Tag Archives: investing 2.0

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 the Internet is influencing equity research

Interesting presentation from an O’Reilly Webcast by Robert Passarella. According to his O’Reilly bio: “Robert Passarella has spent over 18-years on Wall Street in the gray zone between business and technology…focused on leveraging technology and innovative information sources to empower Equity Research and serve clients. A veteran of Morgan Stanley, JP Morgan, Merrill Lynch, and Bear Stearns…

…Rob is passionate about leveraging alternative data and news provided by the Internet for investment analysis. Robert holds a BBA in Finance from Baruch College and an MBA from the Columbia Business School.”

It’s a good watch but a tad long (it’s over 1hr).

Couple of interesting points:

  • gives a lot of credence to the rise of financial bloggers, aggregators and independent research sources for use on by investment firms
  • thinks the whole “buy, sell, hold” model of sell-side research is commodity now
  • abundance of info (from horrible to really good) is just amassing outside of traditional research channels, some of it “just waiting for analysts to connect the dots”
  • exodus of professional analysts out of ibanks leading the trend towards independent research combined with commission sharing agreements: barrier to entry low, good little business
  • 75% of journalists consult blogs to get ideas for stories
  • key is to take publicly available information (like from Amazon) and transform it into investable information/within human context of financial models/compare data sources
  • different business models competing against traditional research models (mentions SeekingAlpha’s ad revenue and blogger revenue streams)
  • out of ashes of crisis, lot of creativity and entrepreneurship plus low costs and easy-to-use distribution tech will prove fertile ground for new products, services, models in investment research

[Hat tip: IR Web Report, a great read, turned me onto this presentation.]

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

If Wall Street won’t pay for financial content, who will?

Do you use a friend’s subscription to log in to a premium finance site?  C’mon, we all do it at some point.  Whether it’s an expensive investment newsletter or a premium version of the WSJ or some other news/research platform?  Well, whether you admit it or not, we’re in good stead.  AllThingsD reports today about a fracas breaking out between the FT and Blackstone.

The issue at stake?  Seems that the venerable, (previously) multi-billion dollar Blackstone has multiple users logging into a single FT subscription.  It’s a bit of a mountain made out of a molehill at this point but I think there are some important issues at stake:


User perception of free content needs to evolve like it has with music downloads: Whatever you want to say about the RIAA’s methods in hunting down poor, old great grandmothers and slapping huge lawsuits on ’em, users of music downloads are still paying for content.  According to ReadWriteWeb, the best selling mp3 download on Amazon in 2008 was also available for free (it was Nine Inch Nails, by the way).

On the Creative Commons blog, Fred Benenson asks why people chose to pay for the NIN album even though they could have had it for free. While, as he points out, ease of use is surely one reason, most fans probably simply want to support their favorite musicians by actually paying them directly for their music.

Sorry to sound pollyannish here, but using another’s login is akin to stealing.  I’ve heard cases where a subscriber has requested being able to share info with another family member and had the request granted.  Once we get to the point, as in the quote above, where “most fans probably simply want to support their favorite musicians by actually paying them directly for their music”, it’s going to be hard to protect premium content from theft.  I also believe there is a moral/legal distinction between a father and son using the same TheStreet login versus a for-profit business, like Blackstone, not paying up for multiple licenses.

The fact that we too easily share logins like this illustrates that we’re not there yet.

Distinguishing what type of content people will pay for:  I’ve always maintained that people are willing to spend money on things that will clearly help them make money.  This is why the investment newsletter business continues to prosper.  While music sales are down, I think what is happening is that consumers of music are unbundling traditional bundles of content and paying only for those songs they like.  It’s like saying no to call waiting and yes to an answering service from your local telecom provider.  Musicians are having a hard time releasing substandard material and packaging it together with one or two hits.  Just from an informal survery in my immediate network, almost everyone I know who was using free file sharing software is purchasing music from iTunes or Amazon now.  They are just more selective in what they purchase.  Content providers need to take consumer behavior into account when determining where the line between free and premium content lies.

