Tag Archives: investing

Harsh Economics: Invest in Growth at a Reasonable Price (GARP)

This post of mine was published recently on American Express’s OPEN Forum.  I’ve reproduced it here for my readers.


Tough Times

Harsh times provide opportunities. Our current economic distress has dislodged entire industries. The legal profession in is the midst of a soul-search that will end up with a lot fewer partners and associates to support them. Investment banking is a shell of its former self. My field, financial advisory, is seeing a sea-change in both how the industry is structured and how services are delivered. New firms are being built on the ashes of former historically relevant businesses.

In any period like this, many people will find themselves pushed out the door or sitting on their hands waiting for things to recover. Other businesses will realize that opportunities are to be had while everyone is scrambling for cover.

Taking Risks are Risky, Right?

Those more aggressive businesses must be able to quanitify the risk inherent in pushing ahead in treacherous times. Those investing in their businesses must content with the following hampering — nagging — questions:

  • What if the markets don’t bounce back?
  • What happens if I go after growth only to realize there isn’t any?
  • What if my business has evolved away from those spots I’m investing in?
  • What if more economic shoes drop and things grind to a near-standstill?
  • What is my backstop?

I’d like to provide a framework for quantifying the risk in expanding during times of crisis and apply some homespun rules to help guide small businesses through these times.

Fidelity Investment’s Peter Lynch: GARP Guru
Peter Lynch was a men amongst boys in his career as a mutual fund manager. Handily beating most benchmarks for years, Lynch devised a strategy of investing in GARP, or Growth At a Reasonable Price.

From Investopedia.com

Lynch attributed his success to being able to invest in winning, growing businesses at fair prices. He didn’t mind paying up for a winning business, but he did mind overpaying for a winning business.

What was Lynch’s success?

GARP, or Growth At a Reasonable Price, allowed Lynch to swing for the fences but made sure to cast a skeptical eye on outlandish growth. Lynch would pass on potential investments if growth prospects were too high. For Lynch, taking on risk was OK but companies growing by leaps and bounds were just too risky for his portfolio.

How to Lower Risk When Shooting for the Stars

For Lynch, much of his analysis boiled down to using a metric called the PEG ratio. This metric throws past earnings, current prices, and expectations for future growth into a blender and spits out a number that shows whether or not a company is currently undervalued or overvalued. Most insightfully, it compares how a company’s current valuation stacks up against the market’s expectations for its growth. According to Lynch’s methodology, the lower the PEG ratio, the more cheaply investors can invest in future growth.

So What Does GARP Have to Do with Small Business?

Lynch believed the major step to achievement is investing in growth. In taking chances. In swinging for fences. But he also believed that investors needed to hedge their bets. Go for middle of the pack growth. In Lynch’s terms, invest in those projects that offer pretty sure return on investment and don’t carry the risk of firehose growth.

In other words, incrementalize your growth by launching smaller projects requiring minimal investments.

8 Examples of How Small Businesses Can Find GARP

  1. Hire or tap a team member to start a blog. Blogging is not about merely having a foothold in the blogosphere. It’s about carving out a space for you to show the world that you and your team/business are experts in whatever you do.
  2. Create a low budget, high impact social media strategy. It costs nothing and both surgically targets your market participants and along with your blog, can further brand you an expert in your vertical. Twitter and Facebook are like a powerful marketing drug.
  3. Explore ancillary revenue sources: Ghostwriting, keynote speaking, outsourced projects. Vertical integration, consulting, advisory work. Your position in the industry opens you up to many different potential, revenue-producing activities. Getting involved with new revenue-producing projects may enable you to stumble on the future growth vehicle for your business.
  4. Focus on referrals: Financial advisory work thrives on the word-of-mouth, old-school referral. “You should meet with X; he’s a really sharp guy…” Think of referrals as a marketing channel within your business and get serious about strategizing how to get more. Target happy customers and overlapping business partners.
  5. Write a book: It just takes time and you probably have an entire tome of material floating around in your head. The content of the book should represent that you’re an expert and focus on a theme that you think target clients/customers would like to read about. Find a publisher or just self-publish on Lulu.com.
  6. Start a radio program: Little cost, high impact. Find new prospects and let existing customers know about your content. Use BlogTalkRadio to broadcast and promote yourself and your program.
  7. Partner for profits: Reach out to a valued partner and develop a new product or service lacking in your industry. You’ll find new revenue opportunities, create a new source of sales prospects, and grease the referral channel.
  8. Educate others and yourself along the way: Education sells. Bad job markets provide an opportunity for adults to retrain and invest in themselves and get new skills. Can you expand your business by teaching others? Chinese medicine practitioners who teach Chinese medicine in local schools will find that students are also potential clients.

Upheaval is unsettling. Many of us will fret ourselves into lethargy. Others will take the opportunities given by the market to invest in growth. Some will whiff big while the smart, well-thought-out business leaders of today and the future will make hedged bets during this period of uncertainty to grow their way to future profits.

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Additional Resources


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 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.


  • 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


  • 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.


  • 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.


  • 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.


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


  • 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

Like what you’ve read?  Don’t forget to subscribe to receive free daily updates from New Rules o fInvesting.  You can also follow us on Twitter.

WSJ is wrong about the future of investment research

Very interesting article yesterday at the Wall Street Journal.  Entitled, “Stock-Research Reform to Die“, the article describes what’s happened in the wake of Eliot Spitzer’s landmark settlement against Wall Street brokers in 2003.

