
Hedge funds use satellite images to beat Wall Street - jonbaer
http://newsroom.haas.berkeley.edu/how-hedge-funds-use-satellite-images-to-beat-wall-street-and-main-street/
======
ISL
As an occasional retail trader, it doesn't bother me at all that other market
participants are trying to be better informed. In fact, it means that market
prices are more likely to be properly-priced.

We should not aspire to drag hedge-fund research down to the Main Street
level. If there is a place for government in this context, it is to fund the
education necessary to help retail investors learn a) how to take beneficial
approaches to investing and risk, b) to appreciate the realities of trading
against professional investors, and c) to understand how to conceive, test,
and implement their own hypotheses in the real world.

In general, an informed market is a healthy one.

~~~
logifail
> As an occasional retail trader, it doesn't bother me at all that other
> market participants are trying to be better informed. In fact, it means that
> market prices are more likely to be properly-priced.

What about companies that find out about your retail trade _before it 's even
executed_, and are able to act on that information to profit from your very
intent to trade?

~~~
tryptophan
This is called front running and is super illegal.

~~~
logifail
> This is called front running and is super illegal.

Are you sure it's illegal if it's a hedge fund with access to order flow from
a third party?

"Front running is one of the easiest ways to make money. It's essentially
insider trading, except the inside information isn't about corporate activity;
the information is about client order flow. In this case, since the index
investors are not their clients, it is legal for hedge funds and any
independent traders to front run them. One could argue that the hedge fund
managers are doing nothing wrong; it's the investors' fault for acting
irresponsibly. The problem with that argument is that many of these investors
don't have a clue about what is happening to them." [0]

[http://www.dark-bid.com/hedge-funds-front-running-
investors....](http://www.dark-bid.com/hedge-funds-front-running-
investors.html)

~~~
tryptophan
That article points out that "front running"(which it isn't) by HF may cost
.2% a year. Its probably less than that. Bid/ask spreads are often around that
percentage. This is just a trading cost. Nothing nefarious is happening here.
The spread may go up if a large fund is buying, but this is only natural due
to supply and demand. These HFs are just providing liquidity and "charging" a
small fee for doing so. If nobody did this, trading costs would probably be
even higher. There is extreme amounts of FUD about HFT and market making for
some reason.

Now about the Russel indexes - the article has a point there. They are
notoriously shitty indexes. Nobody should be putting money into those. But
still - nothing illegal(nor should it be). This is yes, clearly a case of
"investors' fault for acting irresponsibly". Nobody is forcing them to use
these indexes and this information isn't hidden anywhere. Last thing we need
is 100 more regulations.

~~~
logifail
> These HFs are just providing liquidity and "charging" a small fee for doing
> so

HF traders provide liquidity and market-making when it suits them. Doesn't
that stop when it doesn't?

~~~
shitgoose
People rarely do something that doesn't suite them:) What is the point?

~~~
gingabriska
This hangs on an assumption that people are rational, they are not.

------
bluGill
Nothing new here other than satellites. Years ago (1990s?) Peter Lynch - at
the time manager of the largest mutual fund followed his daughters into a
shopping mall for back to school - his daughters didn't go into GAP stores so
he went back to the office and sold as his shared of GAP. His fund beat
everyone else by a large margin because GAP stocks dropped a month latter when
they announced the earnings drop.

This is better of course, but nothing you can't do in some other way with a
little work.

~~~
65934
Where did you get this anecdote from? Googled it, couldn't find anything

~~~
lionsdan
Similar story from 1993

"Some of Mr. Lynch's best picks came from watching his three teen-age
daughters shop at a nearby mall,..."

[https://www.baltimoresun.com/news/bs-
xpm-1993-03-09-19930680...](https://www.baltimoresun.com/news/bs-
xpm-1993-03-09-1993068075-story.html)

------
sib
Something that is _visible from space_ \- the number of cars in a parking lot
- seems to be the very antithesis of "non-public" information. I think
Berkeley missed the thread on this one.

~~~
whymsicalburito
Yes, but it's not like the cars are ONLY visible from space. You are welcome
to organize a large group of people to travel around to parking lots and count
cars and then privately share your findings. What the funds are doing is just
a more efficient version of that. It's all public information.

~~~
harimau777
If the information is only shared privately, then it seems to me that it is by
definition not public information; regardless of what the law says.

