Yahoo Finance getting in on the real-time game

who will buy Yahoo Finance?

Thanks to the ever-vigilant Felix Salmon (he’s a hawk, actually) who tweeted a job opening at Yahoo Finance.

From the job posting:

We’re looking for an experienced, versatile, high-motor blog editor specializing in business news targeted at both sophisticated and mass-market audiences. The successful candidate will write and report his or her own stories, as well as hire and manage a small team of professional bloggers to curate and create original content for the largest audience on the Web. This person will set the strategy for and oversee the publication of financial blog content for programming on Yahoo! Finance, the Yahoo! network and consumption on the Web at-large.

The move in context

So, like Forbes which recently announced its intentions and strategy to unload its Investopedia property and embark on a more real-time blogging/curating model, Yahoo Finance is moving towards its own real-time financial content aggregation model.  Whether you agree with Fobes’ decision or not (and Paul Carr most certainly doesn’t calling it the “death of a thousand hacks”), Yahoo Finance’s move is different.

Forbes and Forbes.com have always been about content.  Forbes has always employed professional editors in a mixed outside-inside model for content, blending its own staff reporters with content contributed from asset managers and thought-leaders in their field.  Never known for its ability to break stories, Forbes really was about highlighting interesting opinions from experts in their verticals.

But Yahoo is different than Forbes

Yahoo Finance is a different animal.  While Yahoo Finance hasn’t changed much in the past 10 years (much to my chagrin), this move changes its tack.  Remember, Yahoo Finance, as a giant financial portal, has always been about aggregation of both data and information, taking feeds from tens of information and content providers.  By the way, check out ValueCruncher’s CEO’s, Mark Clare, great breakdown of Yahoo Finance, its past, its business and potential to disrupt providers like Bloomberg in the future.

Yahoo Finance is still the 800-lb gorilla in online finance as evidenced by its majority of traffic in the online finance category (see graph to the right). What’s made Yahoo Finance so strong was an early-mover advantage and a site that just worked quickly and had enough information on it to act as a proxy for a research terminal (Why Google Finance still sucks at its news offering is beyond me).  With a deal it consummated with Seeking Alpha in 2007, Y! Finance dipped its big toe into the wild and woolly financial blogosphere.  Now, with the job posting mentioned above, it appears that Yahoo Finance is changing its strategy.

How this may play out

This is a risky strategy.  In essence, the financial portal is pitting itself opposite all its content partners — many of whom pay the portal for the firehose of traffic it throws off.   I’d be less willing to partner with a company that is introducing a product to compete directly with mine.  And this is a common problem with channel marketing for any platform — and Yahoo Finance is certainly a finance platform — in that the platform, given where it sits in the whole matrix of supply-demand, can always just mimic other offerings that are working.  This is the fear of developing any tools that work on Twitter of Facebook – that the social media platform can quickly just put you out of business.

Such is the life now for Yahoo Finance content partners.  If (and this is a big IF) the Yahoo Finance offering is a combination of serious, professional editorial oversight with smart curation with a good understanding of what’s important to Y! Finance readers (a-la Abnormal Returns) with thought-evoking and decision-supporting articles, Yahoo Finance can evolve itself from a financial resource to a must-see, must-read site for both individual and institutional investors.

What if it doesn’t work

If, however, Yahoo Finance doesn’t do this right and takes a half-assed, half-baked approach, the results could be pretty serious: both for the company/site and for content, in general.  As Steve Lubetkin argued with me yesterday in the comments on PRNewser’s article Is Steve Rubel the Future of Forbes, aggregation using free, contributed — outside content — risks turning everything into an “echo chamber” where the biggest voices (those voices appearing everywhere) drown out newer, more creative content by people who take content creation really seriously.  If Yahoo Finance’s own content offering isn’t managed well, it could cause other partners to leave the site, taking their money and their contribution to the estimated few hundred million dollars in annual revenue Yahoo Finance generated.

What this all  means for aggregation sites?  We’ll have to see how it plays out.   There’s most likely room for multiple aggregators if they end up focusing on slightly different readerships (a retirement investors reads different content than a day trader).

Top Warren Buffett resources

Warren Buffett is an investing legend to almost 3 generations now.  Here’s the best way to learn from and about Warren Buffett.

About Warren Buffett

Wikipedia: Warren Buffett: everything you wanted to know about Buffett, the Oracle of Omaha
The Snowball: Warren Buffett and the Business of Life (book): written by Alice Schroeder, former director at Morgan Stanley, hand-picked Buffett biographer

Buffett on Forbes’ Richest People list

About Buffett’s investment strategies

Berkshire Hathaway’s shareholder letters: Go to the source for inside understanding of how Buffett looks at his own business and investing in others

MarketFolly: Buffett’s portfolio: Monitor the ins-and-outs of holdings in Buffett’s investment portfolio

Buffettology: the previously unexplained techniques that have made Warren Buffett the world’s most famous investor (book): Perhaps the best of the Buffett books, Buffettology is a great resource for investors to learn how Buffett values companies, complete with formulas

Buffett Beyond Value: Why Warren Buffett Looks to Growth and Management When Investing (book): With Buffett Beyond Value, you’ll learn that, contrary to popular belief, Warren Buffett is not a pure value investor, but a unique thinker who combines the principles of both value and growth investing strategies.

