Tag Archives: research

SkyGrid: Case study on ad-supported investment media

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

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

The Service

skygrid_home

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

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

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

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

Pros:

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

Cons:

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

Building News Streamsskygrid_portfolio

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

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

Pros:

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

Cons:

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

Social components

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

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

Pros:

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

Cons:

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

New Rules of Investing Overall Ratingraiders-sword_l

UsabilityPass +

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

New Rules Meter:    Pass-

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

Needs Fulfillment: Questionable

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

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

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

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

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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

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 investing is changing before our eyes

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

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

What’s changing

Buy and hold called into question

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

evolution

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

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

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

Changing times requires a change of mindset

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

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

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

Gross continues:

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

Investor Relations woefully behind the curve

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

The future renaissance of investment research

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

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

Hat tip: The Guru Investor

Morgan Smith Barney Stanley and more on investment research

It appears as if Smith Barney is preparing to leave the Citigroup umbrella and join Morgan Stanley as troubled Citigroup looks to unload assets and raise capital.  Over 9 million investment accounts and over $1 trillion in assets look ready to join Morgan’s extensive brokerage operations.  As more and more consolidation occurs in the investment research community, there is going to be a gaping void felt by retail investors worldwide.

Morgan Stanley's CEO John Mack

Morgan Stanley's CEO John Mack

Historically, investment banks were the engines of equity research.  Research worked for investment banks even though the research was given away freely to account holders.  Investment banks were essential in demand creation for equities and research paid for itself many times over via investment banking fees from the issuing companies.  With investment banks clinging to one another for dear life in order to shore up their own balance sheets, the research industry is undergoing a sea-change.

I’ve spoken previously about the opportunity for New Rules type companies to step in and fill the void.  Expert communities, crowd sourcing and piggyback investing will all continue to gain prominence in the investing ecosystem in years to come.  IR firms who “get it” will play a valuable role for investors and firms trying to get their story out.

As the research game field changes, Roger Ehrenberg thinks the name of the game is disaggregation and specialization:

The difference between how it used to work and how it will work in the future is the disaggregation of Equity Research. The major securities houses will have global distribution platforms for connecting issuers and investors, and to provide markets on a worldwide basis. There will be relatively few of these players as the cost of maintaining a global distribution platform is huge and, in my opinion, a natural oligopoly. But research will be “open sourced,” as the charade sometimes called “Wall Street single-stock research” is finally exposed.

Having the securities underwriter issue a “puff piece” as part of the IPO selling process is a waste of time, money and is fraught with conflicts. The Global Settlement was just that – a settlement. It wasn’t a solution. There only reason for bulge bracket firms to pay for costly research operations is if they help Investment Banking land deals. Bulge bracket research budgets in the early 2000s were in the $500 million to $1 billion+ range. If one were to disaggregate commissions into payment for research and execution, it is safe to say that investors attributed little value to Wall Street research. So how did the gap get filled? Investment banking mandates, together with outsized commissions on “hot” IPO deals that precipitated the Global Settlement in the first place. Transparency will enter the research venue, where investors buy research from the best providers at a known cost. There is no reason why a securities dealer should have better research than anyone else, and given that this is not their area of specialization it isn’t clear that they should be in this business at all. Added complexity is almost always a bad thing, and securities dealers have enough to manage without operating a separate research arm.

How to start an investment newsletter: pros and cons of publishing a portfolio

stock portfolio vs. idea generation

stock portfolio vs. idea generation

When we started our investment newsletter business, we were immediately faced with a quandary.  We wanted to be pure.  We wanted to avoid salesy, spammy email campaigns.  We wanted to be the go-to people for small cap, technology stocks.

In short, we wanted to be about ideas.

So, in crafting our newsletter content plan, we considered just publishing our best ideas, month in and month out.  What we found is that there are two different types of subscribers to investment newsletters.

Two types of investment newsletter subscriber

The Good Soldier: This subscriber happily subscribes to just one or a couple of financial newsletters and frequently does exactly what the newsletter tells him/her to do.  He’s buying on the buy recommendations and selling on the calls to sell.  He’s following the model.  He doesn’t really care that much about the financial modeling behind the stock picks but he does require an investment thesis to feel comfortable with his trading.  This investor will consider purchasing the newsletter based on the stated performance of the model portfolio.  He needs a portfolio to be able to monitor how well the newsletter performs in order to implement the model himself.