~~~
ironSkillet
What is your definition of "public information"? It's trickier than you may
think to define it precisely. For example, is any processed version of "public
information" also public information?

------
harryh
This article is very wrong to confuse "material non-public information" with
hard to acquire information like counting cars in satellite photos.

Remember the Matt Levine test: insider trading is about theft, not fairness.

When a company insider uses private company information to trade (or colludes
with an outside party to do so) they are stealing material non-public
information from the company for their own benefit. Nothing of the kind is
happening when a hedge fund (or anyone else) acquires and analyzes satellite
photos.

There is no expectation of fairness in the stock market. All sorts of people
work very hard and spend a lot of money to develop proprietary information in
the pursuit of stronger returns. There is nothing at all wrong wit this,
especially because it means that in the end we all get more accurately priced
securities.

~~~
mochomocha
> _When a company insider uses private company information to trade (or
> colludes with an outside party to do so) they are stealing material non-
> public information from the company for their own benefit._

I must be dumb, but I don't understand this statement... How is that a
"theft"? You knowing that I eat 2 eggs in the morning when I don't want people
to know is not you "stealing" information from me.

~~~
piker
You're stealing value by profiting on information which you had some duty to
protect. For example, a company executive who knows that one of the company's
products is about to be recalled generally owes a duty of loyalty to the
company not to profit off of that knowledge to the disadvantage of the
company.

~~~
mochomocha
From whom is it stealing value from? Random other potential investors on the
stock market? Since the parent comment is specifically mentioning semantics,
this is the distinction "theft" vs "fairness" that I don't really understand.

From an outsider perspective like me (I don't own stocks except through my
401k), Wall Street seems like a game of information asymmetry anyway where the
only winners have an information edge at some moment in time. Now the question
is about how "fairly" was the information obtained which seems pretty blurry
to define to me.

~~~
squaresmile
From the shareholders (owners) whom they have duty to.

------
waterside81
There's a whole marketplace where companies with so-called "Alternative-data"
sell their datasets to quant traders. Satellite imagery of farms, passenger
traffic through airports, all sorts of random, seemingly disparate data.

~~~
floatrock
The reason your free weather app asks for your location data isn't for "local
weather forecasts". Well, it is, but that's a cost for them. The income comes
from keeping that location tracking on all the time and selling which stores
and dentists you go to. Someone can link the NYT story from a few months ago
when this came to mainstream attention.

Hedge funds also fly cesnas over refinery fields to look at the levels of
those big tanks you see off the highway... most of them have roofs that move
up or down with capacity, and those that don't you look at with an infrared
camera to look at relative temperature differences.

~~~
knd775
Some employees of a credit card company got in trouble for this sort of thing
a while ago. They were running queries against customer transactions to figure
out sales ahead of earnings calls. For example, they figured out that Chipotle
was going to beat expectations and bought a ton of stock just before the
earnings call. (This very predictably got the attention of the SEC)

~~~
Thrymr
Previous discussion of that event on HN:
[https://news.ycombinator.com/item?id=8966817](https://news.ycombinator.com/item?id=8966817)

------
jandrewrogers
The same thing has been done with mobile data for many years, with higher
fidelity. Unlike with satellite imagery, the measurement is almost continuous,
you can accurately characterize which subpopulations are changing behavior,
and you can sometimes characterize the change in behavior e.g. shopping
more/less, spending more time at different retailers/competitors, etc.

Remote sensing like satellite is excellent for other similar types financial
modeling applications, but I wouldn't use it for modeling retail as it is much
too coarse.

------
xtacy
Reminds me of this article from Thasos Group that analysed smart phone signals
at a Tesla factory to infer overtime work:
[http://thasosgroup.com/blog/thasos-data-tesla-
wsj/](http://thasosgroup.com/blog/thasos-data-tesla-wsj/)

------
module0000
Not to duplicate other opinions, but I'll add my similar one..

This is _GOOD_ for the market(the practice, _not_ the article). Price
manipulation is a real thing, and fact-based research such as this means
prices are more likely to reflect reality. This type of analysis is what we
need more of! It's not opinion-based drivel from a talk show or blog, it's
empirical data, analyzed impartially.

edit: typo

------
rococode
I went to a recruiting talk by Two Sigma a while back where they discussed the
same thing as an example of "look at this cool stuff we get to work on". They
had slides with satellite images of some parking lot and showed how they could
segment cars, deal with car-like things on roofs, map regions of parking lots
to the right stores, handle different conditions like snow, etc.

From a technical perspective it's actually an interesting problem because
there are so many things to consider. Really makes you notice how
disadvantaged retail traders are, though. I think traditionally a lot of hedge
fund strategies are kept pretty secret, but this one is so out of reach and
technically difficult for most people that they don't really care if it gets
out.