Warren Buffett Resources

CNBC channel on Buffett

GuruFocus’ tracking of Buffett’s investment holdings

Validea’s Buffett Portfolio: Screening for Buffett-like stocks and performance

Videos


Buffett takes heat on ownership of credit rating agencies.


Warren Buffett speaks to a class of MBA students.

What is Tradestreaming: Piggyback Investing

Learn and invest like the big boys

Tradestreaming is about using social media and Internet resources to plug into the collective investment activities of the world’s best and most profitable investors.  Research has shown that by piggybacking these guru investors — investing in some of the same stocks they’re buying — provides us close to the same returns as we would rack up if the top hedge funds — people like SAC’s Cohen, Berkshire’s Buffett, Carl Icahn and George Soros — managed our portfolios directly.

How to piggyback invest

The great thing about today’s investing environment is that there is an increasing level of transparency to some of the top hedge funds’ activities.  They’re required (or encouraged) to file periodic reports of their holdings.  These reports are a gold mine of information as investors get a window into what these guru investors are investing in or selling out of their portfolios.

With Tradestreaming, we would need millions of dollars of investable assets just for these top funds to consider managing our monies.  Instead, by mimicking hedge fund activity, we essentially outsource our research to the brightest and most profitable funds and invest alongside them.

Sites like AlphaClone and Marketfolly help us decipher exactly what investment funds are doing. There are a lot of tools that can assist in this process.  That’s what Tradestreaming is all about.

<- Previous: Ride the Long Tail I Next: Follow the Insiders –>

Photo credit: theyoungones

Crowdsourcing investments: it’s all about chosing the ‘right crowd’

We’ve spoken a lot about piggyback investing (mimicking the moves of top fund managers) and crowdsourcing ideas (using crowd sentiment to generate trading ideas) as two ‘new ways’ investors can devise profitable strategies.  The Internet is producing tons of information – the tradestream – that investors can plug into to get at this type of data.

But investors keep asking me, “Well, who do we follow?”  And they’re right – the Web continues to provide more and more insight into the daily trading activities of some of the brightest performers but with this onslaught of informational smog, we’re still left with the decision of who to track, who to follow, which crowd to source.  In Surowiecki’s book, in fact, he delves into the difference between smart crowds and not-so-smart crowds. 

TrimTab is one of the leading providers of capital flow information around which it creates trading strategies.  Last week the firm published a whitepaper (.pdf) outlining a contrarian ETF strategy that makes use of this aggregate data and actually bets against the dumb-money — in this case, the average retail investor.

In “Using Equity ETF Flows as a Contrary Leading Indicator” (.pdf), TrimTabs found the following:

  • Monthly  equity  ETF  flows  (as  a  percentage  of  assets)  and  the  returns  of  the  S&P  500  one  month  later  are negatively correlated to the tune of 21.4%. 
  • The  negative  correlation  rises  to  45.6%  for  a  two-month  period,  and  to  52.4%  for  a  three-month  period.  

With this in hand, the research firm created a system that goes long the S&P when money is flowing out of ETFs and sells it when money is moving in.  The results are amazing:

trimtabsperformance

The researchers suspect 2 reasons behind this performance:

  1. they believe that ETFs are typically really liquid and used primarily by retail investors whom TrimTabs believes are the least-well informed investors out there. Or better put, the ETF liquidity “allows investors to make poor decisions any time of day.” Or, as MarketWatch put it, “Simply put, ETF investors are impressively wrong in both directions.”
  2. hedge funds trade ETFs when liquidity dries up in individual stocks. 

Whether this works or not or is just backtested data (it works until it doesn’t), I don’t  know.  But it does drive home the importance of following the ‘right’ crowd or the right guru.  Otherwise, we are just part of the investing noise, not rising above it.

Top 6 resources for piggyback investing

Piggyback investing is the art/science of building portfolios based on mimicking the stock picks of some of the best superinvestors — asset spyingmanagers who have exhibited long term market-beating results.

Early research (check out some here) has shown that investors can achieve similar returns by piggybacking as the can by investing directly with the asset managers themselves (something only a very wealthy investor can do).

