily fly bys to track containers and boat traffic Shipping traffic has transponders these days, no different to air. Don't even need drones.
nostromo 2y ago
Don’t forget the easiest dataset to use: they buy consumer transaction data directly from Visa and Mastercard. With that in hand it’d be pretty easy to know if, say, Apple will beat or miss revenue for a given quarter.
- irjustin 2y ago
  > With that in hand it’d be pretty easy to know if, say, Apple will beat or miss revenue for a given quarter. Wow, seems so easy! That's not how the market works though. You've got to know if Apple's going to beat the analysts' expectations of how Apple is going to do. All the analysts have access to that data and that's table stakes. Apple's guidance on revenue is only like 30% of the equation.
  - cherryteastain 2y ago
    Typically, because they make so many bets, a hedge fund needs to be only 53-54% accurate with their predictions to make money. The stock of every company will move a decently large amount on the day quarterly revenues are published, whether it's Apple or a smaller firm. You can make a lot of money via options maturing on such days. When you need to be right only 53% of the time, these signals _really_ add up.
    - NickC25 2y ago
      >Typically, because they make so many bets, a hedge fund needs to be only 53-54% accurate with their predictions to make money. Wouldn't that imply that every bet the fund makes is roughly of the same $$ value? I would figure more senior traders or more successful ones would vary the size of their bets relative to certainty or uncertainty of an event outcome (could be quarterly earnings, a political/geopolitical event, etc)?
      - cherryteastain 2y ago
        Don't think of it like buying a stock on the spot market like retail investors typically do. Many hedge funds place their bets by using the options market, which limits the downside on a bad bet (see e.g. the butterfly strategy [1]). The size of the bet also depends on a lot of factors. Many hedge funds don't work like monolithic entities, rather they have a bunch of portfolio managers (PMs) who have their own allocated pools of assets from investors. These PMs decide on placing their bets based on lots of different things like their liquidity position (e.g. you don't want to lock up your cash in one position even if you're sure it'll make money when there's a risk of being margin called because of another trade) in addition to signals such as the one dicussed above. [1] https://en.m.wikipedia.org/wiki/Butterfly_(options) https://en.m.wikipedia.org/wiki/Butterfly_(options)
bostik 2y ago
The use of aerial imagery for institutional asset tracking is older and much more widespread than we'd think. Back in 2005/2006 my university maths professor (in Finland) had an established side gig in the US. He had polished a process to manufacture aerial drones - still called UAVs at the time - and had put together a fairly slick software pipeline to combine GPS tracking with digital imagery. One of his longer-term clients at the time was Harvard University; they had contracted his firm to get routine data on how their land endowments were doing. An associate professor at the CS department has had a similar thing going on since ~2005. His company does drone imagery for land owners in Finland. Rather surprisingly a notable fraction of his business at the time was coming in from families and corporate offices wanting "just" nice looking shots of their various farm buildings. At the time the university in question was rather well known for their computer vision unit.
- jnordwick 2y ago
  Try 1910's. Reminiscences of a Stock Operator describes Jesse Livermore collecting unique public data on shops and use for trading. The founder at my first trading job gave me this book to read, and I am eternally grateful.

46Bit 2y ago

Ordering satellite imagery and counting cars is just a weekend project. The last time I looked at ordering imagery, the main obstacle was the minimum order size, so it'd actually scale better for monitoring every store car park than for looking at a single car park.

avidiax 2y ago
So if Macy's parking lots have 11% more cars than the same time last year, is that a buy or a sell? Are people actually buying more, or are they more cash strapped and spending more time looking for value?
- aurareturn 2y ago
  You’d have to have historical data to see if more cars mean more spending.
- baxtr 2y ago
  What if Macy‘s parking lots have fewer cars but they’re selling more and more online now?
  - fragmede 2y ago
    you buy data flow data from ISPs at all tiers, so even though they're encrypted, knowing how much traffic is going to Macy's.com vs JCPenney.com gives you information you can act on. We know this is being done, because of reports that say Netflix is X% of Internet traffic. The undredacted reports from those same data sources have much more detail. It's also why some apps that don't appear to have any business model are actually quite valuable.
  - helsinkiandrew 2y ago
    How busy are the car parks by their dispatch center? are the cars staying longer because people are working overtime? how many UPS trucks are visiting?
    - 2y ago

supportengineer 2y ago

>> parallel construction for insider tips That is almost certainly the case.

underlipton 2y ago

The SEC could still have a case - timeline, corroborating intrigue, etc. - but as an underfunded revolving door, there's little pushing them to even try to hold these firms accountable. The exchange between a congressperson/senator and an SEC rep a few years ago - "How many cases do you take to trial?" "It's more efficient for us to settle," or something along those lines - was pretty damning. (I apologize, the exact details escape me and every single search function on the internet has apparently been degraded into uselessness.)

quietbritishjim 2y ago

> I've heard it claimed that some funds have flown helicopters over oil storage fields to measure the shadows in the tanks to know how much oil is stored, or bought satellite photos to analyze the parking lot use of major retailers during the Christmas season. That actually is public information. I know it's hard for your typical member of the public to obtain, but the key thing is that it didn't wasn't communicated directly by someone working at the company. That's legitimate and no parallel construction is needed (except to mislead your competitors – maybe that's the real motivation).

rawling 2y ago
> These things sound way too specific to just perform on a hunch, and even then, you might get the analysis wrong if you don't have the insider tip to check your math. This is suggested as the parallel construction for the actual insider info.

fph 2y ago

The helicopter and satellite tricks though are legal, right? They do not involve any leaks from insiders.

uoaei 2y ago

I know a guy who's been making and winning steep-odds bets on baseball games based on wind patterns at stadiums on game days.

aitium12 2y ago

[dead]

Nasrudith 2y ago

Personally I think those things sound like the natural result of ex-intelligence agents wind up working in finance, sort of like the advertising boom seen from the ex-WW2 propagandists.