As companies like the NY Times teeter on the verge of insolvency, we need to quickly rethink what it means to sell financial content online.  Clearly the traditional newspaper business is dead, but the news business is alive and kicking.  There is some interesting discussion of a new non-profit newspaper model over on the New Yorker site (you can see it here).  Paid newspaper staff is necessary for making news — free blogs are good at interpreting the news.  Both need to survive to provide us with a full spectrum of news, opinion and actionable content.

Photo Credit: Bex and Paul > Bratislava

IR All Stars: Interview with George Tsiolis, CEO of pure online IR firm, AGORACOM

This interview is with George Tsiolis, CEO of pure online IR firm, AGORACOM.  George and I have conversed for years about the cutting-edge of the IR george-tsiolisworld.  George is a forward thinker and an indefatigable executive and shares his thoughts about his firm, the state of the art in financial communications and the future for the industry.


What is Agoracom and how do you differentiate yourself?
George Tsiolis, CEO: AGORACOM is a pure online investor relations firm. Traditional IR methods are too slow, too inefficient and fail to address the research and communication habits of investors. More than just lip service, we recently announced the following traffic figures for the year:

  • 1.25 million investors came to the site (unique visitors)
  • They visited AGORACOM 7.6 million times
  • They read over 101 million pages of information

Our model (and differentiation) can be broken down into two simple steps.

1.  Use Search Engines And Content Partnerships With The World’s Biggest Sites To Target New Investors

First, we have partnered with the world’s biggest sites to target and attract new investors for our clients.  For example, we are Google’s largest IR partner in North America.  We create search engine IR programs that display a client’s specific message in front of specific investors as determined by what they are searching for.  If an investor searches for anything relating to “widget companies”, then a message from ABC Widgets (our client) will be displayed in the search results.  We duplicate this process on Yahoo and MSN.

Our overwhelming advantage comes from the fact that both Google and Yahoo create the programs for us.  These aren’t simple AdWords programs.  These are highly sophisticated programs that include attention to our relevancy score that makes sure the message, landing pages and content highly match the searches.  This is a significant advantage over 98% of investor relations firms and in-house personnel that have failed to even scratch the surface.

As a result, we are able to quickly and cost-efficiently target investors in any vertical and in any part of the world.  Traditional lead-generation techniques (e-mail, print advertising, conferences, etc.) simply can not match the precision, speed, reach and efficiency of such targeting.  If you want effectiveness and ROI, online investor relations can’t be matched and should be a part of any company’s plan.

Part 2 of the process is best answered in your next question to avoid duplication…

Tell us about the Hub concept and how companies are using it to manage their financial communications.
GS: 2.  Amalgamate Investors Into A Customized, Moderated Community For Communication And Collaboration

New investors found via our search engine and content partners are funneled into a customized and moderated community where they can immediately ask questions, get answers, collaborate with current investors and connect directly with management.  Traditional Investor Relations techniques can’t match this because it is constrained by business hours, timezones and a 1-on-1 model.  Again, slow and inefficient.

An online community is not constrained by timezones or geography.  Investors from Germany have just as much access as investors from next door.  Investors take extreme comfort knowing they can ask questions at anytime without worrying about voice mail or closed offices.  An online community allows companies to post an answer just one time and share it with hundreds of investors who had the same question, rather than repeating it over and over again via telephone and e-mail.

Our clients also use their IR HUB to communicate beyond text.  They can post photos and videos pertaining to new products, new facilities, etc., webcasts pertaining to general presentations and, most importantly, post an audio address when they need to immediately and urgently communicate with investors.

Investors then have the ability to collaborate and share ideas in a moderated discussion forum free of spam and profanity.  Your investors are going to have a conversation, so you might as well be a part of it.

As a result, the investor relations process is hyper-accelerated.  The faster you provide investors with information, the faster they can digest it, move on to their next question and reach full understanding of your business.

How would you counter the assertion that the hub concept gets us only part of the way — if the goal is more open communications, doesn’t this still put too much control in the hands of a company (as opposed to investors)?
GS: As mentioned above, each HUB comes with a discussion forum in which current and prospective investors can openly discuss the company and share ideas about its prospects, competitors, industry and every other facet.  The only constraints are basically the rules of a polite society in which investors can engage in healthy debate free of profanity and spam.  These rules have served to attract very intelligent investors that gave up on free-for-all discussion forums around the web, resulting in very robust conversations.