StockResearchUnderusedByRetailBrokerageAccording to the WSJ, this settlement was part of a wider Wall Street wrist-slap against ingrained culture that issued “overly optimistic stock research in order to win investment banking business.”

One of the results of the settlement required major brokerage houses to spend $460+ million on independent stock research for their clients.

The WSJ’s conclusion: six years later and almost no clients are using independent research.

At Credit Suisse, which has mostly institutional clients, the number of times retail clients accessed independent research from the firm’s Web site ranged from 16 during the third year of the settlement to 110 the first year.

At the old Salomon Smith Barney — now part of Morgan Stanley’s Morgan Stanley Smith Barney — its roughly 4 million retail households accessed about 12,000 reports each month. Less than 2% of Goldman Sachs Group Inc.’s Private Wealth Management clients likely downloaded a report each month, according to data from the public reports.

The WSJ mentions 3 reasons why investors haven’t taken up independent research at their broker:

  1. investors rely upon their brokers to act as a screen:  While 11% of brokers consumed independent research at least occasionally, they typically don’t send independent research out to clients.
  2. investors don’t rely as heavily on stock research today as they used to: “In the late 1990s, a positive report from a hot analyst could send a stock soaring. That effect is more muted today.”
  3. structural changes away from brokers to advisors: Commission-based business is old-school.  It’s been replaced by fee-based professionals acting as advisors.  There is less emphasis on trading at the retail level and less need for this type of research.  Combined with chinese walls going up between brokerage and investment banking, banks are cutting back on research teams as research becomes harder to monetize without the tie-in with banking.

Just wanted to chime in with a couple of comments:

  • I agree that full-service brokerage clients rely upon their brokers to act as screens.  That’s why they pay them and why they work with an advisor.  The vast majority of clients do not know how to read research or want to be bothered.  They want a quick synopsis why they should own a particular stock and for that, the broker acts as a type of well-heeled Cliffs Notes.
  • Maybe investors weren’t even aware that independent research was an option?  Do they know why it’s important?  Are investors aware of the biases which still exist in sell-side research?
  • Why depend on the guilt party to distribute the cure to the sickness?  That’s nuts.
  • Totally disagree with the fact that investors don’t rely on research. I would say that it’s more accurate to say that given historical conflicts of interests, investors no longer trust institutional research.  Given the gaping void left by Wall Street and the rise of financial bloggers and aggregation sites like SeekingAlpha,  many investors are actually consuming more research on more companies than ever.  We’re in a Renaissance/Gold Run/Bull Market for investment content — it’s institutional research that’s not finding its footing.
  • It’s hard for brokers today. Without an edge in research or asymmetrical information, it’s hard to push stocks and get paid for it.  That’s why many brokers have become mere wolves-in-sheeps-clothing: they’re still brokers but get paid as advisors.  We’re also seeing the emergence of true financial fiduciaries who work extremely hard for their fees and performance for clients, in up and down markets.   These advisors are doing real research or hiring people who do and they’re the ones consuming the research, not clients.
  • I think we’re seeing the investment field changing so quickly before our eyes.  On one hand, we’re seeing investors go boutique and sign up with independent financial advisors.  This is like more full-service than full-service.  On the other hand, we’re seeing investors retake the reins of their portfolios and managing things on their own — classic DIY investing online.  There is also a middle ground of investors who want more control but also want professional advice to support them along the way.  Regardless of the model, someone is consuming research, whether it’s the client or the advisor.
  • We need new business models to foster more independent research to fill the gap left by Wall St.’s void.  Tools to rate accuracy and trust-worthiness.  Performance.  From individual positions in a portfolio to the dynamics of portfolio management in general.

Interesting to see that most of the firms polled in the WSJ article were not planning on continuing distributing independent research.  Some have jettisoned research while others are bolstering their efforts.  That still leaves a tremendous opportunity out there for anyone who can provide actionable advice to the majority of investors out there.

Additional Resources

E*Trade further blurs lines between full-service and DIY investing

Full(er) Service and DIY Investing: Investor Fork in the Road

There is no doubt we are witnessing a wholesale exodus of assets out of full-service brokers like Merrill Lynch and Smith Barney. These assets seem to be finding two very different types of homes:

  1. boutique investment advisory houses: Built by brokers/advisors who themselves have defected from the large wirehouses, these firms take service and advice very seriously. In some sense, they’re a further move into full-service. They are competing head-on with traditional brokerages by upping the ante on technology, service and investment advice.  Investors who feel slighted by their advisor and want the extra hand-holding find this model really attractive.  It’s interesting to note that many of these firms are being founded/built by traditional brokers evolving to this model.
  2. online brokerages: Firms like E*Trade and Ameritrade are taking the bulk of this business.  In the wake of the financial tsunami, some investors are looking to take back investment decisions and don’t want to pay someone else for underperformance.  Proof of this is in capital flowing to online brokerages.  E*Trade reported that it had net new accounts of almost 30,000 in the first quarter of 2009 with $3.5 billion in net new customer assets.

I’ve written about the emergent trend towards high end investment advisors and how traditional stock brokers are resurrecting themselves and building smaller, nimbler firms with their billion-dollar books of business.  I’ve spent less time discussing how online brokers are luring assets.

Online Advisoretrade_onlineadvisor

I had the opportunity last night to have a guided demo of a recently-launched E*Trade product, Online Advisor, with E*Trade’s Liat Rorer, VP of Investment Products.  Online Advisor, developed as part of E*Trade’s newly-minted Investor Resource Center, is a nifty little financial planner-in-a-box.

In a quick and easy 4-step process, Online Advisor: Continue reading

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