Category Archives: expert communities

WSJ: Navigating online personal finance sites

I’m not particularly a fan of these Mainstream Media (MSM) overviews of Internet tools.  I find, more often than not, that they’re typically short on analysis and don’t help investors really navigate what’s really out there, why these tools are important, and how investors are successfully using them.

This short video piece (2:45) ran late last week on the Wall Street Journal’s website (sorry, couldn’t get the video to embed for some reason).  It’s a cursory overview of some sites focused on personal finance (Mint, Wesabe) with the perspective of more people wanting/needing to take control over their finances and investments in light of the recent financial tsunami.  The interviewee is Shelly Banjo, Dow Jones Newswire’s reporter on wealth management.

A couple of sites are mentioned explicitly.  Simplifi, a site that helps investors build their own financial plans, is mentioned as a good resource for do-it-yourself investors.   Covestor, a tool that allows investors to see what others are actually doing with their investment money, is cited as an important site “so you don’t have to take advice from some financial advisor trying to sell you something”.

Frustrating to see MSM’s  quick gloss-over of security and privacy issues.  When asked about security with some of these sites, Banjo responds, “It’s OK.  These sites have to be secure so people will use them.  So, they’re OK.”  In a way, she’s right.  No one would use these systems if there was a likelihood that his entire financial history and net worth made its way online.  Security is an important issue — I don’t think it’s enough to reason-away security issues.  Be sure to check security/privacy policies of any site you may consider using for online investing/personal finance.

Anyway, also check out Banjo’s “The Best Online Tools for Personal Finance” that ran in today’s WSJ.


How will investors behave with no newspapers?

stock quotesSlow death of the newspaper and how investment decisions are affected

While news and the proliferation of information is booming, clearly the newspaper industry is on its way out.  Its current revenue model just can’t support a quality newsroom in the face of widely available free information on the Internet.

Numerous industry analysts continue to discuss the evolution of the news business (see Jarvis and Rosen as two of the best) but no one seems to be discussing the fact that beyond local news,  many investors who are less Internet savvy still receive much of their investment ideas/information from the old-school paper.

Older investors disproportionately hurt

While my 96 yr. old grandfather learned how to use Yahoo Finance before his death two years ago, I think older investors are hurt the most  by the demise of the paper.

This affects more than just getting stock quotes from your local Sunday edition.  This is about generating new ideas and monitoring stocks in existing portfolios.

Given the fact that we know investors are totally prone to home bias, that is over investing in domestic and even local firms in spite of knowing that investing more abroad lowers risk, the loss of a local paper can be really detrimental in both the discovery and analysis phases of investing.

5 things that need to happen for investors in a post newspaper world

I wanted to use this post to explore some ideas how investors can make better, more informed investment decisions in a post-newspaper world.