~~~
mc32
How do they deal with underground parking in urban areas especially?

~~~
mgfist
You can count cars going in and out.

~~~
mc32
Aren’t they using LEOs for this? How do they get it to hover and capture
traffic patterns?

Or you might be saying having alternative methods to count traffic like
cameras or other ground based counters.

------
lolc
I find it somewhat interesting to what lengths traders go for profits. Cue
people who explain how this makes the markets more efficient.

Something I'm wondering about though: The article makes it sound like this is
some new unfair advantage of the big traders. But isn't this an old game? If
you can afford to acquire and process the data you're likely going to beat the
other participants. That was always true. I don't see what's qualitatively
different here. Is there?

~~~
roywiggins
It increases the information that makes its way into the markets and makes it
more likely that the price reflects the what's happening in the real world.

A world in which nobody bothered to check whether a company was actually
producing anything would turn the stock market into a collective guessing
game.

~~~
ryandrake
The stock market _is_ a collective guessing game. These stories suffer from
survivorship bias. For every investor A you hear about who did X and was
successful, there are investors B, C, and D who also did X and were not
successful, and don’t get articles written about them. There are also
investors E, F, and G who don’t do X and may be successful or unsuccessful.

Finding someone successful at stock picking and asking him what he did to be
successful is like finding that 1 out of 1024 person who flipped a coin heads
10 times in a row and asking him what makes him such a great coin flipper.

~~~
roywiggins
By that argument, there'd be no successful insider traders, but clearly you
_can_ beat make money if you're an insider. You know that the company is
(doing well/doing bad) before everyone else does, you trade on that, you make
money from the people who are in the dark.

The hard part is not regressing to the mean, and _consistently_ beating the
market, which sure, nobody can do. But if I learn today that a stock is going
to rise tomorrow, and I buy as much as I can, the stock will rise a bit today.
So the market has become a little bit more efficient.

That I happen to then base all my subsequent trades on overconfidence and
tossing darts doesn't retroactively invalidate that trade. You can even make a
market more efficient on _losing_ trades- you short a stock, it goes down a
bit, but you spend more maintaining the short than the stock goes down. Then,
the stock crashes after your short expires. Oops! But your prediction was
still _partly_ right, and that information was integrated into the price a bit
earlier than it would have been without you.

------
totaldude87
I think i saw the same thing in the showtime series "Billions"? where Taylor
uses this information , thought this is another level of technical analysis :)

Moral ethics aside, this looks legal?!, even if the shorts tank shares based
on images of car parking lots..

~~~
tryptophan
Watching Billions to learn about what hedgefunds do is like watching Silicon
Valley to learn how to make a startup.

~~~
alecco
But it's a good way to learn old cliches in both cases.

------
dageshi
The tone of the article seems like it has an axe to grind. Is it really that
much of a surprise that very well capitalised investors have significant
advantages of "main street" investors?

That's always been the argument for index funds for regular investors, you're
never going to compete with hedge funds, why waste your time?

------
client4
This article reminds me of tracking corporate jets and seeing if they were
doing tarmac M&A talks. There are a lot of interesting opportunities for
'corporate information side-channel' attacks and it would be a great
opportunity for a new information based corporation to corral this information
and sell it.

------
est31
Hedge funds do a ton of crazy research like this. I remember reading about
hedge funds buying new cars only to sell them immediately after. They were
only interested in their serial numbers which they used to estimate the count
of sold cars of a specific model using the german tanks method. Before the
sales numbers are out, information like this is very valuable.

