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Google Domestic Trends: Should You Invest Based On Google Searches?

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screen-shot-2009-09-03-at-12847-pmGoogle has launched a new area of Google Finance called “Google Domestic Trends.” Basically, it allows you to look at various sectors of the U.S. economy based on how they are performing in Google’s search index. The idea is that the volume of searches for related queries to a specific segment may “provide unique economic insight,” says Google.

That’s an interesting idea, but does is it actually smart to invest based on one search engine’s data? Google has a few compelling examples for why it could be.

Take a look at the retail sales chart below for the past couple of years. As you can see, the results predicted with the Google Retail Index are clearly closer then the predictions made without it. For a while it looks like the data is only marginally closer, but starting in 2009, it’s clear that the data is much closer to the actual results.

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This isn’t the first time Google has wondered if its search index could predict economic activity. Back in April, it wrote about it on its research blog. But it’s interesting now that it clearly feels comfortable enough with the results of the data that it’s featuring it on its Finance site.

The actual data Google provides is rather open-ended. For each of the sectors, you can see the overall volume trends and compare it with the Dow Jones, S&P 500, the Nasdaq, or any ticker symbol, but it’s not as easy to compare it to actual trends like Google does in the graph above. Basically, it is putting the information it has out there, and you have to do your own homework with it.

Google continues to revamp its Finance site to make it more useful compared to its more widely-used competitors. Data is the key for all of this, so it’s probably a good idea to at least put it out there and see if investors are interested in seeing this. Other companies like StockTwits are already proving that there’s an appetite for some less than conventional means of investing.

As Gordon Gekko says in Wall Street, “The most valuable commodity I know of is information.

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[photo: flickr/artemuestra]

[Thanks Michael for reminding us of the Gekko quote]

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