  1. More Internet consumption: I know this sounds so intuitive but there really has never been anything to compete with the level of breadth and detail on stocks, mutual funds and ETFs that the free Internet offers.  We have to help investors migrate away from newspapers as sources of financial information and hook up to their digital counterpart.  This is happening anyway as younger generations cut their teeth on Internet tools but we’re still a long way away from general literacy in using financial tools on the Internet.
  2. Financial tools education: This will require new sorts of financial education on how to use such tools.  This education should address both older investors who are not as generally familiar with the Internet, as well as younger investors who live and work on the Internet but need some more hand-holding in terms of learning how to access financial information.  I give monthly investing seminars and am always interested to see how familiar average investors are with what’s available.  Generally, they are open to help and can use it.
  3. Evolution of the investment newsletter: As the ad-based model of media also suffers from a depressed advertising cycle, I predict investors will turn more to premium, subscription products.  Unfortunately, much of the financial newsletter industry is based on unsubstantiated hype.  Performance is important but so is fitting investments into an overall plan, managing risk, explanation, and creating an investment system that jives with investor lifestyle (people working 60 hr/wk should not be daytrading). Investors need to see:
    1. Audited performance metrics: New web firms like Covestor allow investment advisors to audit their risk-adjusted performance.  Investors need to better understand the power of these tools and how to use them in terms of do-it-yourself investing or hiring a professional.  Mark Hulbert has been monitoring the industry for years.  We need more.
    2. More types of newsletters: Most newsletters take a trading focus.  It makes sense because they are competing on performance.  Performance is just one (important) criteria, though and we need to see more newsletters that differ in style.  Buy and hold, dividend investing, retirement investing, macro, etc.  Investors need to be able to size themselves up, determine their needs and then accurately shop for the premium product that best fits their requirements.
    3. More responsible marketing:  Some many people are susceptible to predatory and misleading marketing of newsletters.  “Up 1000%”, “Profit Machine”, “Minting Money” — terms like this make investors think that newsletters are sure things.  They’re not and the volume of spam I receive with messages like these is increasing.  Newsletter will play an even more powerful role as more people decide to take a do-it-yourself approach in the wake of this market fallout.  Like Sean, I believe that we’ll see more hybrid “do-it-yourself-with-professional-guidance” models emerge.  Newsletters must take on more ethical responsibility.
  4. Changing Investor Relations role: Like most industries connected to the meltdown in the financial sector, Investor Relations is looking itself in the mirror and grappling with its future.  For sure, it’s not going away as someone needs to play the role of matchmaker between company and investor.  But that doesn’t mean the current model of press release + road show with mutual funds + conference is the only way forward.  The Internet has changed the way people invest and how they research investments.  IR is beginning to realize the power of social media and needs to step up to best represent their firms and position themselves for the changing needs of investors.  There is so much that can be done here — new models, new distribution, new clients.
  5. Better alerting systems: A moderate to heavy Internet user who monitors his/her portfolio with some regularity should notice big changes.  Probably not with enough forewarning to do something about a problem immediately but within enough time to make a decision.  Do I want to stay in this stock after the company has cut its dividend?  Made an unsolicited offer for a competitor?  Others need a better way to monitor their portfolios according to their requirements.  If a retirement investor wants to take an active role in managing the portfolio and doesn’t hear from a broker regularly or check the Internet, there’s going to be a problem.  Google Alerts can help investors stay abreast of breaking stories.  But it’s not good enough because it requires some understanding of how to structure the queries.  Many brokerage platforms allow SMS messaging for extreme price movements but investors don’t know how to use these things.

We are witnessing the changing of historical proportions as we cope with the evolution of the media industry.  Although much of investing has moved online, many are still attached to the old form newspaper.  I’m looking forward to seeing the changes happen that bring every investor into the fold.

Additional Resources

    As Broadridge and 2nd generation social investor networks roll out, openness a key issue

    Open social networks

    Don’t get me wrong: I believe in openness.  I believe that social networks should be set free to self-regulate.  I believe that in a perfect world, social libertarianism makes sense.  I believe that good, quality, trustworthy content would bubble up and all that nasty, nefarious, spammy stuff would be drowned out.stocktwits-tweet

    But life’s not perfect.  It’s messy and there are incredible incentives, especially in investing, to manipulate the system.  Like Richard Thaler in Nudge: Improving Decisions About Health, Wealth, and Happiness, I believe that choices should not be limited and choice architects can be employed at the policy level to help ensure individuals make better decisions with more optimal outcomes.  Yesterday’s announcement by StockTwits regarding small cap and microcap stock manipulation on the site is an example of how social networks are coping with the potential for abuse. With the potential for wild price swings, StockTwits is blocking suspicious activity  — not removing users but rather blocking what they write.  See my quick exchange with StockTwits’ Howard Linzon in the image to the right.

    Shareholder Services 2.0

    I had the opportunity to speak  recently with Chuck Callan, Senior Vice President of Regulatory Affairs at Broadridge (BR), a global powerhouse in solutions for securities processing, clearing and outsourcing and investor communication.  Broadridge is an interesting company — as a huge player in the outsourcing of financial reporting, they’ve taken some bold steps towards taking some core services and refreshing them with a social media twist.

