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Rats, Incentives, and Investing (video)

Legg Mason Capital Management, Michael Mauboussin talks about rats, incentives and investing in this video.

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How publicly traded companies communicate in the age of Twitter (podcast)

tradestream radio, discussing investing and technology

In this week’s podcast, we  talk to a true expert in corporate communications. Dominic Jones has been analyzing the intersection of social media with how publicly traded companies communicate since the 1990s. On IRWebReport.com, he’s a sharp critic of how typical companies interface with their shareholders and is full of ideas on how to improve this channel.

We discuss

  • how companies are changing (or not) how they are communicating with their investor communities
  • using technology to make more vibrant and democratic capital markets
  • how public companies are influenced in how they communicate by Investor Relations (IR) vendors and associations
  • the recent foray of Netflix ($NFLX) CEO into blogging to support his company and his stock against short sellers
  • and a lot more

Listen to the whole show by clicking below (if you don’t see the player, click here):

Learn more

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Individualism, investing and getting trampled by the herd

It’s hard to be a rugged individualist in the investing world.  So much is predicated on media hype and momentum investing.  It turns out that best results are typically produced by investors that are careful and confident.  One way to view this is via the BB&K Model:

Source: Bailard, Biehl & Kaiser

These researchers judged investors on two attributes, method of action (careful or impetuous) and level of confidence (confident or anxious).  The result was a framework that divided investors into 5 classes of people:

  • Individualist: careful, confident and often takes a do-it-yourself approach
  • Adventurer: volatile, entrepreneurial and strong-willed
  • Celebrity: follower of the latest investment fad
  • Guardian: highly risk averse and wealth preserver
  • Straight arrow: shares the characteristics of all the above equally

It shouldn’t be surprising that the individualist performs best.  Much of the collective tradestream is made up of celebrity adventurers, pumping and jumping on every new stock or fad.  Many of these momo guys make a lot of money, until they don’t.  It’s important for investors to be able to dissociate themselves — to unplug from the tradestream — for a period of time to rationalize their motivations for investing in general and in specific securities in particular.

Do we need to be in the stock market at all? Are we trying to play defensive or opportunistically?   So many times we meet with clients with existing, large portfolios who don’t know why they’re investing.  Like so many other things in life, if you don’t know why you’re participating, you probably shouldn’t be.  The stakes are too high, the noise too loud and the gravitational force of trend chasing just too strong.

For those independent enough to withstand all the pernicious hamstringing behaviors unaware human investors display, it’s a lonely path, long and winding.  But, like most valuable pursuits in life, worth the effort.

Learn more

We’ll be discussing more about this and other essential traits for stock pickers in an upcoming Tradestreaming Radio episode with Jim Valentine, author of a great new book, Best Practices for Equity Research Analysts: Essentials for Buy-Side and Sell-Side Analysts

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Who needs the trading month? Just buy the first day

Tradestreaming (blog and book) is all about finding tested investment strategies that perform better/smarter.  They can perform better than us trying to outsmart Mr. Market (the majority of individual investors underperform the market) and they perform better than just buying an index fund and letting it fester away in your IRA.

I wrote recently about a strategy that entails just owning the market while it’s closed and selling when it opens (it rocks, by the way).  Continuing upon this meme of finding tested strategies that don’t require investors to just blindly buy-and-hold (or as some call it, buy and pray), I read a recent post on first of month trading results by the guys at Stock Trader’s Almanac.

It turns out the average returns on the first day of each month over the past 13+ years for the Dow Jones (DJIA) are greater than all the other days put together.  This is also documented in the newest version of  the 2011 Stock Trader’s Almanac (affiliate link) on page 62.  Check the book out.

According to the research:

Over the last 13.5 years the Dow Jones Industrial Average has gained more points on the first trading days of all months than all other days combined. While the Dow has gained 4417.74 points between September 2, 1997 (7622.42) and February 1, 2011 (12040.16), it is incredible that 6021.31 points were gained on the first trading days of 162 month

Resources

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What Urban Meyer’s retirement means for investors

Massively winning University of Florida football coach Urban Meyer announced his resignation (again) from coaching. After some health problems and a premature announcement of his exiting coaching last year, this move appears is permanent

What prompted a coach that has built one of the most successful and winningest football programs in the US to just give up and quit?

