4 ms·

Speaking as a former M&A financial advisor and valuation nerd, historical financial data is very close to worthless for any valuation work, except perhaps for v

Speaking as a former M&A financial advisor and valuation nerd, historical financial data is very close to worthless for any valuation work, except perhaps for vaguely connecting the dots to your proprietary, forward looking financial model which is based on a deep understanding of a particular company and industry. This reads to me like garbage in, garbage out... just like 99.9999% of current resources on financial data. There's definitely an opportunity to disrupt this backwards "financial data" industry, but it's not going to be done by slapping LLMs and RAGs onto stale data in 10-Qs and 10-Ks.

serjester 2y ago
I don't touch finance, but I'd be curious to have you elaborate on the data sources that a professional does care about.
- infecto 2y ago
  They care about anything that helps give insight into the future. Its still obtainable data but that is where the edge comes from, taking unique data and applying your way of thinking (models) to it. This could be anything and everything that relates to the company/industry you are looking at. You take lots of different bits of information and distill it into a model. If you are in the automotive space, maybe you care how US policy is looking for China. To put it differently, historical financials, K/Qs are all data points that have been commoditized and you can pull it instantly.
- airstrike 2y ago
  It depends on whether you're publicly sharing your valuation work or confidentially advising a client about valuation. The former is what equity research analysts do at major investment banks (like Morgan Stanley, BAML, JP Morgan, etc.) and boutique / middle-market research firms (Stifel, Cantor Fitzgerald, Raymond James, Guggenheim, etc.). Google has led me to this LinkedIn post with a long list of equity research firms which seems accurate and credible after skimming it briefly: https://www.linkedin.com/pulse/most-comprehensive-list-sell-side-equity-research-firms-richard-toad-0hllc/ https://www.linkedin.com/pulse/most-comprehensive-list-sell-... The latter is what I used to do as an M&A advisor. Basically the "I want to buy company X, how much should I pay?" or "I may be interested in selling / people are reaching out expressing interest in my company, how much am I worth?" type of scenarios, plus some other more complex but not necessarily more fun things like merger of equals and what have you. In these situations, the analysis tends to be more of a "let's look at it from all angles" which usually gets distilled into a one-page summary nicknamed "football field" showing ranges of values according to various methodologies. Things like DCF, discounted equity value, relative trading multiples (also called "comps"), LBO (also called the "floor valuation") all get featured and are the standard metrics on which an advisor's view is supported. As an advisor, I never came up with my own projections for valuation, because that would open the door for litigation so it's just not done. Instead, we point to what "the street" is saying, by taking the consensus view (often some filtered average/mean of equity research projections usually provided by Bloomberg, FactSet or Capital IQ for liability reasons, but which may be "handspread" in some situations by actually pulling the specific numbers from the latest available research reports from several analysts and calculating the mean). I hope that helps answer your question but happy to answer any follow-ups too since I'm always glad to share what I know about the topic
  - serjester 2y ago
    That’s super helpful - so basically what other deals are going on in the market and how they’re being structured? Which makes sense - seems like Perplexity will always cater towards your average retail investor, there’s just too much complexity and cost to acquiring the type of data a professional cares about. Seems like that will need a to be its own platform.
    - airstrike 2y ago
      > That’s super helpful - so basically what other deals are going on in the market and how they’re being structured? That's one of the rows of the football field. Actually one I forgot to mention, often called "precedent transactions". You can see some examples of these slides if you scroll down to "Why these slides are made" here https://www.alexanderjarvis.com/investment-banking-slide-examples-of-football-field/ https://www.alexanderjarvis.com/investment-banking-slide-exa... But when I mentioned relative valuation or trading comparables, I meant looking at similar public companies today and what their implied valuation is based on their current share price (more about that here https://news.ycombinator.com/item?id=41862295 https://news.ycombinator.com/item?id=41862295) Those relative valuation methodologies are different so-called "intrinsic" valuation methodologies like DCF or discounted equity value, which just look at the company you're valuing and do some math "in a vacuum" to get some implied value per share. > Which makes sense - seems like Perplexity will always cater towards your average retail investor, there’s just too much complexity and cost to acquiring the type of data a professional cares about. Seems like that will need a to be its own platform. I agree, but there's definitely a lot of room for automation in the professional space. Unfortunately I can only tackle one startup at a time so that's like ~third on my list of revolutionary ideas that I'll get to one day ;-)
- tim333 2y ago
  Warren Buffett is famous for reading the annual reports, basically all of them and starting from the back where you tend to get the embarrassing stuff in small print. He also reads mainstream press - wsj, ft etc.
infecto 2y ago
I am always surprised companies create these distractions in their product. Agree on all your points. Little to no value in this tool based on the data they listed. All of these things already exist and for anyone doing work of any value, you would already have these datasets at your fingertips.
coffeeandhn 2y ago
Is there a "backwards" financial data service you'd recommend instead? I've been researching a bit and everything I could find was basically APIs that charged you by the number of API request calls to extract the dataset bit by bit. First the tickers, then the aggregates... and so on.
- airstrike 2y ago
  - $$$$ Bloomberg - $$$ FactSet - $$ Capital IQ Depends on how much money you have and what your needs are but that's basically it
deleted 2y ago
[deleted]
sirsinsalot 2y ago
That's a lot of "this won't work" without very much "here's what does work" leading me to conclude this is bluster and ego. I always hear these finance people dick waving about how crap everyone else's methodologies are without examples of their own. This leads me to conclude it's all snake oil anyway. So I'm asking, speaking as a former M&A financial advisor... What _does_ work?
- immibis 2y ago
  nothing. There is no way to predict the stock market. Even the way you're probably thinking of. Even the ones in the replies to this comment. Even the really basic ones and the really advanced ones.
  - altdataseller 2y ago
    This. If something "worked", then nobody would share it, or it's so popular that everyone has everyone applied it, and it doesn't work anymore.
  - jdhwosnhw 2y ago
    The existence and success of the Millenium fund is a (probabilistic, to be fair) disproof of your assertion.
    - FridgeSeal 2y ago
      Tbf, I’ve had friends in finance describe the Millennium fund (now Medallion fund I think?) as operating in a very, very specific niche of the market. Probably helps that it’s limited to a very select group. Its extraordinary impressive for sure, but I don’t think it is widely applicable or comparable.
    - immibis 2y ago
      Outlying returns can be produced by pure chance, or also by cheating.
- yifanl 2y ago
drexlspivey 2y ago
Historical financial data is used for calculating correlations between assets, historical volatility, stress testing, VaR etc. All very useful if you follow any sort of risk management when constructing a portfolio.
- airstrike 2y ago
  That's pretty much just stock prices, not 10-Qs and 10-Ks. And it's already available elsewhere. For those use cases, you need databases and data sources, not LLMs and RAGs.
eclipsetheworld 2y ago
While I agree with your statement and recognize that, for now, Perplexity has only introduced a financial information platform comparable to Google Finance or Yahoo Finance, the true value of any forward-looking financial model is rooted in the depth of the qualitative research supporting it. Building a useful forward looking financial model mostly involves qualitative analysis. This means thoroughly examining the company's and competitors' 10-Ks and 10-Qs, digesting industry reports, understanding the company’s business model, breaking down the underlying mechanics of the income statement, balance sheet, and cash flow statement, identifying the core processes driving value creation, forming solid hypotheses on how the business will evolve, etc. I believe Perplexity, as an advanced answering engine, provides a strong foundation for supporting this kind of in-depth research and hope to see the platform evolve into this direction.