    The company has three recent launches of innovative products/services in this space: an investor network, online shareholder forums, and virtual shareholder meetings.

    Investor Network

    From Yahoo Finance message boards to SeekingAlpha to StockTwits, there are numerous investor networks already entrenched.  What makes BR’s Investor Network different is that you have to be a verifiable shareholder to play.  Broadridge audits share ownership to ensure only shareholders of record are enabled to participate.  See a demo of how the system works here.  It’s the company’s belief that ownership brings more credibility to the conversation about stocks.  I don’t think that that is actually true, but more on that below.

    According to Callan, Investor Network is designed for use by broker/dealers to offer to their clients:

    Broker/Dealers are looking to provide social networking on a controlled, broker-branded site.  Investor Network allows brokers to provide a scalable, larger network in a controlled environment. Instead of just developing their own social investor network, each broker is now able to provide an entire network spanning multiple BDs and all of their collective clients – the value proposition for the BD is that they can provide social networking in controlled branded site, integrated with single sign-on and embed it with easy links to trading.

    BR had some beta testing this fall (2008) and went live just recently with their first client, FirstTrade.

    Online Shareholder Forum and Virtual Shareholder Meeting

    This is a set of technologies/services provided to issuers (companies with public stock) as part of Broadridge’s shareholder forum services.  Offered in conjunction with upcoming stockholder meetings, Broadridge’s offering provides audited shareholders with a control number/password through which investors access a online shareholder forum system. Investors can submit questions, take surveys (why own INTC, etc.), see tabulation of results.  Links are offered through the forum to Intel’s IR website, education resources, regulatory filings, and RSS feeds.

    It was released two months ago and Intel was first to use the new system.  BR already provides proxy services to over 1500 publicly-traded companies and believes truly that this will increase shareholder participation

    Future of Financial Communications

    I was interested in hearing from Chuck Callan what Broadridge sees as the eventual evolution of what’s occurring in financial reporting.

    He said this:

    Institutional investors have fiduciary responsibility, by and large, to vote.  Individuals are not required.  “Notice and Access” by the SEC rules resulted in an unintended drop in participation (drop of >75%).  In other words, when investors received actual voting materials, they used to vote 20-25%.  Now that they frequently receive just notice of an upcoming election, they only vote at a level of 3-5%.  Because voting is perishable, a lot of people intend to do it but don’t end up doing it.  Investor Network is a critical factor in addressing this drop-off.

    It provides investors a means to reengage and participate more with the companies whose stock they own.  It makes the online experience more attractive to investors and rebuilds participation in a way that preserves/increases efficiencies for Broker/Dealers.  And if the SEC decides that a shareholder has the right to participate over a secure network with anonymity, we can do that.

    Users get a better online experience by integrating this communication into a natural task environment.  Investors go to their brokers’ websites to check account information.  It’s right there at the login page.

    The New Rules Take

    I’m going to stick my neck out and break rank with some other experts in the field.  In my discussions with Dominick Jones, of IRWebReport, he’s been cool to the approach that Broadridge took with its social network.  Specifically, Jones explains, “BR’s network doesn’t grok the finer points of social media. e.g. accountability, identity, transparency. Social networks are made up of people with personalities. Not faceless accounts with holding indicators.”   Point well made and taken. Check out what Jones has written publicly about the Investor Network.

    I started this post with a rant regarding overarching policing of investor social networks.  As a professional investor, I’m sensitive to the onerous requirement exacted on the industry by the SEC and FINRA.  Broadridge understands this better than anyone.  Their clients are not the arm-chair investor in his pajamas writing on Yahoo Finance message boards about what a great investor he is.  While this person may ultimately be a user of the Investor Network, servicing the Broker/Dealer and providing value to issuers is what butters BR’s bread.

    An unfettered social network just doesn’t work in finance.  It can’t given the monetary incentives to game and manipulate the system.

    Does actually owning a stock give you more credibility in discussing a stock? Absolutely not, but it does say that you’ve put your money where your mouth is.  It means that I’m completely transparent in my motivation for discussing a stock.  There are other ways of accomplishing this (like Covestor or TradeKing which actually audit trades, as well).  It trebles down the noise of novices and pumpers just looking to make a point or be heard.