As a result, investors are able to make very informed decisions, while management is able to listen to conversations, measure sentiment, gauge effectiveness of their message and respond both quickly and accordingly.  This kind of rapid feedback loop just is not possible in traditional investor relations.

How did Agoracom win the content deals to power the small cap content on some of the largest financial sites on the Internet? Tell us about your ability to get retail investors involved in private placements?  How has that been received?
GS: On the content side, I understood long ago that sites such as Yahoo, AOL, Globe Investor and Blackberry (via the finance channel on every device on the planet) do not have the resources to provide specialized content.  They are great for general market information but when it comes to items such as small-cap energy and resources information, they can’t economically justify hiring editors.  As such, given the amount of specialized information and content on AGORACOM, I pounded on doors and was awarded with some great content deals

On the private placement side, we had over 600 accredited retail investors sign up within just two weeks of announcing our new private placement initiative in the summer of 2008, with each of them willing to invest a minimum of $20,000 per private placement.  This has never been done before. Given market conditions in Q4, we didn’t attempt to raise money for any public companies as we felt it would have been irresponsible until we had greater macro visibility.  Q1/Q2 looks like an ideal environment in which to raise money, so we’ll let you know how that goes.

You’ve created hubs, which are centralized communities run on the AGORACOM platform.  Are you also addressing communications to leverage reaching potential investors in a distributed fashion?
GS: Absolutely.  In today’s environment, you have to give investors the ability to get company information via their preferred method.  You can’t demand they come to your HUB everyday because people are busy, on a subway, on vacation.  Investors don’t want to be tethered to anything but their devices (cell phones, laptops, etc.).  As such, you have to give them options and you have to go way beyond simply providing press releases.

First, each HUB comes with RSS feeds so that investors can have the option of keeping up with companies via readers.  Every IR communication (press release, corporate updates, industry bulletins, interviews, new photos, new events, etc.) is transmitted.

Second, we are now in the process of using those feeds to power a mobile investor relations program through Viigo.  It is free for both investors and public companies and will make sure anything new from IR will hit their cell phones.  Look for that in late Q1.

Third, we are now in the process of using those feeds to power a separate Twitter account for each one of our clients.  For those of you who aren’t quite sure what Twitter is, here is a recent post of mine.

When all of these are launched, AGORACOM will have distribution via the web, RSS feeds, mobile phones and real-time messaging.

Finally, in Q2, we hope to have created a blog network with a major content partner.  Discussions are still in the early stage, so I’ll let you know how that goes.

You’ve been quite innovative in bringing financial communications forward.  What’s the next step in forward-looking IR?
GS: From a business model point of view, we have focused primarily on small-cap companies today because they were the ones that needed the most help.  They also move faster, so it made complete sense from a viability point of view.  However, now that we have proven the model, look for us to start offering a large-cap solution for significantly larger companies.

From a technology point of view, we are constantly evolving by incorporating new technologies.  The trick is not to incorporate every new technology that hits the market because they often don’t work as advertised and can confuse clients and shareholders.

Even though the web is evolving at lightning speed, people aren’t – so you have to be careful about adding the latest thing simply because it is the flavour of the day.  As such, we spend a lot of time evaluating and testing new technologies before deciding whether to deploy them.  What is the test?  New technology must make the lives of investors and public companies both better and easier.

Today, we are focusing on search engines and mobile phones.  Search engines dominate our daily web lives, so we want to make this part of our model even better.  Mobile phones, on the other hand, are the future when it comes to web access.  You have to be there but you have to be there in a smart way.  We’re working on some cool things.

At the end of the day, the investor relations community can count on AGORACOM to be at the forefront of innovation for many years to come.

Thank you so much for providing me with this opportunity to participate and I look forward to providing you with future updates.

Thank you, George.