serjester 2y ago

I don't touch finance, but I'd be curious to have you elaborate on the data sources that a professional does care about.

infecto 2y ago
They care about anything that helps give insight into the future. Its still obtainable data but that is where the edge comes from, taking unique data and applying your way of thinking (models) to it. This could be anything and everything that relates to the company/industry you are looking at. You take lots of different bits of information and distill it into a model. If you are in the automotive space, maybe you care how US policy is looking for China. To put it differently, historical financials, K/Qs are all data points that have been commoditized and you can pull it instantly.
airstrike 2y ago
It depends on whether you're publicly sharing your valuation work or confidentially advising a client about valuation. The former is what equity research analysts do at major investment banks (like Morgan Stanley, BAML, JP Morgan, etc.) and boutique / middle-market research firms (Stifel, Cantor Fitzgerald, Raymond James, Guggenheim, etc.). Google has led me to this LinkedIn post with a long list of equity research firms which seems accurate and credible after skimming it briefly: https://www.linkedin.com/pulse/most-comprehensive-list-sell-side-equity-research-firms-richard-toad-0hllc/ https://www.linkedin.com/pulse/most-comprehensive-list-sell-... The latter is what I used to do as an M&A advisor. Basically the "I want to buy company X, how much should I pay?" or "I may be interested in selling / people are reaching out expressing interest in my company, how much am I worth?" type of scenarios, plus some other more complex but not necessarily more fun things like merger of equals and what have you. In these situations, the analysis tends to be more of a "let's look at it from all angles" which usually gets distilled into a one-page summary nicknamed "football field" showing ranges of values according to various methodologies. Things like DCF, discounted equity value, relative trading multiples (also called "comps"), LBO (also called the "floor valuation") all get featured and are the standard metrics on which an advisor's view is supported. As an advisor, I never came up with my own projections for valuation, because that would open the door for litigation so it's just not done. Instead, we point to what "the street" is saying, by taking the consensus view (often some filtered average/mean of equity research projections usually provided by Bloomberg, FactSet or Capital IQ for liability reasons, but which may be "handspread" in some situations by actually pulling the specific numbers from the latest available research reports from several analysts and calculating the mean). I hope that helps answer your question but happy to answer any follow-ups too since I'm always glad to share what I know about the topic
- serjester 2y ago
  That’s super helpful - so basically what other deals are going on in the market and how they’re being structured? Which makes sense - seems like Perplexity will always cater towards your average retail investor, there’s just too much complexity and cost to acquiring the type of data a professional cares about. Seems like that will need a to be its own platform.
  - airstrike 2y ago
    > That’s super helpful - so basically what other deals are going on in the market and how they’re being structured? That's one of the rows of the football field. Actually one I forgot to mention, often called "precedent transactions". You can see some examples of these slides if you scroll down to "Why these slides are made" here https://www.alexanderjarvis.com/investment-banking-slide-examples-of-football-field/ https://www.alexanderjarvis.com/investment-banking-slide-exa... But when I mentioned relative valuation or trading comparables, I meant looking at similar public companies today and what their implied valuation is based on their current share price (more about that here https://news.ycombinator.com/item?id=41862295 https://news.ycombinator.com/item?id=41862295) Those relative valuation methodologies are different so-called "intrinsic" valuation methodologies like DCF or discounted equity value, which just look at the company you're valuing and do some math "in a vacuum" to get some implied value per share. > Which makes sense - seems like Perplexity will always cater towards your average retail investor, there’s just too much complexity and cost to acquiring the type of data a professional cares about. Seems like that will need a to be its own platform. I agree, but there's definitely a lot of room for automation in the professional space. Unfortunately I can only tackle one startup at a time so that's like ~third on my list of revolutionary ideas that I'll get to one day ;-)
tim333 2y ago
Warren Buffett is famous for reading the annual reports, basically all of them and starting from the back where you tend to get the embarrassing stuff in small print. He also reads mainstream press - wsj, ft etc.

