Category Archives: financial reporting

SkyGrid: Case study on ad-supported investment media

Is the elusive “Bloomberg for the masses” attainable?  Of course, most do-it-yourself investors cannot afford the cost of thousands of dollars per month for these expensive terminals.  But, what about making a platform free for subscribers and monetizing the platform via advertising?

That’s exactly what SkyGrid is attempting.  Until recently, SkyGrid charged $6000 per seat/year for a flash interface that allows users to track financial news on stocks and sectors they’re interested in.  In April, the company, which raised $11M in April from top venture firms, transitioned away from a premium model to a completely free model.  SkyGrid has made free accounts available to New Rules of Investing readers.  If you’re interested, go here to sign up for a free account: http://www.skygrid.com/reg/?id=8x89a9e3

The Service

skygrid_home

SkyGrid users log in to their accounts over the web via their browsers.  Once in, users are greeted with the only human-arranged editorial component on the platform: the day’s top or breaking financial stories.

SkyGrid produces a user-defined customizable news-stream.  Users of the system can customize SkyGrid to continuously stream stories about stocks in their portfolios.  SkyGrid compiles this content based on what the company described as a complex, multi-step process that includes:

  • crawling/scraping data/headlines from feeds in real time
  • validating reputation (link structure, click volumes) to weed out only content appropriate for a high-end user, like a hedge fund manager
  • testing if the content is important/impactful  for investors (Steve Jobs = important for Apple),
  • applying sentiment indicators (green if the content is positive, red if it’s not) via semantic analysis developed by computational linguists (something the firm says is very different from keyword analysis)
  • real time clustering (grouping various articles around similar themes)

The upshot is that users get a vertical stream of  headlines which they can click through to read the entire article.

Pros:

  • The system works really quickly and it appears to be eerily on target with its content.
  • I found very few articles streaming by that weren’t interesting or important for shareholders.
  • I believe this comes from good science, programming, user interface and tying it all together, a focus on investors.  SkyGrid has developed this for investor use and investor use only and it shows.
  • It even follows Twitter streams where more and more investment content is being shared

Cons:

  • This may be another case of coming to a knife fight with a gun or a solution looking for a problem.  I found the amount of information hard to digest.  As an hedge fund analyst, I was paid to discover profitable investments.  Does actually having this amount of information make me better at that?  I’m not convinced.

Building News Streamsskygrid_portfolio

Because SkyGrid is a smart, content aggregator built with investors in mind (as opposed to some of their competitors that are merely trying to sell to investors), SkyGrid has some interesting functionality when it comes to customization of news streams.

  • Uploading tickers of portfolio: for institutional investors monitoring lots of stocks, the ability to upload a list of tickers makes it really easy to set up
  • Sector analysis: I like what SkyGrid has done here.  Instead of using old-hack sectoror industry number/jargon, SkyGrid allows investors to monitor sectors the way they think about investing in them.  So, no “information retrieval” for “web portals” or “hardware components” for “consumer electronics”.  This isn’t trivial and is quite useful.

Pros:

  • customizing a news stream is really easy on SkyGrid.
  • upload function is really helpful for professionals or retail investors monitoring a lot of positions
  • sector tools approach industry analysis the way investors do, not like the Dewey Decimal system does
  • Good filter system gives users ability to tune out blogs, mainstream media, news wires, etc.

Cons:

  • I’d like more help here with idea generation.  For many investors, they know exactly what they want to monitor.  Others need help.  Maybe pre-seeded news streams with commonly held stocks could help.  Or maybe seeing celebrity investors’ news streams could help prod users for ideas.  I think more work here will help many retail investors as well as professionals who are less web-savvy.
  • While the filtering provided allows investors to tune out certain types of sources, it would be more interesting to filter out specific sources.  Maybe I’m interested in TechCrunch.  Or maybe I’m not.  I’d like to be able to decide as I go to amplify or drown out certain sources.

Social components

There are a few important components built-in on SkyGrid that connects the platform to the greater whitespace of social networks:

  1. Each of the streaming headlines can be easily posted to social networks like Twitter, adding to the virality of the platform, though it’s unclear to me if there are any beneficial network effects for users by having additional users on the platform (it’s clearly good for SkyGrid’s marketing and distrubition).
  2. The customizable news-stream can be shared out with others, much in the way content aggregator, Alltop allows users to create my.alltop.com (see my.alltop.com/zackmiller, as an example)
  3. Users can rate that they like certain articles.  These articles are then tagged so users can revisit them.  At the aggregate level, there is even some rudimentary ranking of top favorited items.

Pros:

  • Basic sharing functionality outside of the SkyGrid platform onto social networks.