At the end of the day, I’m very convinced that you’re going to be judged on how you are as a husband and as a father and not on how many bowl games we won (Washington Post blog)

Winners leave on top

Being successful in investing — like life — means knowing when you’ve seen your fortunate share.  Exiting a winner shows a certain gratitude for what you’ve been given, whether monetary abundance, family bliss, or other gifts.  Staying around too long, trying to push the envelope beyond this natural departure point doesn’t work.
I’m sad when I watch Brett Favre play football.  I’m embarrassed for him.  He doesn’t know when to say goodbye.  One of my favorite players of all time, Detroit’s famed running back, Barry Sanders surprised everyone when he just bowed out.  He had a few more years and a few more thousands of yards in him.  But he was done.  Michael Jordan battled with his fate, returning to basketball, when he should have been at home, coaching, investing — anything but continuing to do the same things that had made him so successful in the first place.

Leaving is harder than staying

Sticking around for Meyer would have been the easier decision, but not necessarily the right one.  It took a huge pair of testicles to do what he did.  That’s a true sign of leadership and success.
History has a natural replacement cycle.  People die and new generations of people replace them and their roles.  Successful investors should recognize this pattern, be thankful for what they have and realize at some point, it’s someone else’s turn to take over.
No one says you have to remain invested.  That’s just one of many false aphorisms we’ve been fed.
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The real-time web and its impact on investing (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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The rise of independent publishers through blogging tools such as WordPress has been profound for the investor community.  With the integration of RSSCloud, PuSH, Twitter, and Facebook — blogs are now part of the real-time stream and are playing an ever large role in the day-to-day of the investors. I’ve seen firsthand two major trends that were previously unthinkable and nearly impossible to pull off. The first is the micro specialist blogger who focuses on a very niche topic — perhaps a single stock or a single bucket of previously uncovered equities.  The exposure and insight from these publishers has provided a key data point to investors, and provides content on topics that are not covered by analysts and the MSM financial publications.

The second major trend has been the inclusion of bloggers covering seemingly non-financial content, but who are in fact informing investors with their coverage.  This trend includes fashion bloggers who impact investors covering retail, and local political bloggers who cover topics which impact energy markets, currency trading, and the like.

Raanan Bar-Cohen has over 15 years experience as an entrepreneur and innovator in the digital media space.  Raanan currently serves as Vice President of Media Services at Automattic, which leads the WordPress Open Source publishing project and runs a number of online services including WordPress.com, Akismet, Gravatar, IntenseDebate, and PollDaddy.
Raanan blogs often @ https://raanan.com and can be followed @ https://twitter.com/raanan

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

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Inching towards an investing app store

Service and product providers in the financial field have always lamented how hard it was to reach investors.

Sure, we could market to the investing public in a large, splashy way but it would be so awesome if we could just do a deal with the online brokers and offer our services through an investment account login…

I know this sentiment well.  When I was running business development at Seeking Alpha a few years back, it was so clear that the best/easiest/cheapest way to reach investors with our content was directly through the likes of E*Trade ($ETFC), Schwab ($SCHW), and TDAmeritrade ($AMTD).

This hasn’t been completely lost on the incumbent online brokers (but boy, do they move slowly!).  I’ve riffed previously on how everything is moving towards the creation of investment app stores.  Much like Apple’s famed AppStore, 3rd party service providers would be able to develop their services and products for delivery through the brokerage platform.  TDAmeritrade has a short, but growing  list of providers who are currently doing this here.

The investment app store concept is huge and extremely valuable for everyone in the value chain:

  • Investors: Online brokerage clients no longer have to wait for the walled-garden brokers to develop their own tools and services.  Brokerages are notoriously slow in rolling out new functionality or they typically acquire it (a-la TDAmeritrade’s purchase of ThinkorSwim).
  • Brokers: No need to swell the ranks of the product dev teams.  Now, they just have to manage the API and partnerships and they get a new revenue stream.  Sweet.
  • 3rd party solutions: Wham, investment newsletters, black box trading strategies, content aggregators and others have just been invited to the party.  You can know actually technically reach the end user investor.  Don’t expect the brokerages to promote you though 🙂

So, just like the tit-for-tat we’ve witnessed for years, we shouldn’t be surprised to see that E*Trade just announced the introduction of its API and partnerships with three external firms.

“Open API presents a world of opportunity to customers looking for a more customized investing experience and to software developers looking to create the next great investing app,” said Michael Curcio, President, E*TRADE Securities. “Our main objective is to facilitate innovation and ideas that empower customers — ultimately creating a richer investing experience.”

Source: E*Trade Bolsters Trading Innovation with Open Application Programming Interface (MarketWatch)

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Photo credit: Jurvetson photostream

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Looking to make a Mint in financial planning

So, top-dog personal finance website, Mint.com, just announced a further step into financial planning with some goals-based tools to help users plan financially for the future.

