11 reasons why 2011 was an outstanding year for investors

2011 has been one of the best years on record for investors.

That’s right — you heard me.  One of the best years for investors.

I’m not talking about the S&P500 which is still down about 3% for the year.  The jury’s still out whether the year will end up in the green or red for investors.

But performance is NOT what I’m talking about.

2011 has been a great year for investors in other ways.  Individual investors have never had so much choice, low-cost investment options.  This year was a break-through for investors with new investing and research platforms mushrooming up around us as we slept.

We’ve never seen such a real move of the financial industry to move to the same side of the investing table.

Investors haven’t seen content — good content — written by women for womenData and apps are changing the way we research and invest — investing has become a collaborative process.

The great thing is that I was writing about all these trends in 2010 when I published Tradestreaming.

Now they’re a reality.

So without further-ado (and as the New Year rapidly approaches), let me get to my 11 reasons why 2011 was an awesome year for investing.
Continue reading “11 reasons why 2011 was an outstanding year for investors”

The Future of Investing, Startups, and the $11,000,000,000,000 Question

Online finance lags

The news of personal finance tool Wesabe shutting down last year made it pretty clear that Mint.com is on its way to fully owning the online personal finance space.  The company’s port-mortem pretty much capitulates that.  But personal finance is just a small part of a much larger, overarching problem that affects all of us: planning for a financial future.  While this certainly includes managing household cash flows, it also involves buying a home, choosing 401(k) plans, putting money into the stock market and fixed income investments, and planning for retirement.

This begs the question: with so much money at stake, why does online finance continue to trail other industries like travel? When planning an international trip online, I know exactly whom to trust for advice and why they’re trustworthy, where to look to compare similar products, and have transactional platforms into which to submit my order.  But in finance, most people still don’t even know where to begin.

Hedge fund traders are using supercomputing high-frequency trading tools to make money in good markets and bad while we still can’t even decide which mutual funds are right for us. We require truly comprehensive solutions instead the current piecemeal, silo-based approach in online finance.  At stake is our future and over $11 trillion of mutual fund assets in the U.S.

Current Players

You can look at the way competition is shaping up online in various silos:
  • Personal Finance: Startups in this space are focused on developing value-added services to help users track and manage money flows.
    • Tracking/Tweaking: Mint.com has done really well capturing new users to adopt web/mobile tools, just as Quicken was a similarly powerful force on the PC.  Intuit, which now owns both products, is positioned really well for future expansion.   Personal finance is a huge problem to tackle and it’s really early in the game.
  • Investing: The investing process involves researching various options, transacting, and ongoing portfolio management with analytic tools.
    • Researching: Investors begin the investment process with idea discovery, bubbling up ideas to populate their portfolios.
      • Piggybacking investment ideas: New services like AlphaClone not only make easier tracking of the investment activities of storied investors like Warren Buffett but also provide portfolio development tools to backtest and manage entire portfolios made up of piggybacked ideas.
      • Long tail of financial content: As the costs of publishing have been pushed to zero, we’re enjoying a bull market in investment content.  Sites like Seeking Alpha and StockTwits provide great tools to plug into the collective tradestream. Wikinvest has taken more of a collaborative approach with its content and data.
      • Screening 2.0: Smarter tools like Validea help investors filter through large numbers of stocks using algorithms and artificial intelligence to identify worthy portfolio prospects.
      • Crowdsourcing stock picks: Sites like Piqqem allow investors to tap the wisdom of the investment crowds.
      • Expert networks: SumZero is an online investing club of super-smart people sharing really good analysis on stocks.  Other Q&A tools like those at LinkedIn and Quora and even Facebook are enabling the sourcing of ideas from domain experts.  With the FBI/SEC’s crackdown on offline expert networks, investors will look more towards these tools for help in sourcing and validating investment ideas.
    • Transacting: Once an investor knows what action he would like to take, execution comes next.
      • Online Brokers: E*Trade, TDAmeritrade, and Schwab still dominate the online brokerage space (with recent news that Merrill Lynch is getting back into the game).  It’s interesting to watch as online brokers woo existing traditional brokerage clients with automated, professional-grade services delivered online, blurring the line between full-service and DIY investing.
      • Hybrids: Covestor and kaChing (now Wealthfront) are the eBays of investment advisory services — marketplaces of investment services.  Users synch their online brokerage accounts to mirror the portfolio models managed by advisors on these platforms.  In a move to the mainstream, Covestor’s tradestream now includes the real time audited trades from participating investment managers.  This is a big fuckin’ deal and it’s freely available through Yahoo Finance’s Market Pulse.  Newer entrants like Tech Crunch Disrupt finalist Betterment provide automated investment services.  Other investment advisors like Formula Investing provide a mixture of full service and DIY tools.
    • Managing:
      • Ongoing monitoring:  As markets undulate and investors’ financial health changes, tools help automate changes that should be made in portfolios.  A number of new professional-grade, automated tools are helping head this cause.  Firms like MarketRiders help with ongoing changes in asset allocation and services like Goalgami help address life’s incessant barrage of financial goals that need planning.
      • New asset managers: Fusing the low-cost distribution model that social media affords with new methodologies to manage funds for clients, both old and new asset managers are launching all kinds of new securities in an attempt to capture part of a huge pie.  With actively managed ETFs in the infancy and good comps for successful exits, new asset managers like GlobalX are growing AUM and positioning themselves well for future growth.
      • Analytics:  Like Google’s Urchin/Analytics acquisition, analytics are core to the effective management of any platform.  TC Tear Down star, Steve Carpenter founded and sold Cake Financial to E*Trade earlier in 2010.  Cake helped investors make more sense of the activities in their portfolios. With Cake Financial bowing out, the market is wide open.  Look to Wikinvest’s recently launched Portfolio tool to take off where Cake left off.

