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Transaparency, Markets, and The Internet (continued)
In the venture business, you invest in companies, work closely with them, and at some point move on either because they were sold (or went bust) or they went public and you sold the stock. But you always keep a piece of the company in you. My former partner Milton always liked to hold on to a small portion of his public holdings just for that reason. I don't do that, but maybe I should.
The reason for that little peek into the emotional makeup of this VC, is that I read with interest about a deal that TheStreet.com did with Stockpickr the other day. I was Chairman of TheStreet.com for a number of years in the late 90s and early part of this decade. And although I've been off the board for years and don't own any stock, I still have an affinity for the Company. I learned a lot from that investment, much of which colors the investments we make now.
And my approach to blogging is very much a reflection of what I learned from watching Jim Cramer do it. He was the first blogger I ever met. He had a code name for his wife and I copied that. He posted regularly and always with an opinion. I try to do that. He wrote like he was talking directly to you. And I try to do that too.
I wrote a long post in the middle of last year about Transparency, Markets, and The Internet where I laid out my history investing in the intersection of the web and finacial markets. And I continue to think there are fantastic opportunities in this sector. We have one company in our portfolio that is utilizing "web 2.0" technologies to deliver investing insights to stock market investors. That company is Instant Information and they focus on the professional investor sector of the market.
We've also looked at a number of companies focused on the "DIY" sector of the market - the stock trading enthusiasts. My friend Howard has started Wallstrip to entertain and educate investors on stocks that are on interesting trend lines (mostly all time highs). I've been helping him with that startup and have a small personal stake in Wallstrip. Here's yesterday's show where Lindsay went out to the streets to get trends for 2007.
But back to Stockpickr, I had not seen the service until I saw the story about TheStreet.com and Stockpickr getting together on TechCrunch the other day. So I spent some time on Stockpickr this morning and I've set up a profile page and a fake portfolio. I've been waiting for someone to marry social networking and stock picking. It's a natural. I want to find people who have similar investing interests to mine. I want to see what other people own. I really like that Stockpickr is tracking hedge fund and big name investor's portfolios as well as the do it yourself crowd. But the one thing that bothers me is that these portfolios may not be real. How do we know that I really own these stocks? In fact I don't.
So I am not yet sold on Stockpickr. But I am going to play around some more. Someone is going to do last.fm for stocks right and when they do, it's going to be big.
Comments (11) | Posted January 5, 2007 in Venture Capital and Technology
Comments
Good post. I agree about stockpickr. I talked with James Altucher, the founder, yesterday, and he is a great guy and longtime smart dude, so I trust they can figure a lot of this out.
They are worth keeping an eye on as is thestreetTV
also, they are bringout out soe of their great writers like James Altucher from behind their subscriber wall.
They are making some good desicions and I posted on it yesterday
Posted by: howard Lindzon | Jan 5, 2007 10:22:17 AM
Fred,
I posted about this topic on Wednesday - if you're interested follow the link on my name. I agree with you that when you get real portfolios and real transaction flow (verified and with permission) then things start to get far more interesting. Transparency and low friction are the obvious advantages. There are a couple of folks starting to take this approach but none launched publically yet, both in the Bay Area and in Israel
Posted by: jeremy liew | Jan 5, 2007 11:19:17 AM
I too just heard about stockpickr from the announcement of the partnership with TSCM. I follow TSCM a bit because I used to work with the senior management there before they were at TSCM. I took a quick peek at stockpickr as well, and although admittedly I just gave it a quick look, here's a couple things that jumped out at me.
* It looks like the correlation with the pros is based in large part on 13F filings. 13F's are at best usually 45 days old and in many cases older. So when the manager bought the stock it was likely very different than it is today.
* 13F's also commingle multiple products together. So if an investment manager has multiple products (a value / growth / income product for example), all those get lumped together in one filing. That can make the correlation less interesting I think.
I'm sure there's an angle there someplace, but the difference against last.fm is the split between a company and a stock. In my opinion there's more consistency between different albums by the same artist vs. different time periods for a stock. I might like a stock last month and not like it this month, just based on price movement, though my feelings might not have changed at all about the company.
Posted by: Bill Davenport | Jan 5, 2007 1:34:56 PM
last.fm for stocks has disaster written all over it. i cant wait to see some of the artificial demand this is going to create.
Posted by: jeremy | Jan 5, 2007 4:41:13 PM
I have a guess the exciting stuff will come from the individual investor space. If two big investors participated in a public discussion thread and shared ideas, they could be accused of violating all kinds of regs, from keeping records of communication and research, to possibly acting as a group to manipulate the market.
Web 2.0 for internal content management and research distribution and aggregation seems pretty ripe.
Marketocracy.com did some of this quite a while ago and even has a mutual fund based on members' picks, badly needs a Web 2.0 relaunch.
Posted by: drucev | Jan 5, 2007 6:17:19 PM
You ought to check out what The Motley Fool is doing with CAPS at http://caps.fool.com. Smart guys doing interesting things.
Posted by: Russ Pillar | Jan 5, 2007 7:30:47 PM
Bill is exactly right which is why I DON"T use these type of things. For most investors price is all that should matter.
