Satellite imagery is providing valuable insight to investors
Buy the rumor, sell the news. Bulls make money, bears make money, pigs get slaughtered. Sell when people are greedy and buy when they are fearful. These and about a hundred other stock market clichés are what you’re likely to hear if you ask a friend or family member for investing advice. Not to say that there isn’t some truth to such pieces of wisdom, but investors looking to turn a profit are often looking for advice that’s a bit more actionable.
In recent years, satellite imagery has become the place where investment banks and hedge fund managers turn for stock picking advice — a development that is not without a bit of controversy.
Why Satellite Imagery?
The aerial view provided by satellite imagery gives a unique perspective of businesses and insight into their health. Such a practice dates back at least to the early days of Walmart when Sam Walton was rumored to fly in a helicopter over his stores and count cars in the parking lot to determine how well they were doing. A similar practice done on a much larger scale was how RS Metrics, a pioneer in the field, got started in using satellite imagery to predict stocks.
Tom and Alex Diamond, who founded RS Metrics, bought archival images from Alex’s former employer DigitalGlobe and compared the number of cars in parking lots of major businesses such as Walmart, McDonald’s, and Lowe’s to their quarterly earnings reports. A correlation was found, and RS Metrics was born. Before long the company was employed by some of the businesses it observed through satellite imagery, as well as investment banks.
Examining pictures of parking lots leading up to an earnings call allows investors to anticipate whether the company will make or miss expected earnings and buy or sell accordingly. A study done by professors at UC Berkeley found that such an “informational advantage yields 4 to 5 percent in the three days around quarterly earnings announcements.” When carried out over an entire year and multiple investment opportunities, it proves to be an investment strategy that can make millions.
As a result of its success, the use of satellite imagery in investing has expanded beyond retail to include satellite, plane, and drone images of livestock and crops for agricultural investors, oil rig monitoring and transportation tracking for energy investors, mining operations for metal investors, and more. Multiple companies including DigitalGlobe, Clipper Data, UrtheCast, Image Sat International, and Ursa Space are now offering satellite imagery to investment firms looking for an advantage.
Unfortunately for individual investors, acquiring the satellite imagery is still very expensive. Even individual investors who have the know-how to compile the imagery and available data are unable to afford the information provided by satellite companies. To some, this represents an unfair advantage provided by material information that has not been made public — similar to insider trading.
Companies providing the images and the fund managers using them are quick to point out that using data from aerial pictures or from smartphone location data — as is the case with companies such as Orbital, Thasos Group, and Placed — is far different from receiving a tip from a shipping company employee regarding cargo. Furthermore, for many of the most successful institutions to make use of the satellite imagery or location data, they use it as just one part of their algorithm which includes several other data points.
Regardless, as more satellite companies continue to enter the market, the technology will become cheaper and more accessible to all investors. Eventually, real-time satellite imagery could be available to all investors via an inexpensive smartphone app. When that happens and the playing field is leveled, the onus will be on individual investors to find other appropriate data to inform their financial decisions.
Although it has most recently been used by large investment firms with the capital to make sizable investments and purchase real-time satellite imagery, using aerial views and geospatial data to inform businesses and investors holds a lot more promise. In the same way the data has been used to forecast earnings calls for investors, it can be used by companies in predictive analytics to anticipate customer demand, enhance the supply chain, prepare for weather events that affect shipping and crops.
In the meantime, investors can anticipate the day when they have access to satellite imagery on their own while taking advantage of investment software such as Openlink and eSignal which incorporate satellite imagery into their own algorithms, creating customizable charts to guide investing. At least that’s one way to begin competing with the big boys.