Four financial data analysis lessons from Las Vegas
You may not think that a Las Vegas casino would be the place to learn a lesson on data management and processing, but it is actually one of the most visible symbols of how data can be efficiently processed and turned into a working business model that recorded gross revenues of $6.2 billion in 2012. Las Vegas casinos use many of the same modeling techniques with their data as you would find in a system that featured financial data analytics. The key to drawing the correlation between the two is to understand both how the data is processed, and what is done with it afterwards.
1. Know your members
For a casino, data can come from a variety of different sources, but one of the biggest sources of data comes from rewards programs which can be found in just about every casino in Las Vegas. Each consumer can be thought of as a single entity, much the same way a financial analyst may focus on a single stock. Casinos use their rewards program as the mechanism to obtain a plethora of information about each customer who signs up for it. In much the same way, a financial data analytics tool can be used in order to get quite a bit of information about a single stock, fund, or other financial vehicle.
Some general information gathered from the rewards program like date of birth, gender, and place of residence may not seem like much on the surface, it actually starts to paint a picture of which specific customers the casino would most likely see a high rate of return on if they marketed towards them. According to the American Gaming Association, more men visit casinos than women, and the average age of a casino patron is older than the average population age of people 21+. An analyst looking to spend their money wisely for the best rate of return could start grouping stocks into categories which the data may show will have a better chance of having a high rate of return.
2. Look for patterns
More detailed knowledge about a patron can be gleaned from watching what they play. If a certain individual is spending and losing thousands at a slot machine, which will generally carry a high house edge, that casino would make a strong play to get that customer’s return business, giving them free hotel stays, or assigning them a host. Armed with this information, the casino is going to see a positive rate of return an average by giving them something for free, basically like investing in them. In much the same way, a fund or loan manager that can get the data necessary to make a similar call with a particular loan, stock, or commodity can expect to see a positive return on their investment as well, since the risk, inherent with any kind of investment or loan, will be negated greatly.
3. Build for success
In any portfolio, there will be assets that rise and value and assets that drop in value from year to year. A good fund manager can use financial data analytics to increase their position in the top performing investments, while scaling back their position in assets that aren’t doing as well. Casinos do something very similar with the data they gather dealing with the layout of the facility. Think about the last time you were in a casino, you walk onto the gaming floor and what is all around you? Most of the time, you will be surrounded by slot machines. Casinos have figured out that a player who wants to play one specific game will walk to wherever that game is in the casino. On the other hand, customers who just want to start playing something right away are more likely to head to what is closest to them.
4. Adjust your investments accordingly
By setting up slot machines, by far the most profitable part of any casino, accounting for nearly 70% of profits, near the entrance, people looking to sit down and gamble will be doing so at a game where the house edge is anywhere between 2-15%. The casinos have effectively increased their position in the most profitable asset in their “portfolio”, by analyzing and acting on the data presented to them. At the same time, they put their least profitable games, generally table games like blackjack and poker, either in the back, or somewhere that is convenient for them. You can use financial data analytics to do basically the same thing. If the data you gather shows that a proven earner looks to keep increasing in value, you can adjust your investments accordingly, taking some from the weaker assets and assigning it to the stronger ones.
Your best bet for financial data analysis
Building a financial data analysis system can be a difficult task, but with the right team and the right assets, anybody can win big. IKANOW provides an open source analytics platform that allows users to organize, enrich and harvest data to create actionable intelligence for their financial employers and clients.
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