Saturday, May 21, 2011

How do you quantify the qualitative data?

Part 2 is here

The top 2 in a  10 lowest-paid CEOs for 2010 Associated Press analysis of companies in the Standard & Poor's 500 are the following:
    Steve Jobs,  Apple Inc., $1
    Vikram Pandit, Citigroup Inc., $1

Two distinctly different companies
Looking at the list, you can see that judging qualitative information is very subjective. Everyone knows how to quantify Technical data or Fundamental data. Qualitative is very hard to define in numeric terms.
"Let's face it: we live in a quantitative world. Everything we do revolves around top 10 lists of one kind or another. We want a shortcut and lists meet this need."

Investopedia explains Qualitative Analysis as securities analysis that uses subjective judgment based on unquantifiable information. This type of analysis technique is different than quantitative analysis, which focuses on numbers. While most investors and analysts rely largely on quantitative measures, qualitative analysis increases the insight into the company. Using qualitative factors will often give analysts an edge since key factors don't show up in quantitative analysis.

What are Qualitative Factors?
  • Management Team & Philosophy
  • Business Model
  • Competitive Model (Wide Moat)
  • Corporate Culture
  • Branding
  • Employee Satisfaction
  • Supplier Satisfaction
  • Customer Satisfaction
  • Identify Inflection points
  • Market Expectations
  • Scenario Analysis
  • Legal Issues
  • Legislative & Political Posturing
Did I miss anything? Add your own items to the list.

Business 101 path - SWOT
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threat. Get a free SWOT pdf worksheet here.

This website has a free SWOT analysis of Apple.

More variations on SWOT

Quantifying Qualitative Data
I'd like to try a different experiment. I'd like to try to quantify these qualifying factors.

Quantitative data can be collected by survey and improvising a scale or using software to categorize data. Each bring in their own problems; Hence we must eliminate and adjust for researcher induced bias. Well, the investigation started with simple examples.

On Wiki -
    It is sometimes possible to obtain approximate quantitative data from qualitative data - for instance, asking people to rate their perception of a sensation on a Likert scale.
From the site:
     Qualitative research is important because it generates data that can provide in depth insight into a question or topic. However, in order to draw conclusions from qualitative data, it is essential to quantify the data.... Quantitative analysis of qualitative data “involves turning the data from words or images into numbers. This can be done by coding ethnographic or other data and looking for emerging patterns.”  If qualitative data is in the form of responses to standardized questionnaire surveys, this data may also be quantified. Simple frequencies and relationships between variables can be calculated either manually, or by using qualitative software.... There are three main steps to conducting a quantitative analysis of qualitative data: organizing the data, reading and coding it, and presenting and interpreting it.

And Finally the article
    A wide range of participatory tools are now in use in development research. The toolkit consists of matrix ranking, resource mapping, trend and change analysis, seasonal charts, problem trees, causal diagrams, focus group discussions, and diaries, among many others. Data obtained from participatory approaches are largely qualitative in nature but to be able to draw conclusions that apply to a wider population, qualitative data have to be quantified.

QDA Software (CAQDAS) & Mixed method Research software

Holy Cr*p! This is really sophisticated software. I will let you evaluate & analysis it, yourself.

-- An independent and  complete list and evaluation
-- Another review from Harvard
-- Wiki on QDA software

What would I do on a small budget?
If I were to try an analysis by way of a survey tool, I think I would try to rank my qualitative factors by using a granular Likert scale. The complexity arises on how granular you want to be, but consistency would be the key. Over time, you could compare other companies with your current assessment of potential candidates.

Several of the software packages on the list are close to no cost or freeware (open source software). Watch the Dedoose tutorial videos for a good background description of how to implement your ideas and the great possibilities available. But in my case, this powerful software is more than I need, although intriguing. In the next few days, I might be downloading several evaluation trials to try them out.

Assessing a company from a qualitative standpoint and determining whether you should invest in it is as important as looking at financial data. If you have any information from another source on how to do this, please leave a comment.

Related Links:
-A detailed practical guide of qualitative analysis
-Another example showing the elimination of bias
-Good review and things to watch

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