Why there is still a huge window of opportunity

In spite of the flurry of activity, most of these startups haven’t even begun to dent the market for financial services.  Some of these verticals are so narrow that participants need to expand horizontally  into other silos, which both incumbents and startups are racing to do.

Some firms have advanced product-based approaches, trying to build better mutual fund mousetraps and have enjoyed a modicum of success. Next-generation mutual funds, exchange traded funds (ETFs) have almost $800 billion in assets, an increase of 34% over 2009 levels, but that’s still only 7% of all invested assets in the U.S.  In spite of all the high quality content, investors still struggle with basic financial concepts, portfolio management, and continue to make bad decisions.  The flurry of activity has unleashed a bull market in financial content; We’ve gone from scarcity to too much content.  We now require tools to cut through the data smog and help us with comprehensive solutions to make better decisions.

The $11,000,000,000,000 Grand Prize goes to…

The market size of the investment industry is so big that there is room for multiple players to establish hugely profitable businesses.  Look for large incumbent players, most specifically Bloomberg, to expand their businesses through acquisition in an attempt to capture more marketshare.  Bloomberg’s multi-billion dollar empire of financial hardware and data recently purchased BusinessWeek in an attempt to move downstream toward retail investors.  The giant investment expert network, Gerson Lehrman Group, may get deeper into online expert Q&A sourcing as the firm continues to enable person-to-person expert research for professional investors.

Real-time transparency is making  its way to the online brokers.  E*Trade joined TDAmeritrade in recently announcing upgrades to its own API to allow 3rd party software developers and services to reach investors through their brokerage logins – the holy grail for the entire value chain.  Investors get access to new apps, software developers can finally tap online brokerage clients through trading platforms, and the online brokers can provide value-added services without having to develop them.

The fact that we’re beginning to seeing ivory-tower asset managers make their way onto Twitter is, in fact, a good sign of things to come in the future.  But the field is still wide open for comprehensive solutions.

photo courtesy of frankblacknoir

Value-added aggregation? Wikinvest’s Portfolio put to the test

Wikinvest: What it is and where it’s going

Don’t get me wrong. I really like the guys at Wikinvest. I’ve written a lot about how well their crowdsourced information and annotatable charts kicks the pants off of more static resources. I’ve also contended that the way Wikinvest deals with investment data is better by leaps and bounds over everything else out there available freely on the Web.

I see Wikinvest as the next generation financial portal best positioned to take on Yahoo Finance with expanded charting, news, opinion, and data.

But I’m puzzled by the new launch of the Wikinvest Portfolio.  Not that I don’t wikinvestportfoliothink it’s a good product.  After giving Wikinvest your brokerage credentials the site quickly populates a portfolio that brings in all real-time pricing (so you get performance metrics), charting and news, but also allows more flexibility than traditional online portfolios in terms of researching and structuring/ordering the portfolio.

As per Wired:

Personal finance portfolios are everywhere — offered even by media sites like Thomson Reuters, Bloomberg and the Wall Street Journal. But generally speaking they have limited functionality, are difficult to set-up and need manual updating whenever something changes in one of your accounts.

Wikinvest reduces the friction of creation and maintenance by creating an onramp which seems ridiculously simple.

Data tit-for-tat

It’s this onramp — made easy by linking up a brokerage account to Wikinvest — which makes me scratch my head.  It’s not that I don’t think financial sites can ask for login info: Cake Financial (bought by E*Trade) and Mint (bought by Intuit) both proved that in return for something valuable, users will give up their most trusted of details.

But that’s the rub for me.  It’s unclear as a user what value I get in giving up my private information.  The value proposition of this portfolio — how it betters from just manually creating one on another site or using my brokers portfolio (which also has some aggregation functionality) — isn’t compelling.  Wikinvest needs to do a better job explaining what I get in return for trusting them with my data.  I don’t feel they’ve done that.

Maybe it’s just me, though: Wikinvest was quoted in the same Wired article referenced above as having had over $100 million in client portfolios linked within 6 hours of launch.  That’s not too shabby.

Where Wikinvest appears headed

For me, what this looks like, is that Wikinvest is positioning itself to take over where Cake Financial left off and will probably begin to offer value-added services tied to users’ portfolios.  Some of these were mentioned in the NY Times article about the portfolio launch:

  • 3rd party monitoring of financial planners/investment advisors
  • tax preparation
  • Mint/LowerMyBills-like suggestions on personal finance issues
  • Sharing of investment ideas across Wikinvest user base
  • even entry into Covestor/kaChing space with an ability for users to invest in other users’ portfolios

Additional resources:

  • At Long Last: Real Time Portfolio Tracking, Courtesy of Wikinvest (Wired)
  • Wikinvest Introduces Tool to Track Investments (NY Times)
  • Wikinvest Introduces a Portfolio Tracker Linked to All Your Brokerage Accounts (TechCrunch)
  • Wkinvest tracks your stock portfolio in real time (VentureBeat)

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).