Tag Archives: covestor

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

    Financial advisor finds profitable niche with social media


    It’s still early days for financial advisors adopting social media.  There are compliance issues, structural issues and just questions as to the ROI.  There are a few early adopters investment advisors, though, who have seen the light and are not only using social media, but building their practices via new media.

    EPIC Advisors and its Social Media strategy

    Sean Hannon, founder and CEO of EPIC Advisors, is ahead of the game.  After cutting his teeth at Goldman Sachs and JP Morgan, he set out two years ago to found his own Registered Investment Adisory (RIA), EPIC Advisors.  I had a chance to speak with him today.

    EPIC’s business

    Sean’s firm has over 90 clients ranging from high-net worth individuals to families beginning to grow their retirement nest eggs.

    • Transparency: Sean believes in a uniquely competitive level of transparency and runs his business accordingly.
    • Communication: Communication is extremely important for him and he works hard to ensure that clients are never surprised by his activities.
    • Personalization: The RIA structure and the Separately Managed Account (SMA) provides many investment advisors with a scalable solution to servicing numerous clients.  The adviser manages a model portfolio which is replicated out in client accounts on a prorated basis.  Hannon works hard to overlay client-specific activities on top of his portfolio so that each client has a customized portfolio inline with their individual  objectives and circumstances.
    • Value add: While such transparency may be a double-edged sword,  he ensures that he provides real value at every step of the investment process.

    3 Ways to Grow an RIA

    How he’s building his business is a how-to guide for financial professionals looking to build their business beyond the boundaries of their traditional extents of influence (community, city, state and even country).

    According to Hannon, he’s got a three pronged strategy to grow his assets: Continue reading

    Top 11 Investing 2.0 Thought Leaders

    the_thinker_auguste_rodinThere are many new faces on the scene in online finance.  As we move away from mere trading platforms and portals to more social media-like applications, we’ve taken a stab to enumerate some of the top thinkers/movers/entrepreneurs in the space to keep tabs on.

    I used a variety of slippery factors like vision and influence and combined it with the track record of the individual/firm and then threw it into a blender.  The list below is in no particular order.

    Top Finance 2.0 Personalities

    1. Steve Carpenter, CEO/Founder, Cake Financial: Cake has risen to prominence by layering an analytical layer on top of clients’ existing investment accounts to help make sense of what’s going on and make better decisions in the future.  Steve has been an outspoken investor advocate promoting the need to understand the investment process and learn from others.  Because Cake has processed data over 1,000,000 retail transactions, the firm is in a great place to provide network level statistics into buying and selling as well as help investors learn from one another.
    2. Aaron Patzer, CEO/Founder, Mint.com: Well, Aaron’s voice has been heard as far as Davos. Helping over 900k users track their expenses and lower their burn rate, Mint has quickly risen to prominence in a field dominated by offline giants like MSN Money and Quicken.  With this view into consumers’ pocketbooks, Mint has an interesting perspective in what’s happening at the macro level.
    3. Perry Blacher, CEO/Founder, Covestor: Covestor is the leading portfolio sharing service where investors subject their trading activity to an audit as a check for authenticity.  In the future, I expect Covestor-like communities to be a leading channel for smaller asset managers to market themselves and their strategies to willing investors.  Covestor is syndicating some of its participants’ trading logs for publication on TheStreet.com, bringing this model more into the mainstream.
    4. Felix Salmon, Reporter, Portfolio.com: How is it possible for someone to write so much content that’s always good?  Salmon is seemingly ubiquitous these days and from my perch, seems to have found his voice and sway during the financial meltdown.  Salmon is a big proponent of the financial blogosphere and has used his mouthpiece to shine a lot of light on some great new econobloggers.
    5. Darrell Heaps, CEO/Founder, Q4 Web Systems: Q4 has built an enterprise level content management system (CMS) used by publicly traded firms to communicate their financials.  Think of it as WordPress for compliance-focused corporations.  As an SaaS application, it’s pay as you go and accesible over the Web.
    6. David Jackson, CEO/Founder, SeekingAlpha: David was very early with financial blog content aggregation.  The money quote: “We’ve basically taken a whole investment bank research department and turned it on its head.”  SeekingAlpha has given a voice to financial bloggers, both small and large and given its landmark deal with Yahoo Finance, took financial blogging into the mainstream.
    7. Paul Kedrosky, Speaker/Analyst/Investor, Infectious Greed: Dr. Kedrosky is everywhere you want him to be these days talking about the markets and the systems that power them.
    8. Dominic Jones, Principal, Clarity! Communications: Dominic has been extolling the virtues of adopting new technologies and social media for corporations and the investor relations professionals who represent them.
    9. Roger Ehrenberg, Analyst/Investor, Information Arbitrage: Ehrenberg’s backround as a derivatives trader/salesmen/general Wall Street guy enables him to take an inside look into what’s unfolding currently in the financial world.  Ehrenberg is also a seed investor and gets an up-close view on new ideas/products coming online in the investing space.  He was an investor in the well-documented flameout of Monitor 110, a highly-touted next generation research platform and has helped launch StockTwits.
    10. Barry Ritholtz, Analyst/Founder, The Big Picture: Ritholtz’s popularity has continued to rise as the investing public’s demand for strong opinion has increased.  Barry scours financial data and info on alert for any BS.  There is also a premium subscription product Ritholtz’s sells to leverage his research.
    11. Planet Money, Multiple Contributors, NPR Show/Podcast: As a professional, I find Planet Money’s daily podcasts entertaining and enlightening.  Designed to help non pros make sense of financial news, the programs contain great interviews, explain leading indicators, and help everyone better understand the tumultuous financial seas around us.

    Think someone else belongs on this list?  Let me know in the comments or email me at zack.miller @ gmail.com

    Photo credit: Wikimedia Commons

    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.

    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 TheStreet.com to syndicate some of the content created on Covestor onto TheStreet.com’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 TheStreet.com and Forbes.com.

    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.

    kaChing moves towards managing real money


    TechCrunch has a great writeup today abou upstart, kaChing, the most popular investment app currently on Facebook.  It’s a pretty extensive writeup so I don’t have a lot to add here.

    I would say that unlike Covestor or Vestopia/PersonalRIA, kaChing doesn’t require real money to be put to work behind the portfolios.  So, when investors choose stocks short and long, they are doing it with play money.  This definitely lowers the bar for participation.  I’ve seen literature (gotta find a link to it) that says that for crowdsourcing/wisdom of the crowds in the investment field, real money doesn’t tip the scales to the community’s predictiveness towards price movement. I’m not sure that’s the case in an expert community which is geared towards bubbling up exceptionally good managers.  Having been an analyst at a hedge fund, I can say that we certainly behave differently when there is real money on the line (especially, our own and not OPM) than when it’s fictitious.  Just a point.

    It looks like kaChing has the investor base and user base to leverage into becoming a formidable player in the field and helping to prevent future Madoff-like scandals by creating a whole-new level of visibility into fund managers’ workings.  It will be interesting to see how kaChing and Covestor, both predicated on creating open systems, compete against a PersonalRIA/Vestopia which limit the participation to professionals on the portfolio side (while anyone can be a user).

    All these systems will need more data and history (most investors look at 1,3,5 years history when chosing a mutual fund) to begin to chip away at the traditional marketing methods of mutual funds.

    Don’t forget to sign up to subscribe to New Rules of Investing today.