Tag Archives: investment

Future of online trading: App stores for investing

It’s been a truism that the secret to runaway success in technology has PlatformLeadershipBookalways been in platform building.

I learned about the intricacies of building platform leadership from a book by the same name, “Platform Leadership” which I read during my MBA. The book by Gawer and Cusumano detailed how Cisco, Intel and Microsoft drove industry innovation by building a robust, standardized technology platform other leading-edge products could plug into.

The premise of the book was powerful: companies that could create products/services that served the center of a powerful ecosystem of ancillary items built on top of these products become extremely valuable.  Think Intel Inside and Microsoft’s dominance of the OS.  Presently, think of what Salesforce.com is doing with its platform as well as Apple’s iPhone App Store.  By creating a platform around which 3rd party developers are incentivized to design and build products, these companies have created something much more valuable and harder to displace than a mere product.  They’ve created a platform.

Investment field riddled with platforms

The investment field is riddled with platforms, too.  Bloomberg runs an empire based on an install-base of thousands of terminals in most of the leading investment institutions around the world.  You want to reach institutional investors with financial content? Gotta work through Bloomberg.  Yahoo Finance is the granddaddy of financial websites, far and away seeing more pageviews than any of its competitors.  You want to reach the retail investor, gotta get on Yahoo Finance.

Platforms provide necessary structure to certain markets.  In the investment field, platforms like Bloomberg and Yahoo Finance serve to

  • Aggregate content: investors don’t have to hunt down information by doing hundreds of Boolean searches on the Internet.  By serving as content aggregators, the platforms serve as a clearing house and central node to consumer info.
  • Establish an orderly market: Platforms create order by creating certain standards for their products and partners.  Bloomberg and Yahoo Finance established syndication guidelines via which partners must comply to be on the platform.
  • Create viable business models: It’s not clear to me that many investment research products could survive on a standalone basis.  Investors don’t like to pay for content and by aggregating pageviews on a single site, Yahoo Finance actually creates a viable business model for their partners and shares it out with them.
  • Consolidates usage to make single a jumpoff point to reach users: By consolidating the market, making it orderly and putting viable financial metrics behind it, finance platforms are the gateway to the users.  It’s too hard, complicated and expensive to reach investors directly.  These platforms act as market makers for the investment content bringing suppliers and customers together.

Online Brokerages as Investment Platform

While reviewing a recent product/service that E*Trade launched last week, I stumbled upon the realization that online brokerages are doing the exact same thing that Apple is doing around the iPhone.

In fact, it’s a HUGE misnomer to call these firms “online brokers”.  What were once merely online trading systems, companies like Ameritrade and E*Trade are actually now in the platform business.  As this evolution develops away from just trading toward the development of a true investment platform, these firms are creating something so much larger than just online trading or banking services.  I like the term “investment platform”.

Ameritrade’s Premier Partners

platformpartners

Check out what Ameritrade is doing with its partner platform.  This page lists a handful of 3rd party applications that run on top of Ameritrade for clients to receive trading alerts, Jim Cramer’s wisdom, ongoing advice about when to sell and some nifty charting.

None of these services are completely groundbreaking in and of themselves, but Ameritrade is establishing itself as the nucleus of the investment ecosystem.  By allowing developers to build tools and hook them up to Ameritrade’s API, the firm is concretizing its position as the investment platform of choice.

You want to reach investors?  Gotta get on the platform.

While the platform provider has an unbelievable amount of power, on the other hand, having a platform enables software/services developers to effectively reach the investor smack dab in the middle of the investment process — something heretofore impossible to do.  Look to see a lot of services develop around this ecosystem.

It’s like milk — for everyone

It’s a boon for Ameritrade — they can provide more services for their client base without developing them in-house.  It’s a boon for consumers because they no longer have to wait on their broker to provide new services.  It’s a boon for software developers because a move toward a platform puts them in business.

Maybe this was self-evident.  Maybe others understood that this evolution was unfolding right in front of us. In fact, both Ameritrade and E*Trade have allowed 3rd party financial advisors access to their platform, technology, services and clients for years.  Yet, I think this is a huge breakthrough in the understanding of what the future holds for these particular firms, their clients and technology development. It’s the financial industry’s equivalent of a mash-up.

Exciting.

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_home

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

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

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

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

Pros:

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

Cons:

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

Building News Streamsskygrid_portfolio

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

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

Pros:

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

Cons:

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

Social components

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

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

Pros:

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

Cons:

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

New Rules of Investing Overall Ratingraiders-sword_l

UsabilityPass +

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

New Rules Meter:    Pass-

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

Needs Fulfillment: Questionable

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

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

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

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

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.

Great idea for a fresh investment letter: mimic Senators’ portfolios

In previous posts, we’ve explored the process of picking a theme for your newsletter.  This is an important process because it really defines everything that you’ll be doing as part of your newsletter business.

  • It will define what goes into your portfolio
  • By deciding to go broad or narrow, your theme can differentiate you from your competition
  • Different themes fall in and 0ut of favor during different market cycles
  • The theme can mean the difference between making a little money and making lots o’ cash along the way

us-senate-logoSo, are you looking for a fresh idea to start a newsletter?  How about a new market-beating portfolio for inclusion in your existing portfolio?

Reading a great article on Compliance Building today, I stumbled upon a great idea that’s fresh, creative, requires some research, should sell well in subscription format and historically, makes investors money.

It turns out that a 2004 research piece by Professor Alan Ziobrowski of Georgia State University showed that US Senators’ personal stock portfolios outperformed the market by an average of 12 per cent a year in the five years to 1998, beating even the average return on portfolios of corporate insiders.  According to the author of the study:

The results clearly support the notion that members of the Senate trade with a substantial informational advantage over ordinary investors.