    • By limiting the network to stockholders, Broadridge at least assures its clients that it is attempting to provide a tighter, more focused, higher quality network — something important for a B/D that doesn’t want to see its offerings degenerate into Yahoo Finance trolling (Check out the comments on Yahoo’s expert pages –they’re gross).

    I think Broadridge needed to take this tack given where they sit in the financial reporting ecosystem and it’s a bold move for them.  I think they’ll see more take up on the shareholder forum and virtual voting as an extension of physical, in-person shareholder meetings.  Social networks do want to be free and I expect to see that the Investor Network will launch with other B/Ds but I don’t expect to see traffic and participation rivaling anything like Twitter or StockTwits.  But maybe that doesn’t matter at the end of the day.  Maybe these designer vertical social networks can survive and thrive with a smaller audience and higher-level participation (as long as they find a monetization engine and Broadridge can ultimately bundle this into other products and services).  And that, would actually be a boon for both Broadridge, its clients, and ultimately, investors.

    Cake Financial’s end of year investor metrics

    cake_financialCake Financial (read our coverage here) is out this morning with their end of year, 2008 overview of investor metrics within the Cake community.  Read the release for the full picture but a couple of salient takeaways I see here:

    • Strong move to cash: While other industry publications get their statistics from fund managers, Cake, as a service overlay on retail brokerage accounts, actually sees the moves that individual investors are making in the aggregate. Cake’s best performers have increased their allocations to cash by 15% throughout the year (probably what made them the best performers), auguring for a bearish take on 2009.  The flight to safety and stockpiling king cash has been seen throughout the industry (see here for instance).
    • Cake has some strong individual performers: Top individual investors using Cake significantly outperformed all major indices  From the release: “Elite investors (top 1%) significantly outperformed every leading market index with losses of just 6.8% as compared to declines of 40.5% for the NASDAQ, 33.8% for Dow Jones and, 38.5% for S&P 500. Collectively, these top individual investors would have ranked as the 13th best performing US mutual fund out of 9,978, according to Morningstar’s Top U.S. Stock Mutual Funds for 2008. That group of funds saw an average return of -35% in 2008.”
      • Just one point here.  This success may be more the result of just the way a standard distribution works, rather than according any group of investors any particular accolades.   One should expect that the top 1% of most investors, using Cake or not, beat most mutual fund managers. The key here is if these same investor can beat the indices repeatedly.

    Cake has processed over 1,000,000 retail investment transactions.  As this number grows, I think it will be interesting to see what type of data comes out of Cake’s platform.

    How expert investment communities are impacting investor relations

    This post appeared recently on IRWebReport as part of a guest contributor series I’ve been working on.  I thought it was a good overview and appropriate here for NewRules.

    Dominic Jones is really a thought leader in his field and is really ramming it home on his analysis of how social media is impacting investor relations and what firms should do about it.  Check out the site and subscribe here.

    THE recent emergence of online investor communities that are registered as investment advisers with the US Securities and Exchange Commission is producing a new brand of influencer that investor relations professionals need to pay attention to because they could challenge traditional Wall Street analysts in shaping investor opinions.

    In my last post, How new finance websites affect investor relations, I detailed several strong trends that are changing the way investors make investment decisions. These evolutionary changes will affect the way investor relations is carried out and will define future criteria for success in the IR field.

    Driven by a move to truly fair disclosure, mass adoption of social media like Facebook and Twitter, and the proliferation of financial content written by professional bloggers, we’re seeing entirely new practices emerge for making investment decisions.  One of the more important game-changers for the IR field is the rise of the expert investment community.

    What are expert investment communities?

    Expert investment communities are affinity groups of successful investors who create and share their analysis of the markets and stocks within a social network. These types of groups used to exist offline in the forms of neighborhood or office investment clubs.

    But with the advent of social networking tools, global online communities are sprouting up, bringing with them experts with deep knowledge and influence in specific sectors, trading strategies, individual companies, and geographies.

