Online investing is changing rapidly. New tools, investment platforms and advice are whirling around online and in social media.
Here’s some ideas to cut through the noise.
1. Touting Viagra-like performance until you can’t
I can’t count how many times I’ve read newsletters or investing services online claim huge returns. How I made 1000% on this no-name stock in 3 days – no risk! C’mon. The thing is — even smart investors fall for this sometimes. Without a real way to provide transparent returns (audited?), many of these stock pumpers get rich while leaving their clients in a pool of stock-picking vomit. Seriously, Chris Camillio (recent Tradestreaming guest) had his results audited. So did fly-boy, microstock shorter, Tim Sykes.
Seriously, if I weren’t locked-in to my broker dealer, I’d have Hedgeable managing my money (up 11% for 2011). But that’s it — most of these guys are jokers. We do need a better way to rate investment advice — Covestor and LikeAssets are just two ways. We need more.
2. Investment advice in the middle of a Middle Eastern shouk
It’s getting really noisy out there. So many new investment/research products and platforms are coming online that it’s becoming a marketing frenzy. Email blitzes, webinars (oh, when will they EVER stop?), tweets — it feels like that long symphonic chord at the end of the Beatles’ A Day in the Life. Karaoke it here.
Who do you believe and trust? Who can convince me that they’re not a fly-by-night company?At the end of the day, investment advisory is about performance and trust. Which trumps which? Probably depends which side of the table you sit at.
3. Why Johnny can’t read a balance sheet?
Financial literacy is still abominably low. Sites like LearnVest are doing a good job bringing concepts and ideas in a simpler, more accessible format. Wall Street had gotten away with little advocacy for education, government support with tax-favored retirement funds, and a market that just went up. Um, well, that’s being questioned now. If I can start a website or a small business in my basement, you’ve got to convince me that mutual fund x or ETF y is a better use of my money.
4. Crowdsourcing getting crowded
We’re social beings and the 47 billion people on Facebook prove it. But the thing is, we’re still looking for the social model applied to investing. Sure, sites like StockTwits are very popular with hyperactive day trader types sharing their ideas for stocks they’ll own rent for a few minutes. Estimize is a step forward for Wall Street’s so-called whisper numbers (Leigh was a Tradestreaming guest) and it takes what Trefis developed a big step forward.
5. ETF and Mutual Fund trench warfare
There’s a fight going on for the heart, soul, and assets of the mass investing community. Mutual Funds and ETFs are embroiled in a tug-of-war over the mousetrap — which is a better vehicle for the $17 trillion in U.S. assets at stake. Behind the debate is another debate — over the stewardship of the money and that’s whether brokers or investment advisors are the best option for investors. Mutual funds are sold while ETFs bought — as advisors eat more of the asset pie, they’re turning to ETFs. Both sides have an agenda — so read with a KEEN EYE.
6. 51 flavors of investing
While investor education may still be dragging its long, hairy knuckles along the ground, the Internet has enabled motivated investors to learn about and gain expertise over asset classes and investment strategies that were considered arcane previously. The Internet has created two classes of investors — those sheepishly following something they heard/learned years ago while others are smarter and more familiar with investing than ever before. Investors who use buy-write strategies to add income to their portfolios used to do this by building their own spreadsheets or using a broker for ideas. Now, we have amazing tools like Born To Sell to help them understand, identify and implement options strategies.
7. Readers Digest investing
The increased transparency and learning opportunities have enabled investors to create investment strategies built on top of other investment strategies. Tools like AlphaClone have been a godsend for me as I’m testing and creating investment strategies overlayed on top of other hedge fund strategies. You can cherry-pick the best ideas in the hedge fund world to create your own all-star team portfolio of the world’s best investors.
If you’re creative and really LEARN these tools, you can actually better the performance of the outstanding data that goes into them. I write about these types of mimicry strategies a lot in my book (which makes a great, yet bulky, holiday gift, by the way).
8. Pivot, Peter
A lot of the new models haven’t proven themselves by attracting big assets (not talking VC investments here, but assets under management AUM). Wealthfront continues to try and find its market and looks like it’s moving from a marketplace of RIAs to becoming its own online RIA. And that’s OK — it’s the startups that are changing the way some investors consume investment info and trade on it. For investors using these tools, expect to see more changes along the way than Elton John does in a performance.
9. Data dumps, insight abounds
I love what Wikinvest is doing with data. They’ve got a portfolio tracker, analyzing over $20B in assets across all brokerages. Through analyzing the data, the firm’s next iteration — SigFig — will provide investors really valuable insights into the investment process. We’re entering the Candy Mountain of Investment Data – where cross-platform data is being opening up and analyzed. Expect mind-blowing new ideas to flow, Charlie.
10. Damn, I meant the blue pill
When Nero chooses the red pill in The Matrix, he chooses awareness of the pain around him. Opting out of the choice to return to the mundane and mind-numbing, the hero chooses hot chicks. Seriously. Guy Kawasaki writes in The Art of the Start, that if entrepreneurs and business leaders want to be successful, they have to take the red pill and see how deep the rabbit hole goes.
The same holds true for investors in today’s era of social media. The investing curtain has been pulled back and blind support has been withdrawn. We’re on our own, responsible for our own decisions. The sheer research power in the Internet is enough to make us reach for the blue pill.
Don’t do it. This volatile ride is much more fun (hotter chicks, too).