~~~
gist
> about hedge funds buying new cars only to sell them immediately after

To get this data you wouldn't need to buy the cars. So it sounds like they did
something that sounded like that as opposed to what you remember. Even w/o
social engineering you could quite easily get some dealer to give you that
type of information (or someone working there or otherwise).

~~~
sokoloff
You could walk the lot and look at the corner of the windshields...

------
Bakary
"I [suspect] that we are throwing more and more of our resources, including
the cream of our youth, into financial activities remote from the production
of goods and services, into activities that generate high private rewards
disproportionate to their social productivity. I suspect that the immense
power of the computer is being harnessed to this 'paper economy', not to do
the same transactions more economically but to balloon the quantity and
variety of financial exchanges." \--James Tobin, July 1984

------
pmarreck
This was apparently a plot point in Billions.

There's market opportunity here. Off the top of my head:

1) Drone photos instead of satellite photos to get at the data cheaper

2) ML counting of cars

3) Some way to legally sense the number of cellphones within a given radius
(can possibly be combined with a drone)

4) Simply aiming a network cam at the entrance/exit from across the street and
counting the number of people that enter and exit via ML

All of these could get you at public data that highly correlates with retail
sales

~~~
jrochkind1
Why would drones be _cheaper_ than satellite photos? If they were, wouldn't
the hedge funds already be doing that instead? They clearly seem not to me.

The issue, if there is one, is that it is not cheap to get this data on a
large enough scale to be useful.

I suppose it's possible a sampling of just a few parking lots would be
representative enough to be useful? In which case you don't need drones, you
can just go to the parking lots. Which is apparently what Sam Walton did? I
dunno. If that were good enough, again I'm not sure why the hedge funds would
be paying for sattelite photos instead.

~~~
csteubs
You're correct that drones are more expensive than satellite imagery at scale
--I'm currently working on a startup in this space that cuts the cost of
imaging by between 100x and 10,000x depending on the target location.

------
Kapura
I think the most important part is this quote:

>“What we found is that it’s a gain for large sophisticated investors who can
afford the substantial costs of acquiring and processing big alternative data”

This is yet another example of wealth accumulating, of rich actors getting
richer faster than poor ones. Without some controls on the behaviours that
allow wealth to accumulate, it will further concentrate among the wealthy. I
would argue that is a bad outcome.

~~~
airstrike
Just invest in a Vanguard fund and you'll be fine. You don't need to start
your own fund, just like you don't need to be your own doctor.

------
erickerr
[https://secondmeasure.com](https://secondmeasure.com) is like "counting cars
in parking lots" on steroids.

------
hnburnsy
This was a better story from 2016 on how they are deploying the satellites...

"A company called Planet Labs Inc. has launched a small constellation of what
it calls “cubesats” that can deliver much more frequent imagery of
economically sensitive spots than traditional satellites. Those spots include
retailers’ parking lots, oil-storage tanks or farmland"

[https://www.wsj.com/articles/satellites-hedge-funds-eye-
in-t...](https://www.wsj.com/articles/satellites-hedge-funds-eye-in-the-
sky-1471207062)

~~~
eeZah7Ux
_sigh_

------
sj3k
A company in my town,
[https://www.descarteslabs.com/](https://www.descarteslabs.com/)

Is becoming a popular choice for Hedge Funds seeking this kind of data.

------
ris
So of course the next big business idea is large unrollable printed vinyl top-
views of cars. Get your employees to move them around a bit every morning,
company's stocks start to rise.

Anyone who ever considers this sort of thing to be "unfair" or "cheating"
should also consider how comparatively easy it is to make a nonsense of.

Who wants to go halfs with me on a large-format printer?

------
opportune
I almost worked for a satellite imaging company that does this stuff. It kind
of bothered me that rather than providing farmers or the government with this
extremely rich agricultural data, they were just contracted out to specific
hedge funds that would use the data to give them an edge in trading. I feel
like that's not the best use of that kind of data to society

~~~
driverdan
If the farmers or governments were willing to pay the same as hedge funds I'm
sure they would sell it to them too.

------
anonu
They've been using satellites for over a decade now. The fact that you're
hearing about it means there's not much value in this type of data anymore....
I reserve some room for being wrong here.

This type of data is ultimately used to predict revenue for consumer
companies. Cellphone data and wifi data is much better for that type of
prédiction.

~~~
goodfight
The information about the state of hedge funds takes time to travel, anyone
that has been in the quant field knows about these practices. Now that data
science and machine learning are becoming more accessible to the public, I'm
not surprised that articles are being made on it. There is value in this data
now that we have better data processing abilities. There was less technical
value in the past and now there is less competitive value in the present.

------
alphagrep12345
There's also a YC company,
([https://secondmeasure.com/](https://secondmeasure.com/)), that sells
anonymized credit card data to hedgefunds so that the funds can directly check
the volume of trade happened at walmart, etc.

------
nwah1
I remember seeing stories about programmers with access to credit card
databases getting indicted for trading on the information. This is a legal
version of the same thing, and also probably any attempt to make it illegal
would be unenforceable.