    Typically, expert communities work like this:

    • Investors sign up at sites like Covestor, Vestopia and Cake Financial and are required to link up their online community accounts to their actual investment accounts;
    • The investors’ recommendations to buy or sell stocks are verified against real trades in their brokerage accounts;
    • Investors are encouraged to write about their trades, explaining the strategy backing each move;
    • Top performers in the online community across different strategies and risk profiles are ranked on a variety of criteria; and,
    • Other investors can peer into each others’ activities — learning, interacting, and bettering their own investment processes.

    This trend is one worth watching.  While we’re still in the early adoption phase of growth, firms like Covestor have tens of thousands of subscribers, which is more than 50 or 100 times as many clients that many money managers work with at various professional firms around the world. This amounts to many billions of dollars in accounts being tracked.

    While this is just a small piece of all assets under management globally, expect these numbers to grow. And as the competition for assets continues among asset managers, expect some larger investors to bring their assets under the community umbrella for tracking.

    Investor relations professionals should not make the mistake of dismissing these communities as just another form of stock message board. What distinguishes these sites is that are inherently more trustworthy and transparent since they plug into members’ actual investment accounts to monitor the success of their investing.

    In addition, while the communities are comprised of professional investors and arm-chair analysts alike, the sites continuously raise the bar on participation because they layer performance on top of all opinions generated in their sites.

    Which are the major new investment community sites?

    Covestor: Think of Covestor as the eBay of expert investing communities. Anyone can set up an account, hook it up to an investment account and begin trading and writing. Top performers typically significantly outperform stock indices, even if it’s just over the short term. While investors’ trades get logged, so too are their trading journals. Investors are encouraged to write about their portfolios and their trades. The whole point here is to provide a platform that verifies actual performance and identifies outperformers.

    Cake Financial: A sort of different animal than Covestor, Cake Financial has tracked over 1 million client transactions. Rather than creating a playing field for investors to compete, Cake aims to help individuals make better sense of their portfolios and the performance of their investments. While top investors do get bubbled to the top, Cake also takes a horizontal view of its participants and produces community-wide statistics as well (I will write about this in a future post). When investors research an individual stock, Cake provides the community view of that security as a benchmark.

    kaChing: Recently launched, this site has been the most active financial applications in the Facebook community. Unlike Cake and Covestor, kaChing has lowered the participation bar by allowing everyone to participate without linking in real trading dollars. It uses virtual investment dollars. However, individuals managing their own portfolios can pay a subscription fee to kaChing to mirror a particular community member’s portfolio. This incentivizes vast participation in the kaChing community of portfolio managers, both professional and amateur. According to TechCrunch, “of the 350,000 portfolios on kaChing, 1,500 have actually generated positive returns over the past seven months.”

    Page from Covestor's website.
    Investing community sites, like Covestor above, audit real trading activity.  In turn, users can pay Covestor to receive real-time updates from other users they wish to follow.

    How are investors using these sites?

    The trend is for these sites to register to become licensed investment advisors and investors using these systems will be able to choose to either pay to follow specific members’ moves, like subscribing to a premium investment newsletter, or the investor can open an account with these sites and turn their portfolios over to the portfolio managers participating on these sites.

    Once the regulatory hurdles are behind them, these expert investing communities will act as a clearinghouse of sorts for both well-known and undiscovered asset management talent. As the financial turmoil works its way through the industry and assets become harder to attract, look for these sites to grow with even more raw and mature talent.

    Some portfolio managers have told me as well that they are using these sites for idea generation and to peer into what their competitors are doing.  This voyeurism will continue to drive more professionals looking for good ideas to the sites.