From the release:

Mint’s new Goals feature seeks to take the difficulty out of both setting goals and regularly tracking your progress towards those goals. With a few clicks of the mouse, you can set up a savings goal, and then use Mint.com to help you achieve that goal.

Using Goals for Saving for the Future

So, if a Mint user wanted to save for something like home improvements, they’d use Goals to:

  1. Set funding source
  2. Set goal dollar amount
  3. Blend in financing options
  4. Establish target date
  5. Specify monthly savings target

Makes perfect sense, right?

So, the move from helping people track to helping them plan is an obvious one and a good move for Mint.

And Mint’s revenue model/value proposition work well for this foray into planning.  I assume Mint will begin to gain referral fees as they recommend loans, travel services — anything that helps assist in the savings and planning process.

According to the NY Times:

The new feature comes as Mint.com is facing increasing competition in the online financial software space. New entrants like HelloWallet have started attacking Mint.com’s business model and have emphasized how they offer more financial planning advice services.

The trend

We’ve seen investment platforms begin to automate professional grade services to their client in an effort to round out their offering and attract full-service clients (see my review of E*Trade’s Online Adviser).  Now, we’re seeing personal finance sites begin to creep into the financial planning/investing/future-oriented space.

What get’s me juiced is that sites like Mint have a TON of information about their users — the type of information the investment portals and online brokers drool over.  This positions them better for a move into investing — much like the much ballyhooed-TechCrunch Disrupt-winner Betterment is focused on.

Additional Resources

  • Mint.com Expands Into Financial Planning Tools (NY Times)
  • How To Set and Track Financial Goals With Mint (Mint blog)
  • Goal Keeping Gets Easier at Mint.com (All Things Digital)

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

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Best investment newsletter resources

Throughout the writing of my book, Tradestreaming, I’ve been asked time and time again if there are any good resources (lists, really) of the top investment newsletters. Unfortunately, there aren’t any all-encompassing sites that investors can tap. This post is a start. Please comment or contact me if you have anything to add, as well.

Top investment newsletter resources

There a couple of firms that market multiple newsletters.  Sometimes, these are just publishing firms that produce different products.  Others, like Forbes, market 3rd part newsletters.

Diversified investment newsletter businesses

InvestorPlace: Philips Newsletters, a giant in the financial newsletter place, uses InvestorPlace as its flagship site to market its newsletters.

StockTwits: More blogs/trading systems than traditional investment newsletters, StockTwits’ store sells subscriptions to the blogs of many of StockTwits’ top investors and analysts.

Cabot: In the business for 40 years, Cabot publishes a variety of newsletters.

MoneyWeek: The UK’s best selling finance magazine also offers a variety of subscription investment letters.

Stansberry Research: Another 800lb gorilla in the financial newsletter space, Stansberry publishes almost 20 different subscription newsletters

Motley Fool: Of course, we couldn’t leave out The Fool — they’re got a stable of about 10 newsletters.

3rd part newsletter distributors

Forbes Newsletters: In addition to the Forbes.com site, the old business mag distributes both their own premium newsletters as well as leading newsletters like Al Frank’s Prudent Speculator and the Obeweis Report.

Financial newsletter directories

MarketWatch Newsletter Directory: Dow Jones’ MarketWatch has a database of many of the industry’s top financial newsletters.

Newsletter Access: This site claims a directory of over 9000 investment letters

Seeking Alpha’s Newsletter Authors: The financial content aggregator has a listing of all its authors categorized as newsletter authors

Investment Newsletter Benchmarking

Hulbert Financial Digest: Mark Hulbert has been following the performance of top newsletters for heaven-knows how many years.  He publishes a newsletter himself of his findings on which newsletters exhibit top performance — and which don’t.

Investimonials: Users submit their own rankings on many of the industry’s leading investment newsletters.

Crowdsourced Trading Strategies

Zignals: Not sure why more people don’t know about this Irish firm but they allow users to publish trading strategies and investors to subscribe to them.

Academic Research

The Equity Performance of Investment Newsletters

Herding Among Investment Newsletters: Theory and Evidence

Market Timing Ability and Volatility Implied in Investment Newsletters’ Asset Allocation Recommendations

The Performance of Investment Newsletters

How to Start an Investment Newsletter

NewsletterGrowth: This is a shameless plug for a site that I’m incubating that really helpful for investment newsletter writers/publishers and people thinking about getting into the business to maximize their writing, marketing, and monetization of their investment newsletters.  Check it out — there’s also a 20+ page ebook about how to start an investment newsletter.

What to do next

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