~~~
dillonmckay
‘Outsider information’?

~~~
nwah1
Precisely. It's unfair for the little guys, but lot's of stuff is unfair...
such as most of high speed trading, and the people who use arbitrage to skim
from the index funds that use predictable purchasing.

~~~
eeZah7Ux
...which doesn't make it any more acceptable.

------
ForHackernews
Do hedge funds really consider themselves distinct from 'Wall Street"? I know
they aren't always located in lower Manhattan, but as a metonym, Wall Street
would commonly be taken to include all of high finance.

------
citilife
I use discussions on the internet...

[https://projectpiglet.com/](https://projectpiglet.com/)

If it's "public" it's fair game for the stock market. My favorite example was
the company Quandl[1] which was monitoring charted flight patterns of
companies to determine if a company in the area was going to be purchased.

[1] [https://blog.quandl.com/corporate-aviation-
intelligence/airc...](https://blog.quandl.com/corporate-aviation-
intelligence/aircraft)

~~~
dna_polymerase
Of course you do. You developed that service. Maybe you should mention that in
such posts...

------
yial
I remember reading years ago about similar data being used to monitor and
track the recession (in the US) and potential recovery from.

Especially as it related to big-box retailers.

------
notlukesky
Nothing unfair at all. Savvy investors have used many tools in the past as
well. One analyst at Tiger Fund had got a job at Macy’s in NYC in the
cosmetics department before making a decision on whether to have a position on
L’Oreal. Unless they have time to do their homework etc.. main street
investors should stick to index funds or bonds.

------
lil-scamp
This example of counting cars has been around the geo industry forever, and
satellite imagery is pretty cost prohibitive to get on a regular basis. I'd be
surprised if hedge funds haven't already moved on to purchasing location-based
data (ie mobile phone data) to get even more accurate counts of people in box
stores.

~~~
50656E6973
That seems to be the case:

[https://news.ycombinator.com/item?id=17081684](https://news.ycombinator.com/item?id=17081684)

~~~
lil-scamp
Wonder what the pricing in on that location data is for financial sector
customers, and if it's cheaper than a regular purchase of satellite data. It'd
be interesting to compare the mobile location data to the satellite data and
find the deltas— that would make it a lot easier to build efficient models w/
existing satellite if it's cheaper.

------
jetti
I was listening to a podcast on trading where there was a quant trader as a
guest. He mentioned that quant firms have been doing this for years. The guest
mentioned that this is no longer an advantage in quant trading as it is common
knowledge and can be done by other firms.

------
fyz
Some of the comments conflate retail traders with regular Joes and Janes. A
lot of hedge fund investor money comes from pension funds who are placing
retirees' money either directly or indirectly into hedge funds.

HF compensation is different can of worms.

------
socialist_coder
Theoretically you could fake a bunch of cars moving around in the parking lots
of a failing store. Wait for the hedge funds to bite and move the stock price
up... then boom, dump your shares.

------
cgy1
I think this was a storyline in the TV show Billions.

~~~
noir_lord
It was, something to do with chip fabrication iirc.

This is definitely a case of art imitating life though.

------
rmah
Um... hedge funds are part of "wall street". Silly clickbait headline... sigh

------
aiyodev
Retailers should try painting images of cars in their parking lots.

~~~
kennyloginNTH
They could splurge for some covered multi-level parking. That would be nice.

------
peteretep
How is it that Berkeley can't run https on their webservers?!

~~~
secabeen
That site is hosted off-campus, coordinating obtaining the cert from the
campus CA and then getting it into their off-campus host is probably just a
low-priority. They should still do it, though, being off HTTPS is going to
hurt their SEO soon enough.

------
maitredusoi
A soooooo good idea, I wouldn't have thought about it ...

------
joshu
i was pitched a dataset of this almost 20 years ago. not new.

------
238sjni9
what surprises me is how sat images are more cost effective than digital
dragnets.

------
paradox1234
Honestly, I'm not particularly impressed. There are a lot of other trading
edges that could be found for a lot less hassle and money, but I guess that's
also the beautiful thing about the market - more ways to skin a cat than
anyone can imagine, and it's also not a zero sum game.

~~~
kami8845
> There are a lot of other trading edges that could be found for a lot less
> hassle

What are you thinking about?

~~~
TomMarius
:^)