    How IR can prepare and respond to this trend

    Embrace social media: With significant trend wind behind these expert communities’ backs, these early successes promise more significant adoption in the future.  IR professionals need to understand these communities work, how investors are using them, and how their usage leads to making investment decisions.  Social media is a double-edged sword for investor relations.  The central locus of contact with a select group of asset managers has become much more diffuse.  Professionals who know how the investment landscape has changed and how to use it to their advantage will find opportunities with social media to create very focused and targeted financial communications.  Keep in mind these are not just geeky daytraders who are populating these communities — professional money managers are participating alongside armchair analysts.  IR needs to ensure that their online disclosure information is in a format that yields to the needs of investors who likely are basing the vast majority of their research on online resources.

    Encourage long tail stock ownership: While targeting institutional investors is still a powerful primary strategy to make an impact in IR, these expert communities are providing a tremendous opportunity for investor relations in that all of a sudden, there are entire communities open to finding good, well-reasoned investment ideas.  The long-cycle process of convincing a large fund to invest can be supplanted with a newer model of convincing numerous smaller investors of an opportunity.  Because these sites operate via social networking technologies, if one influential investor decides to invest, there can be viral ripple effects throughout a broader base of investors.  IR can focus on connecting with top performers or influential figures within these expert communities to spread the word and diversify the investor base.

    Market research: Because traders in these communities are encouraged to write about their trading, there is a tremendous amount of opinion to be mined within their web pages.  Understanding the reason behind the investment is paramount to modern IR professionals.  Instead of getting some polite niceties kicked back at you during a roadshow or from an expensive investor perceptions audit with professional money managers, all walls come down to give you and unfiltered view of why investors are choosing to pull the trigger on certain stocks.  This treasure-trove of information should help to make your communications sharper and more targeted.

    How to avoid tall tales from the investment community

    avoid getting lured in by false investment performance claims

    avoid getting lured in by false investment performance claims

    I grew up with two grandfathers who loved to fish.  From a very early age, I learned not only how to bait a hook but also how to craft a story around that hook.

    You know the kind: Man, the fish I caught and released was *THAT* big.

    Every bit as important as what actually occurred on the boat was the story that followed.  As a first-hand participant in the investment community, I understand now that the investment community has its own form of fish-y story.

    Joshua Brown’s got quite an interesting post today on his blog, The Reformed Broker.  The Interview with Johnny Upside is a parody of hedge-fund types, claiming to always be ahead of the game, positioned perfectly to make a mint.  When backed into a corner, it’s clear that investors are only getting part of the story.

    Well, you’ll say, what about their marketing materials?  They say that they’re up X%.   While not outright lying, funds conduct performance smoothing, taking returns and sprucing them up by comparing them to favorable benchmarks or specific to particular entrance dates into the fund.

    While not outright lying, funds do good marketing by trying to make their performance look as good as possible. As Bernie Madoff has taught everyone, sometimes too good of a story turns out to smell like fish.

    So, how does one avoid getting lured into investing with someone too-good to be true?  I think answering this question requires framing the problem: how does an investor truly size up performance of a fund manager? Can you really believe performance quoted by managers?

    Couple things:

    1. Investor communities create better visibility.  Investment newsletters are great at giving selective performance numbers.  They aren’t audited and they typically claim that they’ve made 3000% on a trade (without saying how all their trades have panned out — check out Stock Gumshoe to dig deeper on newsletter teasers).  Companies like Covestor (read here for more coverage of Covestor) are comprised of communities of investors submitting their trading to real-time auditing for performance. Performance and metrics are completely above board and when looking at a manager, what you see is what you get. If all funds participated in investor communities, we could have avoided a Madoff-like scandal.
    2. Broker performance is by nature hard to quantify.  Any advisor who creates personalized portfolios doesn’t have an all-encompassing performance metric to tell you how good his advice is.  So, it’s difficult to really assess performance.   Instead,
      • Ask how his best clients have done
      • Ask how his worst clients have done
      • Ask if new accounts are coming in
      • Ask if people are pulling their money

    Do some extra homework when looking at performance to ascertain whether performance is as good as it looks or just another tall tale.

    What IR needs to know about how the Internet has changed the investment process

    This post appeared recently on IRWebReport as part of a guest contributor series I’ve been working on.  I thought it was a good overview and appropriate here for NewRules.