Cons:

  • There don’t seem to be any (easy to find, at least) internal social components.  I’d like more insight into others’ news streams.  That voyeurism works well for me and on the web in general.  We’re seeing portfolio peeking in expert investing communities, like Covestor.
  • analytics: I can’t put my finger on it exactly but there is probably some interesting stuff to be done here with meta information that would be useful for investors.  I’d like to see some data (ie., 76% of articles on Apple are normally positive, today shows only 25% — maybe the beginning of a turn in sentiment)

New Rules of Investing Overall Ratingraiders-sword_l

UsabilityPass +

SkyGrid does everything it purports to do.  It’s a great user experience to have an ongoing conversation stream of all the stocks and sectors in one’s portfolio. The filters are great — read only that content that’s pertinent to a shareholder.  The rest is just noise and SkyGrid tunes it out.

New Rules Meter:    Pass-

This is a level of how Web 2.0 the site actually is.  The site scrapes and analyzes content really well but doesn’t do a great job of sharing/producing content withing its own 4 walls.  Unlike Twitter, which combines both external content and commentary on top of it, SkyGrid seems a pretty static environment at this point.  Because we’re dealing with financial information, this could certainly be by design but it would be interesting to create some type of network effect, where users can also create content and share.

Needs Fulfillment: Questionable

It’s here that I struggle.  SkyGrid does what it does quite well.  I’m just not convinced anyone really NEEDS it.  Combine a chintzy Yahoo Finance with StockTwits and a good blog aggregator like Google Reader and how much do you really miss?  SkyGrid is another program that demands attention.  I like to keep a separate window open on a separate screen from where I’m looking just to let it scroll — much in the same way I use the Twitter client, TweetDeck.  I like it but just not sure how ultimately valuable this is.  It’s like half-listening into a conference call or letting CNBC play in the background.

That’s just me — what do you think?  What are your perspectives on SkyGrid?

I’m going to use a future post to delve into the business model — turning an institutional-grade investment platform into an ad-supported thin client.  Stay tuned.

SkyGrid has made free accounts available to New Rules of Investing readers.  If you’re interested, go here to sign up for a free account: http://www.skygrid.com/reg/?id=8x89a9e3

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New usability study reveals IR websites score really low

Jakob Nielsen has been writing about web usability since time immemorial (or at least, 1996).  I frequently recommend anyone thinking about writing for the Web, sending marketing emails or designing websites to sign up for his weekly alertbox at useit.com (For another oldie, yet goodie, I typically include a suggestion to check out Philip and Alex’s Guide to Web Publishing, as well).

Nielsen’s Nielsen Norman Group conducts usability reviews and puts on conferences for a variety of different fields.  So, it’s when Nielsen comments on Investor Relation websites, I take note.  You should, too.

In a post today, entitled Investor Relations (IR) on Corporate Websites, Nielsen reveals the results of usability studies his firm conducted on 52 different company websites (there are some very recognizable names in this list).

For the study, Nielsen looked at 4 types of users (3 professional, 1 non-professional):

  1. institutional investors
  2. financial analysts
  3. journalists
  4. individual investors

The Usablility Guru’s takeaways for most IR websites?

  • professionals don’t rely on a company’s own website for financials: As a professional investor, I rarely surf to a corporate website to retrieve data.  That I get from Bloomberg, Reuters, CapIQ or even, Yahoo Finance.  I do use corporate websites to access company presentations (see next point) or for small caps with little other information accessible publicly.
  • professionals do like company spin in as much as it weaves an investment story or thesis: Most financial data is easily available through other aggregated sources which allow investors to run quick calculations or valuation analysis.  Instead, professional investors use corporate IR sites to get a gut-check on the company, browse recent presentation.  Here, institutional investors are looking for context, not data.
  • individuals actually read very little text on IR websites: Using eyeball tracking studies, Nielsen concluded that individual investors don’t actually read all that much online.  This jives with Nielsen’s thesis that web users in general have different consumption habits when it comes to information.
  • PDFs may be an easy way to post content but stink because they were developed for print: PDFs allow corporations to easily post financial communications to the web but because they were developed for print, the format requires readers to flip through the document aimlessly.  People don’t read this way online.
  • webcasts gaining popularity but suffer from being too long and a lack of descriptive information regarding their contents: More and more companies are using a video format to post financial communication but according to Nielsen, “[users] like shorter videos to get a sense of who the executives are through facial expressions, tone of voice, body language, and so on.”
  • PowerPoint still works!: Although developed as an offline presentation method, users are still receptive to downloading and reading PowerPoint presentations versus watching video.  As one user said, “This video is 28 minutes long. I spent only 5 minutes to go through [the slides]. If possible, do a separate online presentation. Make the online version easier to understand — shorter.