Here are a few of the best resources I’ve found for piggyback investing:

  1. AlphaClone: My personal favorite (read my review of the site as a cure to investor insanity).  Beyond just tracking the portfolio moves of top asset managers around the world, AlphaClone has built a full-blown research platform that allows investors to test piggybacking strategies to optimize returns.
  2. MarketFolly: Great site with ongoing commentary on what guru investors are buying and selling and why.  You can get investor letters as well as some analysis on the stocks themselves that investors are buying.
  3. Manual of Ideas: You should be reading this as well as subscribing to the premium newsletters.  Great stuff here that analyzes top investors’ moves and puts together screens and portfolios of some of the best picks of superinvestors like Warren Buffett, Bill Ackman, and Joel Greenblatt.
  4. Covestor and kaching: Two leading investment communities where both professionals and arm-chair portfolio managers manage real (Covestor) and virtual (kaching) portfolios where outside investors can use to generate new ideas.
  5. GuruFocus: Interesting free and premium offerings that track top guru buys as well as insider transactions.  Can download results into spreadsheets for more analysis.
  6. HedgeFundLetters: This site links out to the monthly/quarterly/yearly letters top hedge funds and other asset managers send to their investors.  Reading the wisdom of guru investors — what they’re buying and why — and how they describe the investment process in general is an amazing educational resource.

Anything I missed?  Have your own favorite piggyback investing resource? Let me know in the comments below.

Additional Resources

Bloomberg finds piggybacking analysts sucks

John Dorfman, investor and Bloomberg columnist, has been following the 4 most popular and hated stocks among Wall Street analysts for the past 11 years.

According to Dorfman’s research:

For 11 of the past 12 years, I have studied the performance of analysts’ four favorite stocks, and the fate of the four they most scorned…Their favorites, on average, were flat during those years while the four stocks they hated most gained about 6 percent annually. The Standard & Poor’s 500 Index had an average gain of about 9 percent.

Wall Street Stinks

winners-and-losers1Dorfman attributes this bad performance to the fact that analysts are “not all-knowing” and like most human beings,  “extrapolate the recent past as a guide to what comes next.” Check out the whole article to see which 4 stocks are currently most highly rated by security analysts and which 4 are currently the pariahs.

Dorfman concludes with a short review of each of the stocks.  I’d like to delve just a bit deeper here, though.  There is definitely a divergence in Wall Street’s sell side and Stamford’s buy side in the ability to accurately pick stocks.

Buy side vs. sell side: winners vs. losers

Whereas research like Dorfman’s show an inverse relationship of the best ideas in the sell-side community to stock performance, research like Cohen, Polk, and Silli’s “Best Ideas”  and Martin and Puthenpurackal’s “Imitation is the Sincerest Form of Flattery” indicate that investors have a lot to gain by piggybacking the best ideas and cloning guru investor portfolios.

So, why is Wall Street, which is just as smart IQ-wise as the buy-side, so bad at picking stocks?  I just don’t think Dorfman’s “they’re just human” critique is sufficient because buy-side guys are human, too.  In fact, I’d wager that the majority of good buy-side analysts cut their teeth on the sell-side.  Does moving to Connecticut improve stock selection (like to see that research paper)?

Companies like AlphaClone are entirely focused on helping investors exploit the alpha produced by certain professional investors (see my AlphaClone: The cure for investor insanity).  Why the divergence?

Rather, there are structural reasons why piggybacking the buy-side works, while aping the sell-side doesn’t.  Some possible reasons for this underperformance:

  • Wall Street analysts are reactive, not nimble enough with changes in ratings to make investors money on the way up or down
  • industry coverage structure requires that each analysts has to have some buys and some sells in an environment that a good portfolio manager may completely avoid such a sector
  • unlike popular folk wisdom, good companies don’t make good stocks and vice versa.
  • Analysts are trained like MBAs to take a more organic, longer term view on companies while the market continues to focus on shorter milestones

Thoughts?  Let me know in the comments below.

[Hat tip: My Investing Notebook]

You too can be the fund manager of the decade (kinda)

Morningstar announced yesterday its nominees for a new award Morningstar Fund Manager of the Decade.

According to Morningstar:

The Manager of the Decade award is not just about returns. We consider the risks assumed to achieve those results and take into account the strength of the manager, strategy, and firm’s stewardship. We also think it’s a greater feat to make a lot of money for a lot of people than to earn sky-high returns on a tiny pool of assets, so asset size factors in.

Morningstar created 3 strategies for the award:

  1. Domestic
  2. Foreign
  3. Fixed Income

The usual cast of characters made finalists.  So, you’ll see names like Fairholme’s Bruce Berkowitz, Don Yacktman, Fidelity’s Low Priced Stock Manager Joel Tillinghast, and PIMCO’s Bill Gross.

This is a great list and in spite of the terrible decade we’ve experienced as investors, there are some pretty impressive numbers from 1/2000 until now.  Many of the funds still put up double digit average annual returns.

Investors can use this list and bet that previous performance turns into future performance.  Or, they do it themselves and mimic the every move of these star asset managers.  Investors can tap the SEC’s IDEA database to read monthly regulatory filings of these investment advisors.  Through these disclosures, investors can piggyback the investment returns of the Morningstar finalists.

More enterprising investors may want to head over to Alpha Clone, a site developed to make piggybacking a whole lot easier.  For more on AC, check out my piece, Alpha Clone: The Cure to Investor Insanity.  AC users can not only track changes in thousands of professionally managed portfolios but they can backtest results of how best to mimic these investors.

[HT: The Reformed Broker]