There aren’t a lot of really innovative search technologies for investors.
That’s changing — researchers and entrepreneur are looking at unique ways to classify financial product data on mutual funds and ETFs. That means it gets easier for us to identify new investments that make sense for our portfolios.
Uri Kartoun, co-founder of Stockato, has some great academic experience in robotics and classification of large data sets and he’s turned his attention to investing.
Uri joins us to talk about how his set of cloud tools can help this generation of investors find the investments they’re looking for…and maybe what they didn’t know they were looking for.
Listen to the FULL episode
About Uri Kartoun
Uri received his PhD from the Ben-Gurion University of the Negev in Robotics and Intelligent Systems and worked as a research Software Developer Engineer at Microsoft Business Solutions Group.
The Sedo IDNX tracks the latest trends in domain prices.
Domain names rapidly gained in value between 2006 and 2007, with prices peaking in November 2007 (an increase of 76% compared to January 2006) before falling by 34% in the subsequent five quarters. Domains have steadily regained their strength since then, climbing to an all-time high in May 2011.
Domain name index performance
For more info on the index, its composition, and performance, check out IDNX.com. More specifically,
On average, domain prices grew by 9.3% per year in the last 6 years, exhibiting a boom and bust pattern that closely resembles the path of the overall IT market (Source: Valuable Words: Pricing Internet Domain Names)
Now, I’d like to look at how investors can lower their risks of defaults on these types of loans and boost their overall returns.
The problem with P2P loans
Like in most areas where information is asymmetrical between two parties entering a transaction, p2p loans present an informational problem.
Borrowers know a lot more about their potential to repay a loan than those making the loan.
In a traditional banking relationship, banks have resources to attach a number (a credit score) to a loan. Given experience and data, banks can estimate the probability that a borrower with that number will default. It’s an imperfect solution but works (at least, most of the time).
Borrowers on p2p marketplaces like Prosper.com aren’t given an actual credit score. Instead, they’re grouped into categories of credit worthiness which further complicates our ability as investors to assess their ability to pay us back.
How social networks help investors better their returns
To mitigate this problem, p2p loan marketplaces have created their own versions of social networks where borrowers can friend people and organizations.
And you guessed it — these groups are key to helping us investors determine the chance that our investments pay off (or don’t).
Why? Because research has shown that borrowers with friends on these investment platforms are:
more likely to get their loans funded (not necessarily a good thing — we want borrowers to get funded and be more likely to pay).
less likely to default on their loans (bingo!)
Why? It’s all about signaling.
The results suggest that verifiable friendships help consummate loans because they are credible signals of credit quality
We want to invest in loans that provide us with a good return but are also the “right” type of borrower. Using friends and endorsements are key to solving this issue.
We show that borrowers with online friends on the Prosper.com platform have better ex-ante outcomes. This effect is more pronounced when friendships are verifiable and friends are of the types that are more likely to signal better credit quality. The results are consistent with the joint hypothesis that friendship ties act as a signal of credit quality, and that individual investors understand this relationship and incorporate it into their lending decisions. To further pin down why friendships matter, we examine whether friendships are related to ex-post loan outcomes. We find that borrowers with friends, especially of the sort that are more likely to be credible signals of credit quality, are less likely to default.
9 ways to improve our chances investing in P2P loans
If you’re like millions of people, you’re probably worried about your net worth.
Pretty worried.
The market’s up and then, it’s down. Jobs are being created and lost. Banks are stable and then they lose $3B seemingly overnight. And politicians? Nobody seems to have a strong plan to get us through and certainly not the political will to see it through.
It’s not entirely clear if the economy is recovering or not.
Investments: riskier, less diverse, zero confidence
If you have investments, you’re probably experiencing the following:
Volatility spikes: The market has the great ability to lull people into a false sense of security and then, wham! You get periods like the beginning of May where it feels like the world is ending. Nothing looks good right now. Nothing feels right, either.
Diversification doesn’t seem to be working: It may be exchange traded funds doing it or just a general move towards passive investing, but all types of investments are moving more in tandem. When stocks go down, they bring down other “safer” assets. The theory of diversification isn’t providing the benefits it promised. That’s where we are — when things are bad, it seems that there is nowhere to hide.
Lack of confidence in reaching financial goals: Many investors are just throwing up their hands. No más. They feel the stock market is rigged (it is, somewhat) and don’t want a part of it. But in an environment where bonds and CDs pay so little, underfunded-for-retirement investors need to reach for more risky assets and are forced to play a game that they don’t want to play.
To build and protect wealth, Investors don’t need another get-rich-quick scheme.
Instead, look at history’s best investors to understand the basics of investing, the players in the market and their different priorities, what works and what doesn’t, and how to manage volatility.
Steven Sears, editor and columnist at Barron’s, has written just such a book. His writing has a lifetime of experience and advice witnessing what works for the best investors…and what doesn’t.
We all know how poorly individual investors do in the markets. Just look at any Dalbar study and you’ll see just how most investors don’t come close to achieving market returns.
One reason (but not the real one) why investors perform so poorly
Market structures are part of the problem. For years, it wasn’t Wall Street with its capital source, individual investors. It was Wall Street versus individual investors.
Selling is Wall Street’s essence just as surely as buying is Main Street’s. Wall Street almost never tells you to sell (The Indomitable Investor by Steve Sears)
It’s almost as if brokers and their clients were pitted against one another — brokers sold when their clients bought.
The real reason investors struggle
But, that’s not the main reason investors stink up the joint.
Finovate has really become the go-to tech conference for fintech startups to launch themselves and new products. There really isn’t another conference dedicated to financial startups that competes with Finovate.
The show has grown from 250 attendees to over 1200 this year. Many of today’s leading Finance 2.0 startups have presented at Finovate at some time or another. I haven’t seen a connection (yet) between presenters at the show and future success (growth, M&A, etc.) but it’s still early for this industry.
Thanks to Famzoo (who presented last year) for putting together Finovate’s winners throughout the years.
Professor James Berman has taken a new investing research platform (Trefis) and made it even more valuable.
His new investment advisory newsletter, the Berman Value Folio, integrates interactive modeling tools to create what I think is one of the first mashups of next generation investment research.
James is our guest this week on Tradestreaming Radio to talk about the investment research process, the next generation of research tools (including Trefis), and how he’s created his investment product.
I’ve been chatting with a few friends over the past couple of days about which model will prevail for wealth management in years to come.
2 sides to the argument
Essentially, there are 2 sides to the argument:
virtualists: The virutalists are banking on a future where investment advisors will prospect, deliver advice, and service clients over virtual channels (Internet, phone, chat, video conference). This is a boundary-less marketing environment and doesn’t put a premium on marketing to a local clientele. That’s a world where there’s no tennis, no kids’ bar mitzvas, and certainly, no shoulder-crying on your advisor when markets go bad.
ol’ skoolers: This camp doesn’t envision a world where the delivery of financial services changes very much from what it’s been traditionally. Advisors have adopted email and websites and yes, are beginning to use social networks but ultimately, it’s a face-to-face business. You may buy diapers online but you’ll never really buy financial services online.
Smart investors are looking at various data sets to help give them an edge with their investing. Some of this information is financial in nature — much of it isn’t.
Professor Darren Roulstone has studied how investors are using Google to search out financial information and what search volume may say about future stock prices.
Uri received his PhD from the Ben-Gurion University of the Negev in Robotics and Intelligent Systems and worked as a research Software Developer Engineer at Microsoft Business Solutions Group.