Given the findings, I’d like to enumerate 10 suggestions (including some of  Nielsen’s own) to make IR activity more successful (providing the right information in the right format, useful to investors):

  1. PDF doesn’t work for financial communication.  Use a more flexible, web based presentation technology like SlideShare.
  2. Design IR websites with both institutional and individual investors in mind. They have different needs.  Accommodate both.
  3. Free your content.  Take video, PDFs, and PowerPoint presentations and upload them to YouTube, Scribd, and SlideShare.  These formats overlay real web usability to make these formats more accessible to investors.  YouTube even has basic annotation functions to bookmark important sections of video to enable users to skip around.
  4. Since users don’t read online, IR websites can improve usability by making it easier for users to find things.  Chop up text.  Use bold and italics judiciously.
  5. Weave an investment thesis.  Don’t think that investors can do this on their own.  Write the web copy to help promote the story behind your stock.
  6. Stock charts are helpful, but they need to be simple to use and easy to understand.  Consider using an embedable, annotated chart like these.
  7. Get CEOs out from the corporate boardroom and conducting interviews in public.  Investors really use these as an input in their investment decisions.
  8. Tap the blogosphere by making your company’s information easy to find and easy to share.
  9. Consider getting a video editor to chop up presentations into 3 minute chunks.
  10. When you post video, make sure that there is a clear description of what the user should expect to see by watching it.  Time is precious and you must convince browsers that watching your videos is worth their time.

Additional Resources

Wither financial guidance when we need it most

I’m going to go out on a limb here and say that this financial crisis was totally avoidable.

No, not the popping of the Greenspan debt bubble — that was inevitable — but the slamming of the stock market in its wake.  This recession and destruction of financial firms was certainly probable – if not likely – and it caught most publicly traded companies completely off guard.

Financial advisors are paid to manage portfolios for any eventuality (hopefully).  If there is an X% chance of Y happening, the portfolio should take this into account and reflect a particular stance.

So, too, Investor Relations.

Financial communications to investors should be managed with the same risk management that people managing investments employ. There’s too much finger-pointing, sitting on hands and pulling back in financial communications — especially during these crazy times.

Ultimately, all this means that investors are left holding the proverbial bag — and the bag is certainly a lot less full than it was 12 months ago.  And what’s worse is that companies are retracting their lifeline with the investing public just when we need it most.

The National Investor Relations Institute (NIRI) does periodic polling of their constituents.  Check out its press release (.pdf) published yesterday.

Couple of salient data points:

  • 60% of respondents provide earnings guidance compared to 64% in 2008.
  • The primary reason cited for ceasing earnings or other financial guidance within the last 12 months was due to a change in visibility / forecasting ability of business. (emphasis mine)

While a 6+% year-over-year drop in companies offering earnings estimates is not catastrophic, it’s not encouraging either, especially giving its timing.  It certainly is harder to communicate guidance during tumultuous times because guidance becomes so much harder to gauge.  But the same NIRI survey also shows there’s been a pullback in all types of guidance, including non-financial guidance.

With banks cutting their research staff, newspapers going under, and ad-supported financial content having a harder time of it, investors are left with at least one traditional, valuable source of information — companies themselves.

It really is an opportunity for companies to distinguish themselves by providing straight information, timely communications and no-nonsense bull.  Investors deserve it.

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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.

    New Rules of Investing Top Links 4/19/2009

    Social Media

    • Barron’s getting all atwittered (sub. required) over new apps used for trading.  Focusing on Twitter, this article illustrates how upstart brokerages like TradeKing and Zecco are incorporating social media into their trading platforms.  Read whole article here.
    • Media firms are struggling with the traditional advertising model.  All are considering extracting money directly from users/readers.  Read a great article from Laserlike about when is the right time to sell pageviews and when it’s best to move into the lead generation space.
    • Brian Hamburger and Daniel Bernstein of MarketCounsel, one of the nation’s leading business and regulatory compliance consulting firms, addressed the compliance responsibilities of advisors who use blogs (pdf), LinkedIn, Twitter, Facebook, and any other social networking medium. While advisors would be wise to take advantage of the new media to grow their businesses, they must be aware of and adhere to their regulatory responsibilities.

    Personal Finance

    • Get a tax refund?  Yielding Wealth explores what to do with a tax refund and looks at socking it away for a rainy day vs. paying off debt vs. investing it vs. spending it.  Read the whole thing.

    Global Investing

    • WSJ reports that China’s $200B sovereign wealth fund is gearing up to deploy capital and finding markets open to such investment in Europe that have previously shunned the China Investment Corp’s investment money.  Read the full story here.