Turns out, that Federal law does require Senators to disclose their common stock transfers annually in their Financial Disclosure Reports.  While this only happens on a yearly basis, the information should make for interesting portfolio composition.  Stocks in blind trusts, by the way, were not included in the study, but that shouldn’t matter anyway.

So, what about putting together a portfolio comprised of the best and most ardent of picks from the U.S. Senate? You could segment out Democrats vs. Republicans.  You can see how Senators are positioning themselves in front of some of President Obama’s energy plans.  The study found freshman senators performed well.  You could pit 1st years against their more senior peers.  I dunno, could be quite interesting.

You better hurry, though.  There is legislation being pushed by U.S. Representative Brian Baird to close this loophole and “prohibit securities and commodities trading based on nonpublic information relating to Congress.”

Don’t forget to check out our ebook available for free download, How to Start a Profitable Investment Newsletter.  I’ve also posted important resources to build and run a newsletter.

And if you like what you see, please sign up to receive free updates from New Rules of Investing.

Free ebook: How to Start a Profitable Investment Newsletter

I’ve been getting good feedback on some of the content on this site focused especially on creating, managing and marketing an investment newsletter.  I took much of this information and mashed it together into a free ebook for you guys.

For those of you who have read all the material, you won’t find anything new necessarily, other than the fact that you can download it (it’s a .pdf), share it, or re-read it offline.

For those readers who haven’t read the articles on financial newsletters, this ebook contains most of the articles from the site and are much of what you need to know to start building and selling an investment newsletter.

Here’s the link to download the ebook.

Investment Screening 2.0: An interview with Validea’s John Reese

Institutional investors have powerful tools at their disposal to screen through reams of data.  Part of the institutional investment process entails screening through thousands of securities looking for a needle in a haystack — stocks that fit certain investment criteria.  From thousands of stocks, analysts can filter through a couple of hundred that fit these so called screens.  With a couple of hundred stocks in hand, analysts set out to do the hard work analyzing these companies, comparing them to one another, speaking to management and whatever else hedge fund and mutual fund logonew1analysts do when looking at prospective investments.

If I’m a value investor, I’m probably going to use some metrics that focus on Return on Capital (RoC) or Return on Equity (RoE) and Earnings Yield (E/P).  Growth investors might like to compare the price/earnings ratio (P/E) to the actual growth prospects of the stock in question.  There are literally thousands of things to look at.  So, where to start?

As we discussed in the “Piggybacking the Pros“, the Internet is a wonderful place to get information on stocks.  From monitoring actual moves that uberinvestors make to seeing what your peers think of certain firms, the information is out there.  You just need to be able to find it.  Investment Screening 2.0 is all about using screening criteria from super investors like Warren Buffett to find the next big stock.  Think of it as tapping the world’s greatest minds to see what they think of a given investment.

John Reese, a well-regarded entrepreneur with degrees from the two best schools in Cambridge, MA, has created a premium service that is the product of many years of research into the strategies of super successful investment managers.  Having devoured numerous investment books and interviews with the world’s best investors, Reese embarked on an ambitious project to computerize this information.  His firm, Validea, has created an algorithm capable of analyzing thousands of stocks according to differing investment strategies ranging from Fidelity’s Peter Lynch to Berkshire Hathaway’s Warren Buffett and applies screens to the overall market to find stocks that would fit these uberinvestors’ criteria.

John Reese joins New Rules of Investing for an exclusive interview.

John, can you tell us a bit about yourself? Continue reading

Money market fund research

Remember when things were hitting the fan a few months ago and nervous investors read of “enhanced” money market funds that maintained sizeable portions of the seemingly-benign cash funds in illiquid SIVs.  Investors wanted fund companies to show them the money — and make sure that their cash is really safe.

It got me thinking.  I just read an interesting article on MarketWatch regarding the money market business.  Outside of reading the literature published by the fund company in question (one of the best things to do), wouldn’t it be interesting if there were an unbiased 3rd party to provide some visibility into the black box money market business.

I stumbled upon a website entitled iMoneyNet which does just that.  Run by Informa, the site provides data and services for serious investors looking at the money fund space.  The site also compares different funds (hint, online brokers have some of the best rates and check out PayPal!) to each other and the national average.  Kinda useful.  Here’s a link to the most recent retail report showing 5 year returns.

In a world where cash is becoming seen more and more as an asset class, information on cash funds is also maturing.

MarketGuru: Good site for investment challenge

As part of my Jerusalem Investment Meetup Group, I’ve been in the market looking for a good site to run an investment challenge off of.  We’re about 50 members strong and meet monthly to discuss portfolio construction, risk management, and most recently, picking stocks and ETFs.

We left our last meetup, “How Professional Managers Pick Stocks“, with the desire to begin picking stocks and building portfolios.

Important in our decision to find a trading simulator:

Easy to trade in and out

  • Ability to monitor our own performance
  • Ability to monitor the performance of everyone in our group
  • Tracking vs. a index like the S&P 500

So, we chose MarketGuru.com, an investment site that can “identify individual excellence based on proven track records and allow members to follow their peers of choice, increasing their personal knowledge base and level of information their trading decisions are based on. This knowledge is aimed at positively impacting portfolio gains and member confidence in the ability to invest well and reach personal investing goals.”

The site also provides some interesting meta info like the most popular and least popular stocks on the site.  MarketGuru also allows mini-blogging, a good way to explain the rationale behind a trade.

We’ll see how it goes.