3 investment sites to uncover the next big blowup

In the wake of the Bernie Madoff scandal (Clusterstock has some great coverage), the Satyam fraud, and whatever else lurks around the corner, investors have lost billions of dollars of investable assets at the hands of hucksters.  While most investors shrug off fraud as improbable, there are those analysts who studiously work to uncover inconsistencies, lies, coverups and what-have-you to help others avoid such pitfalls.  Avoidance is one way to play the game while others, like David Einhorn’s much publicized shorting of Lehman Brothers, may choose to outright bet on such firms’ downfalls by shorting the companies.

Whatever tack you take, here are 3 of the best sites around to help uncover the next big blowup:


Who runs it: Michelle Leder has been a pioneer financial blogger.  footnoted.org was launched in August 2003 (here’s the first post) to coincide with the publication of Michelle’s first book, Financial Fine Print. As a freelance business journalist, her work has appeared in BusinessWeek, The New York Times, Portfolio and Slate, among others.  You can catch her speaking at industry conferences, on CNBC and anywhere financial trouble is brewing.

What it’s good for: footnoted.org’s content takes various different forms from nuggets Michelle has gleaned by combing through financial statements.  Occassionally, it can address some strange quirks like the fact that Warren Buffett’s son relies on ConAgra for his health insurance or how well convicted ex-Tyco managers’ portfolios are doing.  Mostly, Michelle uproots excessive compensation agreements or even worse, company self-dealings which can be a sign of much greater problems under the covers.  Here’s a link to a great article on how important footnotes are in financial statements and how to interpret them.

How to use the site: Try to avoid the next Enron, Worldcom, *fillintheblank*.  For those more aggressive traders, some of the information uncovered on footnoted.org is truly actionable.  In the hypersensitive investing climate we find ourselves in today, trust is not expected, it has to be earned and footnoted.org is definitely a great resource to research the next big blowup.  While most of footnoted.org’s content has traditionally been free, the site has launched a premium pro service for those looking for more in-depth research.  One good trade or avoiding one big fraud pays you back many times over.

Securities Docket:

Who runs it: Securities Docket (SD) is edited by Bruce Carton who is also the author of the SD Insider Column. Bruce is a former Senior Counsel with the SEC’s Division of Enforcement, as well as a former securities litigation partner with a top law firm.  Learn more about Bruce in the short introductory video below:

What it’s good for: Securities Docket digs deep to uncover valuable details in class action suits, SEC probes, and criminal investigations.  Bruce combines a great mix of multimedia including a presence on Twitter (visit him here) and free webcasts including one held this first week of 2009 and an upcoming webcast on the state of the Madoff Scandal.  Also, check out SD’s BlackBook, a compilation of valuable resources in the securities litigation and enforcement fields.

How to use the site: Use the tools to stay up to date on what’s starting to rot under the couch or use it to research existing companies you may have a position in to drill down on your holdings.  This site is particularly useful for those owning stock and part of a class action suit.

10-Q Detective:

Who runs it: David Phillips has more than 25 years’ experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms.  10QD is part of CNET’s BNET set of media properties.

What it’s good for: Like footnoted.org, 10-Q Detective sifts through SEC filings looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges.  David blogs daily and takes his research a step further by putting his findings into context vis-a-vis industry standards or trending, turning facts into small investment thesis like this nugget regarding the aging of US auto fleets and how that might benefit certain firms.

How to use the site: Definitely check the site out daily.  With his background on Wall Street, David crafts his pieces from the perspective of an investor and doesn’t take a short-only bias.  He’s on the lookout for overlooked information contained in financial reports that can help long-term investors owning the stock long as well.

use transcripts for context and nuance in financial communications

use transcripts for context and nuance in financial communications

One last *footnote* of my own: I’ve spoken about the value of financial communications a lot on this site.  I’ve also spoken about the value in quarterly conference calls held by most publicly traded firms.  Not only do you get a chance to hear management spin results, but you also get a chance to ask or hear others asking management touch questions.  It’s these unscripted, free-for-all Q&A sessions that contain boatloads of nuance, body-language and squirming.  SeekingAlpha has an entirely free database of updated transcripts of these calls for thousands of companies.  Definitely put a link to SeekingAlpha’s Transcript Center in your investing toolset along with these other sites.

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.