Crowdsourcing vs. Piggybacking: An ongoing debate

Just returned from a mini-tour for Tradestreaming which ended with an editorial of mine appearing on CNNMoney.

CNN’s editors thought the tension between investing alongside guru investors (what I call, piggybacking) and following the crowd (which devalues individual expertise) was worth exploring (in 800 words or less).  It was a great topic and one that I didn’t give enough verbiage to in the book.

Part of this was laziness, part of it was in effort to keep the text short, and part of it was that crowdsourcing investment ideas is still really in its infancy.  While we can essentially clone hedge fund portfolios (with great tools like AlphaClone or great resources like MarketFolly), crowdsourcing tools are still finding their footing (I like Piqqem).

Here’s the crux of the matter:

So while it’s premature to say whether crowdsourcing can act as a standalone strategy, it may make sense for investors to tap the wisdom of the masses in addition to the other strategies they use to generate investment ideas.

The Internet and social media are truly changing the way we acquire information, research investments, and manage our portfolios. The playing field is more level than it’s ever been, and that’s a good thing. Happy tradestreaming.

You can read the whole article on CNNMoney , Follow the smart money — and the crowd

Photo courtesy of futureshape

More technology, more information still requires guidance

This post was originally included as part of an ebook that I published alongside the launch of my book, Tradestream, entitled “Tradestreaming and the Future of Investing”. The content was so good I wanted everyone to have access to it.  Mick Weinstein, ex-Editor in Chief of Seeking Alpha contributed this piece as part of the introduction to my new book.

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My father was a young attorney with a few bucks to invest when he stepped in a local brokerage house in Wilmington, Delaware. It was the summer of 1970.  “You’d open the door to smoke wafting through the air and the aroma of strong-brewed coffee, and ?nd 20 or so retired altacockers sitting around a sort of minitheater, peering up at the electronic quotes rolling by on the wall, plotting their next moves,” he recalls. On a nearby table, a few loose-leaf binders issued by Standard & Poor’s held one-pagers on the most commonly traded stocks: management bios, basic ?nancials, price history. “Oftentimes you’d go to research a stock from the S&P binder and its page would be missing,” my dad recalls. “Some of these guys didn’t read so fast, so they’d sneak a few sheets home in their jacket pocket to peruse after watching Cronkite.”

Behind the altacockers were the brokers, including my father’s broker-to-be, Jack. For this generation of stock market investors, the brokers had all the real information—and clout. Upon receiving fresh research from his ?rm’s Wall Street analysts (who enjoyed privileged access to company executives and industry data and trends), Jack would dial up his clients selectively to suggest buys and sells that drove his own, entirely commission-based income. On the golf course and at dinner parties, the young professionals bragged to one other about the stocks that their broker “put them into,” and Jack was held in high esteem by my father and his community peers.

For my father’s generation, stock market investing was de?ned by information scarcity and personal trust in your broker. Fast forward to 2010. Today’s Internet has almost completely wiped out this scene from just 30 years ago. Today’s individual investors confront a market characterized by information overload and a need for personal decision making. The good news: No missing pages on that loose-leaf binder—you can get massive amounts of information and opinion on any given stock with the click of a mouse. The bad news: There’s no Jack. You’re on your own to make sense of it all and, unless you have the means to hire an asset manager, to build your portfolio yourself.

So where to begin? Most individual investors today are familiar with the large portals like Yahoo Finance and MSN Money that allow you to enter your portfolio or watchlist and receive mounds of data, breaking news and traditional journalism on stocks you own or follow. The portals also offer some powerful stock screens that can help an investor with speci?c strategic goals to access stocks, ETFs or other products that meet those objectives.  Seeking Alpha augments this content with informed, well-researched opinion and analysis from market professionals and sector experts, plus free conference call transcripts to read what industry leaders are saying about their business and sectors. Instant access to regulatory ?lings (coupled with Regulation FD) grants everyone immediate access to company reports, important developments, top investors’ moves, and corporate insider stock sales/buys. And new players in the market like Covestor and other “crowdsourcing” sites aim to bubble up the best individual investors and stock pickers, so individual investors can lock onto their ideas or even copy their trades.

So where’s today’s Jack in all this? Or, given the fact that investment goals differ so greatly, perhaps the question is better phrased: Where’s your Jack in all this? The bottom line is that you need to build your own Jack today. That means you need to do more homework, but once you’ve found the tools that work well for you, the process of portfolio building is much more rewarding and, likely, lucrative than it was a generation ago.