infecto 2y ago

I am always surprised companies create these distractions in their product. Agree on all your points. Little to no value in this tool based on the data they listed. All of these things already exist and for anyone doing work of any value, you would already have these datasets at your fingertips.

coffeeandhn 2y ago

Is there a "backwards" financial data service you'd recommend instead? I've been researching a bit and everything I could find was basically APIs that charged you by the number of API request calls to extract the dataset bit by bit. First the tickers, then the aggregates... and so on.

airstrike 2y ago
- $$$$ Bloomberg - $$$ FactSet - $$ Capital IQ Depends on how much money you have and what your needs are but that's basically it

deleted 2y ago

[deleted]

sirsinsalot 2y ago

That's a lot of "this won't work" without very much "here's what does work" leading me to conclude this is bluster and ego. I always hear these finance people dick waving about how crap everyone else's methodologies are without examples of their own. This leads me to conclude it's all snake oil anyway. So I'm asking, speaking as a former M&A financial advisor... What _does_ work?

immibis 2y ago
nothing. There is no way to predict the stock market. Even the way you're probably thinking of. Even the ones in the replies to this comment. Even the really basic ones and the really advanced ones.
- altdataseller 2y ago
  This. If something "worked", then nobody would share it, or it's so popular that everyone has everyone applied it, and it doesn't work anymore.
- jdhwosnhw 2y ago
  The existence and success of the Millenium fund is a (probabilistic, to be fair) disproof of your assertion.
  - FridgeSeal 2y ago
    Tbf, I’ve had friends in finance describe the Millennium fund (now Medallion fund I think?) as operating in a very, very specific niche of the market. Probably helps that it’s limited to a very select group. Its extraordinary impressive for sure, but I don’t think it is widely applicable or comparable.
  - immibis 2y ago
    Outlying returns can be produced by pure chance, or also by cheating.
yifanl 2y ago

drexlspivey 2y ago

Historical financial data is used for calculating correlations between assets, historical volatility, stress testing, VaR etc. All very useful if you follow any sort of risk management when constructing a portfolio.

airstrike 2y ago
That's pretty much just stock prices, not 10-Qs and 10-Ks. And it's already available elsewhere. For those use cases, you need databases and data sources, not LLMs and RAGs.

eclipsetheworld 2y ago

While I agree with your statement and recognize that, for now, Perplexity has only introduced a financial information platform comparable to Google Finance or Yahoo Finance, the true value of any forward-looking financial model is rooted in the depth of the qualitative research supporting it. Building a useful forward looking financial model mostly involves qualitative analysis. This means thoroughly examining the company's and competitors' 10-Ks and 10-Qs, digesting industry reports, understanding the company’s business model, breaking down the underlying mechanics of the income statement, balance sheet, and cash flow statement, identifying the core processes driving value creation, forming solid hypotheses on how the business will evolve, etc. I believe Perplexity, as an advanced answering engine, provides a strong foundation for supporting this kind of in-depth research and hope to see the platform evolve into this direction.