    Policy

    • The SEC has posted its compliance guide here (pdf) on its rules that require companies to submit financial statements in XBRL.
    • Is financial innovation hurting or helping the poor?  You make the call in this NYT article.  Read the whole thing.

    Industry

    • Smith Barney is quickly losing advisors and client assets are flowing out of the new division of Morgan Stanley and Citigroup.  “If you see $40 billion dropping off the asset base in one quarter, that’s huge no matter what. They may be small producers, but a lot of small producers are with leaving with a lot of money.”  Read the article here.

    Work

    • B-school grads are looking beyond investment banking and beyond Wall Street in general.  The New York Times profiles some recent grads who are importing wine and becoming rabbis.  Read the whole article.

    How investing is changing before our eyes

    On the heels of just a horrendous market and game-changing moves by the U.S. Government to appropriate invest salvage prop up large financial institutions, investors are left holding the bag.  Equity prices are being driven as much by the outcome of government intervention as it is by long-term views of cash flow.

    The rules of investing are being rewritten before our very eyes.

    What’s changing

    Buy and hold called into question

    US stock prices have fallen more than 60 per cent in real terms since the market peaked in 2000.  Retirement investors are wondering what went wrong.  Even if they did everything by the book, many of their plans for retirement are called into question.  These investors are questioning what the role of stocks should be in their portfolios.

    evolution

    In a recent FT article, a lot of inked was spilled over an upcoming article by Robert Arnott for the Journal of Indexes.   Says Arnott:

    “It supposedly didn’t matter how long you waited. But the notion that the long run will bail you out no matter what stupid things you do in the short run I think is dead.  And the notion that if you have the better asset class it doesn’t matter what you pay for it is on its deathbed.”

    While mutual funds companies and the tax code promote buy-and-hold investing, it’s clear that just buying and holding for the rest of your life is fraught with more risk than most investors were aware of.  Owning an index and passive investing a la John Bogle and Vanguard  meant that these investors still lost a lot of money.  As more companies become quasi-State owned entities, investors need the tools to assess what all this means for their portfolios.  I don’t think the tools exist to do this and the silence is deafening from the once-mighty investment banks and their equity analyst minions.

    Changing times requires a change of mindset

    Bill Gross, of bond monolith PIMCO, said in his April market commentary on PIMCO’s web site, that we’ve entered a new world of economics and investing, one in which “there should be no doubt that the bull markets as we’ve known them are over and that the revolution is on. Investing is no longer child’s play.”

    As per the Guru Investor blog, Gross explains that the future of investing will depend on the future of the global economy:

    “rewards spring from beginning prices and valuations that correctly anticipate the global economy’s future growth path and volatility. In terms of that old maxim ‘buy low – sell high,’ this means at the minimum that an investor during this period of re-rating must ‘buy low.’”

    Gross continues:

    Gross says investors should favor stable income rather than speculative growth or the subordinate liability structures of most private market balance sheets, and “shake hands with the government”, as PIMCO has done recently in snatching up investments that are or likely will be backed by the feds.

    Investor Relations woefully behind the curve

    In speaking to a financial journalist last night about how some forward-looking corporations are turning to social media to help get the word out (eg. eBay twittering their investor calls), it made it clear to me that by definition, advances in financial communications are always going to move slower than the market.  While the demand for financial information is growing, companies, in a post Regulation FD world, may be communicating more frequently with investors, but they’re not doing it better.  There are a lot of reasons why this may be the case but the adoption of social media by publicly traded companies is definitely a lagging indicator.  We need the regulatory and structural architecture of the markets and the companies that comprise them to catch up with the sorely lacking investor’s demand for understanding.

    The future renaissance of investment research

    This financial crisis has essentially torn down the walls of traditional research houses.  In its wake, we have literally thousands of analyst-bloggers writing about individual securities and macroeconomic issues from a variety of standpoints.  Many of these bloggers have day jobs while others are entirely focused on their research.

    I’ve written before about how the remaking of traditional investment bank driven research has found a splintered milieu with numerous different voices each promoting their own screed.  While the volume and quality of sheer investment research must be growing exponentially with the advent of the financial blogosphere, this hasn’t helped the majority of self-directed investors make sense of their portfolios as a whole.  Investors may be able to find more research about high dividend stocks in the wake of a weakening dollar (as my friend, Cliff, is doing such a great job writing) but they don’t understand risk or the long term prospects for their asset allocation any better than they used to.  We need professionals and new tools, beyond the great stuff happening in the personal finance space like Mint.com, to fill the void.

    Hat tip: The Guru Investor