*—> Like what you see? Hey! Don’t forget to subscribe to the free Tradestreaming newsletter for updates, tips, and special offers

Mick Weinstein was Editor in Chief of market and investment analysis website Seeking Alpha until April, 2010. A graduate of the University of Michigan, he now lives in Israel with his family.

Bringing to life history’s best investing strategies via technology (Future of Investing)

This post was originally included as part of an ebook that I published alongside the launch of my book, Tradestream, entitled “Tradestreaming and the Future of Investing”. The content was so good I wanted everyone to have access to it. :-)

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At Validea, our belief is that investors can produce market outperformance by following the quantitative strategies of Wall Street greats, like Warren Buffett, Peter Lynch, John Neff, Joel Greenblatt, Ben Graham and others.  Rather than creating new strategies, Validea takes the publicly disclosed stock selection methods outlined by these successful long term investors in their writings and lectures and captures their methodologies in a systematic investment approach that allows for bottom-up stock analysis, stock screening and model portfolio creation. While advancements in technology and fundamental stock data availability have been crucial in the development of the next generation of stock screening tools, Validea’s algorithms are proprietary and incorporate aspects of artificial intelligence so that certain criteria are measured in the same way a human would measure them.

Simple screens, like screening on the Price-to-Earnings ratio or Relative Strength, are useful as a starting point for building a portfolio, but the sophistication and uniqueness of guru-models like Validea’s allow for the selection of top rated stocks according to each proven fundamentally-based investment strategy. By vetting over 6,000 securities for over 7 years through these models, which have anywhere from five to fifteen distinct criteria, we have demonstrated the value of these approaches through our model portfolio tool. By holding baskets of stocks that pass through a guru filter, investors are able to statistically put the odds in their favor and over time, this results in 55-60% of portfolio positions winning. Applying these strategies through a disciplined framework allows for excellent potential for long term market beating returns.

*—> Like what you see? Hey! Don’t forget to subscribe to the free Tradestreaming newsletter for updates, tips, and special offers

Justin Carbonneau is a partner at Validea Capital and manages the firm’s Private Client Group. He also acts as the principal business development officer for the company and is responsible for managing growth efforts and strategic initiatives. Prior to joining Validea Capital, Justin was a controller for a Fortune 500 healthcare company where he was a member of the firm’s leadership development program.

Insider trading activities (SINLetter) — August 8, 2010

Asif Suria has done great work over the past couple of years.  Check out what he does at SINLetter.com.

He publishes an Insider Weekend which runs down insider buying/selling trends (a Tradestreaming hallmark) and highlights specific names that are seeing significant insider activity. Here’s the current installment.

Insider buying increased once again last week with insiders purchasing $21.82 million of their stock when compared to $13.42 million in the week prior. Selling also increased with insiders selling $821.45 million worth of stock when compared to $498.22 million in the week prior.

Suria compares buy/sell ratios to previous weeks’ activity:

The adjusted ratio for last week dropped once again to 21.82. In other words, insiders sold almost 22 times as much stock as they purchased.

On the notable buy/sell side, Suria calls out activity in Akamai (AKAM), Ford Motor (F), and Herbalife (HLF) among others.  Check it out.

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Insider buying trends (SINLetter.com)

Asif Suria has done great work over the past couple of years.  Check out what he does at SINLetter.com.

He publishes an Insider Weekend which runs down insider buying/selling trends (a Tradestreaming hallmark) and highlights specific names that are seeing significant insider activity.  Here’s the current installment.

Insider buying rebounded last week with insiders purchasing $13.42 million of their stock last week when compared to just $3.4 million in the week prior. Selling picked up pace with insiders selling $498.22 million worth of stock.

Suria compares buy/sell ratios to previous weeks’ activity:

The Sell/Buy ratio this week compares favorably with the week prior when the ratio stood at 98.64 (51.13 without the AutoZone sales).

On the notable buy/sell side, Suria calls out activity in Blackrock (BLK) and Eagle Bancorp (EGBN) among others.  Check it out.

—> Like what you see? Hey! Don’t forget to subscribe to the free Tradestreaming newsletter for updates, tips, and special offers.

How to make Betterment better (Hint: truth in marketing)

Sometimes, it’s worth reading the fine print — especially, when it comes to financial products.