    Dominic Jones is really a thought leader in his field and is really ramming it home on his analysis of how social media is impacting investor relations and what firms should do about it.  Check out the site and subscribe here.

    AT New Rules of Investing, we analyze a new generation of investment sites changing the landscape of how investors consume financial content.  As investors encounter information from these new sources, it is affecting how they ultimately make investment decisions.

    Combining social media, the proliferation of financial content written by professional bloggers, and the leveling of the playing field that Reg FD brought, IR professionals must concern themselves with understanding these new models and devise a strategy to address them as more and more investors turn away from consuming traditional investment media and turn to these new methods.

    Before describing in detail the changes taking place in online finance, it’s important to look at what’s driving these changes and how they have affected traditional channels of financial content:

    • Costs of web publishing now equal zero given free blog hosting technologies and this has spawned millions of smart people writing about stocks via blogs.  Gartner forecasts that at the end of 2007, the number of writers who maintain a personal Web site reached 100 million.  Others think that if you add in the huge growth in popularity of social networks, their own form of blogging, the numbers get much bigger.
    • Mainstay sites like Yahoo Finance and Marketwatch have taken notice and are expanding into these spaces with 2nd generation message boards, collective intelligence (crowd sourcing), aggregation of blogs, and advanced stock screening technologies.

    Expert investment communities

    What is it: Expert investment communities are affinity groups of successful investors creating and sharing their analysis of the markets and stocks within a social networking framework.

    What’s new: What distinguishes these sites from the activity found on message boards is that the sites actually plug into its members own investment accounts to monitor the success of their investing.  Comprised of professional investors and arm-chair analysts alike, sites like Covestor and Vestopia continuously raise the bar on participation in these communities because they layer performance on top of all opinions generated in their sites. Covestor Logo

    How investors are using these sites: The trend is for these sites to register to become licensed investment advisors and investors using these systems can choose to either pay to follow specific members’ moves or the investor can open an account with these sites and turn their portfolios over to the portfolio managers participating on these sites. Covestor has recently signed a deal with to syndicate some of the content created on Covestor onto’s website.  Investors are ranked brutally by their performance and risk rankings. One such site, Cake Financial, has tracked over 1 million transactions on its platform.

    Cake financial logoWhat it means for IR: If investors continue to move towards basing decisions off the moves of experts, expert opinion gains more and more credibility. As consumer products marketers have learned to tap into influential online communities, IR professionals need to expand roadshows (both virtual and real) to include getting exposure to these experts.  These are the new influencers.  Targeting these communities for influencers may be a more powerful way in the future for getting the work out.

    Piggybacking the pros

    What is it: Certain web businesses like StockPickr are constantly monitoring SEC filings and publish 13D/13F findings to their own websites, creating guru portfolios around hedge funds and mutual funds for investors to piggyback on for investment ideas.

    What’s new: While the SEC has published financial filings for public consumption for years via its EDGAR system, the interface is designed for data mining, not for idea generation or stock discovery. The piggybacking systems have done the hard work for investors by data mining and arranged the content around the moves of guru investors like Warren Buffet and Carl Icahn.Stockpickr logo

    How investors are using these sites: Investors can literally drill-down into SAC Capital’s Eddie Lambert’s portfolio, monitor his moves in and out of particular companies and use this information as an input into stock purchase decisions. Investors are compiling “all-star” portfolios by picking top picks from a multiple of guru portfolios.

    What it means for IR: IR professionals need to gain awareness that investors are creating portfolios based on piggybacking professional portfolios. People in IR should spend the time understanding who owns their firm’s stock publicly and use that information to gain credibility for retail investors. Hedge fund managers are notorious piggybackers as well.

    Investment screening 2.0

    What is it: Combining technology and computer algorithms, investors can utilize new stock screening systems to approximate the same strategies employed by guru investors when sizing up prospective investments. Validea logo

    What’s new: Many professional investors have written and spoken about the criteria they use in making investment decisions. These criteria are beginning to be computerized and made available to individual investors looking to employ these same strategies.

