Helping advisors, clients monitor investments smarter – with John Prendergast

For various reasons, investors have hard a hard time making sense of how well they’ve performed. Brokerage statements are broken and without the right tools to measure performance, investors (and their advisors) have suffered.

Until blueleaf came along. Founded by John Prendergast, this week’s guest on Tradestreaming Radio, the firm provides client reporting and portfolio monitoring tools to advisors and their clients. Simply and elegantly.

Continue reading “Helping advisors, clients monitor investments smarter – with John Prendergast”

Looking at Magic Formula returns, Morningstar gets all apologetic over industry performance

Screening 2.0 and beyond

Readers of this site have learned a bit about Screening 2.0 — the ability to use Internet tools (many of them, free) to recreate portfolios that conform to the investment criteria of history’s best investors.

Validea’s John Reese has done much of the research legwork on the subject and has produced a premium product to help investors create Peter Lynch, Ken Fisher, and Ben Graham portfolios (among others).

The magic of  Greenblatt’s Magic Formulamagictrick

One source I mention frequently is Joel Greenblatt’s Magic Formula.  Greenblatt wrote about his investing magic in The Little Book that Beats the Market.  He also provides investors with a free website to screen for the top ranking stocks that fit his criteria at magicformulainvesting.com.

Morningstar takes a look at Magic Formula returns in a recent piece.  Here’s what they come up with:

We see that the formula posted approximately a 19.9% annualized return from the beginning of 1988 through Sept. 30, 2009. Over that time, the S&P 500 Index returned 9.4% annualized.

Not too shabby.

But as a frequent shill for the mutual fund industry, Morningstar feels the need to compare this market-trumping return to top performing mutual funds.  And that’s when things take an interesting turn:  The article’s author, John Coumarianos, sounds surprisingly introspective in his (near) critique of active fund management.

The market isn’t efficient, as the indexers say, but its inefficiencies are apparently not easily exploitable for some of the finest pros either–at least given how many of them currently go about investing, trying earnestly to predict future profits and discounting them back to the present. Perhaps managers outthink themselves or have too much confidence in their predictive abilities instead of relying on past results.

Why funds may perform so badly as a class

The author also cites the mutual fund structure, size, and the legacy nature of a fund portfolio — making it so easy for investors to buy and sell an already outdated model — as an impediment.  Does this mean that portfolio mirroring a la kaChing and Covestor (where investors sync their brokerage accounts up to a professional investor’s portfolio model) has another leg up on the industry?  The separately managed account model (SMA) which institutionalizes this mirroring process does have its benefits, including better tax efficiency (all stocks are held in investor’s name and cost basis is individualized) and transparency (stocks in the portfolio are held in brokerage account).

10 predictions in online finance for 2010

I’ve been thinking about what the future has in store for investors and I’d like 2010to use this post to help clarify my thinking.   Essentially, I’d like to hone in on what 2010 portends for online finance.  I’m looking for some broader trends, as well as some company-specific prognostication.

  1. AOL’s ascension, Yahoo Finance’s continued domination, Google Finance tweaks:  Now that AOL has fully cut the cord from Time Warner after opening up the portal, it’s got to fend for itself.  AOL Money’s new incarnation is DailyFinance, a formidable offering worthy of investor eyeballs.  DailyFinance is the crux around which AOL has woven its numerous niche sites, like financial blogging site BloggingStocks and personal finance site, WalletPop.  Look to AOL to get its ship in order and move up the traffic charts.  Yahoo Finance, barring a sale of the tech firm, will continue to dominate, without really any changes to the platform.  They’re pretty much on cruise control but will still get the vast majority of financial traffic.  Google Finance will still suffer from lack of attention but the search firm will turn its sites on generating traffic to the fledgling site given the fact that CPMs are high in the financial vertical.
  2. Consolidation in the brokerage industry: While many of the old-school online brokers (what a weird expression) are still wary of the changes social media has ushered in to online finance, a couple of the startups in the field (Zecco, TradeKing, TradeMonster) understand it very well.  I think you’ll see the big boys make a small tuck-in acquisition of one or two of these players and continue to run them under their own brand.  An acquisition would be  a relatively inexpensive laboratory for the big brokers to begin to get a feel for the second generation online trading environments.
  3. Small RIAs begin to adopt expert communities in greater numbers: Covestor and kaChing offer asset managers an alternative distribution mechanism to bring in assets.  Through a transparent trading platform and encouraged blogging, expert communities provide a business model to the financial blogosphere as participants get paid by investors to mirror their trading activity in their own brokerage accounts.
  4. Howard Lindzon does it again: StockTwits gets an offer for $25 howard_stocktwitsmillion — I’m not convinced he accepts it or where the offer comes from, but his winning streak continues.
  5. SeekingAlpha raises another round of financing: On top of the round they just raised, the financial content aggregator will go to the till to raise more funds as profitability remains somewhat elusive and management gets aggressive about growth.
  6. Reuters buys Wikinvest: Reuters understands branded content (a wikinvestla Felix Salmon and recent purchase of Breaking Views) but also understands the power of social media.  Wikinvest would be an interesting addition to the recent rollout of sweet, new Reuters.com.
  7. Jim Cramer and TheStreet.com left with few options: TheStreet.com sees revenues decrease and isn’t able to find a buyer or strategic investor.  Their blend of freemium content doesn’t resonate well with the public and they continue to struggle to find footing.  While current columnists won’t see the whupping that Dykstra took this year, the firm prepares for bankruptcy in 2011.
  8. Bloomberg, Bloomberg, Bloomberg: Bloomberg fires on all cylinders.  As it continues to own the institutional space, with BusinessWeek in tow, Bloomberg gets serious about retail financial/business content.  They hire more than 5 people to run Bloomberg.com and they make other smart, strategic acquisitions to pimp out their portfolio of properties.  For a firm that gets so little of online finance traffic (I think last numbers were less than 5% of online finance traffic), they have a long runway ahead of them.
  9. James Altucher becomes  the man: Blending smarts with a good altucher_dailyfinance_blogwatchsense of humor, Altucher is on his way to ubiquity with great positioning in the WSJ, RealMoney, and AOL’s DailyFinance. Look to see more of Altucher’s market commentary and stock picks.  By the end of 2010, Altucher will launch his own mutual fund as he goes retail.
  10. Maria Bartiromo and Tiger Woods: 2010 will reveal that the queen of CNBC will have traveled with Tiger on his private jet numerous times with no chaperon.  Well, not really.  But who hasn’t been with Tiger…

Wishing everyone a great holiday season and a prosperous 2010.  It can only get better from here (I hope).