I was interviewed by Mint.com recently about my thoughts on Betterment, a startup that performed pretty well at recent tech conference, TechCrunch Disrupt (see, Betterment wants to be your new, higher-yield savings account).

What is Betterment?

Well, it’s really an investment advisory service that masquerades as being a better savings account.  By removing much of the jargon (the site doesn’t even mention securities by name), Betterment removes many of the barriers to putting money in the market.  As I said in the Mint interview:

For most people, opening an online trading account and figuring out what to buy and who to listen to, there’s so much noise out there.

And that’s true: how many individuals really understand asset allocation, diversification, risk when professionals have such a hard time defining them?  It’s kind of like I know it when I see it.  Betterment provides a usability layer that requires only one decision point: what percentage of my money do I want in the market?  That’s it.

Removing the confusing jargon and the pain points associated with complicated concepts is ultimately a good thing.  I can just picture my grandparents trying to navigate an E*Trade account trading screen.

Oops, it’s not actually a bank account

While pursuing a noble end (making investing easier for the mass majority), Betterment stumbles when it positions itself as an alternative to a savings account.  It is most definitely NOT a savings account.  Money in Betterment is split between Exchange Traded Funds (ETFs), one of which will include U.S. Treasury Bonds if you allocated to that.  That means, an account holder

  • risks losing some, if not all, his money
  • will see fluctuations in the account
  • will have investment-level taxes on gains

I was quoted in the interview:

“They took a process that’s inherently scary and overwhelming for people and used technology to simplify it,” says Miller. “I think that’s an honorable thing. But to market it again and again, to talk about a savings account, is just disreputable. It’s scary, actually.”

Though it appears that they’ve toned it down recently, there’s still just too much talk/discussion on the Betterment website about safety and savings.  Betterment may be a great product to *invest* spare cash just sitting in a savings account (much like ShareBuilder used to be).

Just don’t compare it to the savings account.  At 90 basis points (.9%), it’s also expensive.

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Source

A Better Savings Account? (Mint.com Blog)

Resources about stock buybacks

Stock buybacks, whether you like them or loathe them, are a reality and when companies are sitting on so much cash (like they are now – almost $1 trillion!), buybacks are certainly one option for companies looking to deploy their cash hordes.

Barron’s recently reviewed a few online resources to help investors stay on top of macro and company-specific trends.  You should read the whole article (sub. required).

Here are a couple of their ideas and some of my own thrown in to boot…

Stock buyback resources

  • S&P Indices Market Attributes Series — I’m not exactly sure of what that means but this page posts proprietary S&P reports into buybacks.  Good overview on their reports (like this one (.pdf))
  • The Online Investor: OLI does a good job of reporting all the buybacks in the market on a per-company basis.
  • StreetInsider: Ongoing free feed of stock repurchases at numerous U.S. traded companies.
  • Seeking Alpha transcript search: Seeking Alpha publishes thousands of free conference call transcripts.  Search for terms like “stock buybacks” or “share repurchases” and get a list of which companies are talking about them and what they’re saying.

Academic studies of share buybacks

Premium Newsletters using Share Repurchase Strategies

Funds using buyback strategies

  • PowerShares Buyback Achievers Portfolio ETF (PKW)

Read the whole Barron’s article here (sub req’d).

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Video Review: Trefis

Trefis.com is a great site to model up technology companies. There are some great tools — some analytical, some social, that allow investors to play around with growth/profitability assumptions to forecast a stock price.

What is Tradestreaming: Crowdsource your Portfolio

The wisdom of the crowds has been used to better predict world events, elections, and the outcomes of sporting events. It’s now being used for more accurate forecasting of stock prices. Instead of following experts, crowdsourcing investment ideas seeks to assess what the masses think about a specific stock. The crowd is frequently more accurate in its predictions than top analysts?.

Enter Social Media

But with the onslaught of investors publishing their thoughts on stocks and the market on Facebook and Twitter, it’s hard for investors to monitor all the noise. Determining what the crowd thinks about a specific investment is tricky. Therefore, we’ll also explore different ways that investors can effectively plumb the wisdom of the crowds to build a portfolio populated with stocks the crowd thinks are going up.

What if there was a way to leverage the collective knowledge of all investors out there and use it to make a profit? What if you could build a portfolio that took investment ideas from the throngs of day traders and couch-potato investors, firemen and police officers, lawyers and doctors—a population of millions of investors? Figure out where the herd mentality thinks profits are and damn the experts.

Tradestreaming is that way.

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