How 'Counting Cars' Became a Market Edge

The Weekend Edition is pulled from the daily Stansberry Digest.

Sam Walton loved looking at parking lots... from the air.

In the 1950s, he was in his 30s and looking to expand his small chain of Walton's five-and-dime stores in Arkansas and Missouri. So he took his research to the skies.

Always ambitious, Walton didn't want to waste time driving from town to town while scouting new locations. He bought a two-seat plane for $1,850 and flew above the traffic, following highways by air.

Walton used this strategy to scout out locations for hundreds of Walmart discount stores. And even after Walmart became a dominant retailer, he stuck to the strategy – but in an upgraded plane and for a different reason.

Walton began flying over stores from competitor Kmart so he could count the cars in the lots... And then he'd do the same with Walmart stores in the area.

If the local Kmart had more cars, it would tell Walton that his store was falling short... and he'd start trying to find out why.

Walton's longtime right-hand man Tommy Smith recalled these "research" flights in a podcast interview...

God bless the manager who had less cars than Kmart because [Walton] was stopping and going to go visit that store...

If we delivered the quality service and quality products at a lower price every single day with smiling faces and you spoke to the customers, there was no reason they would go anywhere else.

So, if you had a store that had less cars than your competition, there was a problem and [Walton] would stop and fix that problem.

It was an unconventional management strategy... But it worked. Walton was essentially looking at data that nobody else saw to strike fear into store managers and keep firsthand tabs on his business. "The airplane was one of his many competitive advantages," Smith said.

When Walton died in 1992 at age 74, he'd spent time as the richest person in the U.S., and he left generational wealth to his family.

And today, Walmart (WMT) is worth $1 trillion.

Years later, in 2018, a UC-Berkeley student brought up this story to his professor, Panos Patatoukas...

The comment reminded Patatoukas of something he'd witnessed in the markets.

He'd seen that Wall Street hedge funds had begun studying retailers' performance using a strategy just like Walton's, but even faster...

Instead of one man counting cars from his private airplane, distant satellites tracked all kinds of information on Earth. Several companies "owned" this data and sold it to interested parties, like hedge funds.

Patatoukas decided to study how valuable this data could be. The professor acquired data from two firms: RS Metrics, an industry pioneer of parking-lot satellite image data, and Orbital Insight.

His study analyzed 4.8 million images of parking lots at 67,000 individual stores in the U.S. owned by 44 different major retailers, including Walmart. And it found a significant edge for investors.

Patatoukas said of the research results that "the informational advantage yields 4% to 5% in the three days around quarterly earnings announcements, which is a significant return over such a short window. If you annualize it, the number is staggering."

In other words, using satellite data could let someone outperform the market by 20% in a year.

Most Individual Investors Aren't Profiting From Alternative Data

That's an advantage for hedge funds, but a disadvantage for individual investors...

Here's how Patatoukas explained it...

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 at the expense of Main Street investors.

If it was just a transfer of wealth between hedge funds, that would be a different story, but it's small individual investors who tend to be on the other side of the trade.

This was especially true with short positions. Hedge funds would typically short the same stocks that individuals were buying... since only the hedge funds could tell from the sky which retailers were struggling.

If you're interested in all the findings and methodologies, you can read the original paper here.

Throw AI into the equation, and you can see how hedge funds can exploit these resources even more today.

Parking lots are just one example...

This sort of alternative data is part of today's market fabric.

Commodity traders famously used satellite imagery in 2019 to spot that lumber was flooding into the market. They bet on falling lumber prices... and made a killing.

I know a guy who has flown drones over Baltimore to observe automobile import trends in and around the port. Baltimore is a major hub for U.S. shipping activity, so he was able to glean insights on the overall economy.

And a few years ago on an episode of the Stansberry Investor Hour, Brendan Ahern, the chief investment officer at asset manager KraneShares, described how a satellite data company called SpaceKnow was using this strategy...

They fly satellites all over the world, taking photos of factories and train stations, parking lots, and malls. And so, you can go to them and say, "How many cars is Tesla going to build in Fremont versus Shanghai?" And they can do that based on how much steel and aluminum is sitting in the storage areas...

He also said other unconventional data-collection methods help investors gauge what's really going on in the traditionally opaque Chinese economy. Near key ports in China, the company hires people to observe how many containers are on each boat.

Monday brought another example from Citrini Research. An anonymous analyst made a firsthand trek to the Strait of Hormuz... and found the situation is more nuanced than being simply "open" or "closed."

According to the analyst's report, conflict in Iran could escalate while commerce continues... though at a reduced pace.

Countries like China, India, France, Japan, and Greece are negotiating directly with the Iranian government to keep tankers safely moving – for a fee, of course. And some additional ship traffic is happening that isn't being reported in public ship-tracking channels.

This data might not come from satellites, but it can be just as powerful...

We just released exclusive details on our new hedge-fund-caliber trading strategy for individual investors.

This strategy comes courtesy of our colleague, Josh Baylin.

Josh is a former hedge-fund researcher, private investor, and longtime tech insider who has developed a trading strategy that puts the power of overlooked data to work so individual investors can potentially outperform the market.

This system has flagged 422 winning trades since 2017, using a data set and indicators that few, if any, other analysts are using.

This approach isn't as simple as buying great companies and holding them for many years. Josh's short-term, data-driven system identifies fast-moving winners and, just as importantly, shows when to exit positions before inevitable reversals arrive.

If you missed his briefing, be sure to watch the replay. In addition to learning more about this system, you'll also get two free stock recommendations – one to buy and one to avoid.

All the best,

Corey McLaughlin

Editor's note: Josh predicted the "SaaSpocalypse" in tech stocks – and has even given expert testimony to congressional committees. This past week, he went public for the first time ever to explain what's next for stocks... Plus, he unveiled a brand-new strategy that could have turned $10,000 in each trade into nearly $620,000 since 2017. But you only have a narrow window to position your wealth for what's coming.