Though there aren’t any industry statistics that I’ve come across, but I’d venture to say that this Good Soldier subscriber is the most frequent subscriber to investment newsletters.  If you go this route of trying to attract a typical retail investor, the price point you decide to charge for the newsletter should reflect this consumer ($79-$199/year).

Pros:

  • certain subscribers look for the hot hands and if your portfolio is doing well, that’s good for business.
  • by including a portfolio, you can attract every type of subscriber

Cons:

  • If you include a portfolio, you live and die by the sword.  No one really cares if you’re up more than the market when everything is down big time like in 2008.
  • If you only include a portfolio and don’t back up the picks with some real analysis, you risk losing some types of subscribers (see below)

Idea Searcher: A more discerning consumer of investment newsletters, the idea searcher subscribes to multiple newsletters in an attempt to cull the best ideas from all of them.  He is frequently a professional investor and is willing to pay a premium price for a newsletter, given the fact that he’s likely trading larger sums of money.  Instead of a portfolio, he’s looking for well-reasoned trades.  For the Idea Searcher, the newsletter does a lot of the stock screening work, getting rid of the clutter and presents a pre-packaged idea.  The idea searcher will then conduct his own investment research work on the ideas presented by the newsletter.  So, in this model, writing and explanatory style are extremely important.

If you want to see a good example of a newsletter focused on idea-generation, check out Whitney Tilson’s Value Investor Insight.  Last I checked it was all about ideas and utilized interviews with investment gurus as its foundation of the monthly content and stock picks.

So, depending on who you’re trying to reach, it makes sense to craft your newsletter accordingly.

We took a different route.  Given the fact that we went with a niche letter instead of a broader market newsletter (see my article on how to pick a theme), we wanted to be both about idea generation and portfolio managers.  We wanted to sell a newsletter to both the Good Soldier and the Idea Searcher and we believed we could given our niche approach.

We broke our newsletter out into different sections

  • Stock of the Month: this pick, written at length and with real research behind it, went into our portfolio and we managed our portfolio for performance by buying and adding stocks to it on a monthly basis and with updates throughout the month if we thought it prudent.
  • Interview with other fund managers: this is a fantabulous idea for a variety of reasons.  The picks are someone else’s — another manager/analyst has done the research work and you’re just writing it up.  It’s good marketing for their firm so, they’re pretty happy to give it.  Plus, if the stock tanks, subscribers are more giving in their critique given the fact that it wasn’t actually a real pick.  This is pure idea generation.
  • Industry analysis: Focus some research on making subscribers smarter in an industry or market as a whole.  It may not be tradable information but helps them become better investors.  This serves the Idea Searcher a lot more than it does the Good Soldier.
  • Alternative picks: While not written up as in depth as the Stock of the Month, these are some picks you can give with price targets to give Good Soldiers more to sink their teeth into.  It keeps readers engaged and provides for more activity in and out of the portfolio.

As in any business, it’s particularly important to know who your target is and then craft the business around reaching this target.  The financial newsletter business is just the same.  Including a portfolio is risky — performance becomes more important than if you just stick to ideas, but I think everyone, including those looking for ideas, needs some type of portfolio tool just to gauge how good a newsletter they’re looking at.

Don’t forget to check out our page of all the newsletter resources you’ll need to get your newsletter off the ground and making some dough and subscribe to receive free, value-added updates from us.

FT.com pimping it out

Most of my writings/reviews focus on sites targeted to North American investors.  It’s not that I’m ethnocentric or xenophobic (good SAT prep), it’s just what I’m more familiar with.  The FT, or more formally, England’s Financial Times, has the same brand cache that the Wall Street Journal has for US readers.  PaidContent.org has a good review of some recent and planned future changes in FT.com.

More than just cosmetic changes, the FT.com is addressing monetization of financial content, combining an interesting mix of free and premium content.  Other interesting nuggets are the cool things ad sales guys can do when you have both offline and online properties, including some special sponsorship opportunities.  Check out the review here.