Even within the pre-digital age, financial news travelled fast. Humans' hard-wired passion for both gossip and profit have long combined to create stock tips, trading floor rumours and market hunches a powerful force.
Potent not only due to the speed at which they travel, but because of their capability to not just reflect the market, but shape it too. In fact, towards the intelligent investor, knowing what is being said about the market is as essential as what the market is actually doing.
Sentiment, signals and shoeshine boys
One of the best examples of someone identifying and acting on the clues supplied by such market sentiment is JFK's father Joseph Kennedy Sr.
The roaring bull market of the 1920s was good to the founding father from the Kennedy dynasty, and like many he earned a collection of profit the seemingly endlessly rising market.
In 1929, because the market reached its frothy peak, Joe had an epiphany as he sat right down to have his shoes polished. While applying polish towards the Kennedy shoes, the shoeshine boy talked excitedly concerning the stock exchange and the preferred stock tips.
This unsolicited advice proved life-changing for the market titan; he promptly went back to his office and began unloading his stock portfolio.
In fact, he didn't just get out of the marketplace, he aggressively shorted it – and then designed a fortune in the crash to come.
Of course such signals seem obvious with the advantage of hindsight. The truth is no-one rings a bell when markets reach their peak. Investors are only able to base their decisions on the information at hand at that time.
The shoeshine boy's comments were not recorded for posterity, and while he might have lacked the Harvard degree, wealth and influence of Kennedy Sr, he was nevertheless an agent of that powerful but slippery concept – market sentiment.
Infobesity
Nine decades on, sentiment remains a strong directional signal for investors to follow along with and do something about.
The most conventional way sentiment continues to be put on trading would be to long stocks when positive surveys are being made about a company, and to short stocks when negative surveys are being made.
Clearly that principle has changed right into a fine art, and today's fund managers typically use multi-layered data strategies in which fundamental market information is overlaid with comprehensive sentiment capture and analysis.
The one snag would be that the digital revolution has turbocharged both the amount of sentiment information available, and also the speed where it travels.
Investors are confronted with an ocean of knowledge every single day. While a lot of it's freely available, not one individual could ever aspire to see – not to mention understand – greater than a tiny fraction of it.
To give a concept of the scale we're talking about, let's assume an investor holds 10 much talked about, publicly-traded stocks, because both versions is mentioned frequently by news or social networking.
Within just a few minutes, it isn't unreasonable to assume the stocks in this portfolio might be mentioned in 100 news media stories around the world – or 10,000 times on social media sites.
With an average joe able to read only one 600-word news article in those two minutes, you can observe how the almost exponential rate where details are being published means keeping up with everything that's being said doesn't seem possible.
In the face area of these overwhelming quantities of data and intelligence – or 'infobesity' as it's getting known in the market – it's tempting to dismiss such constant chatter as mere noise.
Symphony of noise
But although some, or perhaps much, of the information may be a distraction, together it is not even close to irrelevant. Together this symphony of noise is what best reflects – and shapes – the market.
Most intriguing of all, we're now arguably at a point where it will so more than the underlying macroeconomic reality.
Until recently central bankers revelled in their capability to result in the financial weather. Yet for the first four months of 2022, Mario Draghi tried without success to speak down the Euro. Instead the only currency rose steadily, hurting Eurozone exporters and throwing a spanner in the bloc's long-hoped for recovery.
Meanwhile Bank of England Governor Mark Carney's efforts to shepherd UK market expectations by issuing 'forward guidance' on the Bank's intended monetary policy failed to deliver the orderly calm he sought.
Dubbed the “unreliable boyfriend” by City wags after failing to stay with his much-trailed guidance, Mr Carney's pronouncements – initially pored over and given reverence – are actually greeted with cynicism as well as indifference.
The reason is the fact that in the current environment of political uncertainty and infobesity, there is no single, clear reference for the markets to follow. Markets are instead led by the hunches, emotions and actions of thousands, if not millions, of people.
In age Trump and Brexit, black swan events may come from anywhere; be they a rogue tweet from the President or an unexpected lead to an era-defining referendum.
Fundamentals – such as central bank policy, macroeconomic data or shareholder reports – provide only area of the picture.
While the large trading houses bristle with teams of highly-paid analysts who together absorb and focus terabytes of sentiment data, AI has become putting such power in to the hands of smaller scale investors.
Investment platforms like INFINOX now offer sophisticated private investors access to tools designed to use AI to ingest and analyse countless sentiment data points, and switch it into clear, understandable and actionable market intelligence.
While infobesity means the signs are not as easy to spot amid all of the background noise, paradoxically it also makes them stronger – as a sustained sentiment trend has the ability to move markets in a way few other things can.
That's why effective sentiment analysis, particularly when utilized in conjunction with traditional quantitative data, empowers investors to construct highly sophisticated and responsive investment opportunities.
As the AI revolution picks up speed, that power – previously the exclusive preserve of deep-pocketed investment houses – has been put within reach of all investors.