    How investors are using these sites: Validea is a pioneer in this field and publishes premium content to its website and via a newsletter and provides portfolio management services as well. Validea has created computer algorithms to approximate strategies employed by investor heavyweights like Ken Fisher and Peter Lynch and then scans through thousands of stocks to find those companies that would satisfy these pros’ investment criteria.

    What it means for IR: Screening technologies are employed by professional investors and are now being filtered down to the retail level. While certain investors are driven by models, the most important part for those in IR is to get their firms into the traditional funnel that begins the stock screen.  Once in the running, make yourself available via a wide variety of media to flesh out the story to investors.

    Long tail investment opinion

    What is it: As publishing costs have been pushed to zero, amateurs and professionals alike are using blogs to help promote themselves and their businesses.  Employing a traditional editorial filter, aggregators like SeekingAlpha have emerged and collect thousands of the various financial blog postings into a standardized platform.

    What’s new: Just a few years ago, investors had just a handful of traditional media sites to check for financial news and commentary.  Employing professional journalists, the focus was on publishing accurate news. Given the cost of publication, sites like Yahoo and Marketwatch focused on just a few hundred of the largest stocks.  The emergence of financial blogging has encouraged bloggers to specialize in analyzing specific fields that don’t exist as such in traditional equity research teams (homeland security, consumer electronics), specific companies (eBay, Apple), and specific geographies.  We’ve essentially moved from the fat head to the long tail of financial content.

    How investors are using these sites: SeekingAlpha came out of nowhere and has become one of the largest financial websites online.  With over one hundred daily articles and thousands of smart analysts, SeekingAlpha and its like are convincing investors to turn to these sites to find opinionated commentary (not news).  SeekingAlpha has further democratized financial content by freely diseminating quarterly earnings call transcripts to its community.  See the ranking graph to the right to see how SeekingAlpha is gaining on sites like and

    What it means for IR: Like expert investment opinion, a whole new class of influencers has emerged with vast reach over a pretty sticky subscriber base.  As IR professionals have traditionally pitched editors of influential subscription research products, bloggers are usurping the power of these longstanding products.Seeking Alpha logo In fact, many of the top Forbes newsletter publishers are turning to SeekingAlpha as a marketing channel. Blog aggregators like SeekingAlpha don’t go away as they become even more important as more blogs are published. Leading IR pros are already turning to the aggregators as this content is showing up on Yahoo Finance, Marketwatch, E*trade, and Reuters. There will be tremendous opportunities for next generation IR to gain exposure via thoughtful products like sponsored interviews and surgically-targeted advertising.

    Crowd sourcing

    What is it: While expert communities are designed to create a hierarchy in performance to bubble up true investment experts, crowd sourcing technologies are based on research that says that the aggregate opinion of the crowd has statistical significance for investors.

    What’s new: The Internet has enabled the creation of affinity investment communities with requisite new tools to extract and monitor sentiment change within the community. Piqqem logo

    How investors are using these sites: Still early in their maturation process, investors are going to sites like piqqem and Marketwatch’s Community site to see what the top and lowest rated stocks are as well as searching for the opinion on specific stocks they are interested in. So far, crowdsourcing should be seen as just another input into investment decisions.

    What it means for IR: As the opinion of the crowd carries more sway in overall investment decision making, IR pros will need to focus their attention on influencing the view of the crowd. This stands in stark contrast to many IR activities today that focus on garnering the attention of just a limited few investors.

    Takeaways for the IR field

    I’ve tried to briefly explain a few underpinnings of the recent changes in the investment research process. New Internet technologies, combined with the current environment of consolidation within the equity research community, are empowering investors to consume a lot more information about stocks, albeit via different channels than what we’ve used traditionally. IR professionals must recognize that the early adopters of these technologies and platforms will be followed by critical mass. The after-effects of this evolutionary process entails a shift of power to new influential individuals and online communities. Bloggers and other experts have the ability to hold sway literally over millions of readers. Professionals who understand the new rules of investing and structure their work accordingly have the ability to harness the vast power of these new technologies and platforms.