If yo stick to companies with huge marketshare and mindshare good things happen over long periods of time. Period.
Posted by: howard Lindzon | Jan 6, 2007 12:25:36 AM
Enjoyed last year's read and this post, thanks Fred.
I'll remove my non-existent VC hat for a second to say... isn't it possible to use this type of transparency, be it financial or otherwise to make a positive social impact as well? Perhaps to encourage companies to do the right thing?
Best wishes in 2007
Posted by: Rod Ebrahimi | Jan 6, 2007 3:20:00 AM
I thought about this idea carefully a few months ago. I'm a British private investor, and know the traits of PI's. These are the issues that I gleaned out:
1) Ramping and deramping. Rather than finding similar interests, the savvy PI would use listings of their favourite stocks to either ramp them or deramp to help their short position or serve their intention to buy back cheaper after taking profits.
2) Trade timing. A lot of value investors buy for the long term. However, there are not many Warren Buffett's in today's reality. Posting a trade after it has happened is in effect, an administration burden. The best assurance that this is worth doing is the knowledge that posting a stock you bought or sold to a social networking site will achieve a desired effect - oversell the stock for you to buy back at lower levels - or ramp a stock that you already own to inflate the price and encourage sentiment on it.
Rather than neutrally opinionated subject matter, any comment/trade/advice that any one would post on such a site would question the integrity of the information given, the individual's history (which is often zero) and a personal perspective on who they are. In other words, unless the user was a real-life person whom I trust and have met, I may not decide to take on board opinion, either for value investing or otherwise, since it's common knowledge that tips are mostly ramps, and sell advice is mostly for shorters or people looking to get back in cheaper. A glance through the bulletin boards at advfn.com and others (I've been using them myself for 5 years) will serve a perfect example. The rare people I've come to "respect" (in a thinly veiled way) are the posters whose research or tips have led me to genuinely undervalued stocks. Sites like advfn.com, etc are already "social networking sites" - the fact they don't have shiny buttons or big web 2.0 boxes is entirely irrelevant.
3) A trust and integrity framework is required that puts real people with an identity behind an opinion. Due to the very nature and spectrum of investors, motives are generally never known, and anonymity is a key factor. Social networking system thrive on this primary food stock (identity and genuine interests). This audience is also not aspirational for the greater good, and is inherently motivated by self-gain alone.
My conclusion was the prospect of serving the DIY'ers segment is exponentially more daunting (since the usual "this site or I don't provide investment advice" caveats apply) ... - than the site for professionals where everyone is a known and screened entity. Further, top notch comment and advice is something you pay for - to someone you trust.
Your counter-argument is welcome.
Amit
Posted by: Amit | Jan 6, 2007 8:38:44 AM
Maybe something like Zecco.com meets Motley Fool meets Mog (the part where people upload their libraries could be a model for portfolios or model portfolios) meets the New York Times and bloggers....
But regarding transparency, markets and the internet, I'd love to hear your view on the discussion between Joe Nacera (NY Times opinion piece yesterday) and Gladwell in Gladwell's blog re Enron. I'd like to see the next generation model of social networking in the domain of investment bring together the press, Wall Street (and international equivalent) and the general public... in one site. What social interaction on the internet would make it more likely that the mass public would learn of thievery on the scale of Enron sooner rather than later? What models do we have on the internet that can be applied to this domain?
And my personal rant of late is the theft going on in public view on MySpace and YouTube, the violation of copyright that has been accepted by the markets, investors and the public at large and the violated themselves -- what I refer to as the Great Train Robbery. There is clearly a great need for lively debate, facts, expertise, editorial and a big dose of scepticism to create the transparency required for intelligent investment decision making by professionals and private investors. What new site can alleviate the inefficiencies in the market?
Posted by: all dig down | Jan 6, 2007 9:36:03 AM
Fred, thanks for checking the site out. Like any investing site, the ideas presented at stockpickr should be thought of as a starting point for research. That said, stockpickr.com is all about generating stock ideas for investors in a variety of ways that can't be easily found elsewhere:
- as you mention, the pro portfolios: hedge funds, mutual funds, and other investors (Warren Buffett, for instance) that are considered the best of the best. We selected the investors there not only by their track records but by their tendency to be buy-and-hold investors as opposed to traders. And although many of the positions come from 13Fs we are also choosing positions from 13Ds and 13Gs when investors take more than 5% of a position. These are harder positions for them to trade around in a short-term position so following them allows the retail investor to take advantage of their one "edge" - flexibility.
- Spotlight portfolios - these are portfolios that we are highlighting like "Dogs of the Dow" , "cheap alternative energy stocks", "S&P Dividend Aristocrats", "Spinoffs", "high insider buying", etc that we think will be useful for investors. When presented in our format its easy then to see what hedge funds own each position
- the CAPS functionality ("people who own MSFT also own...") is a small subset of our functionality and can be seen on every portfolio page and stock page.
- Active Trader - these are backtested trading systems that have done well in bull and bear markets. We will be updating these regularly.
- Today's Lists - Analyst upgrades/downgrades, biggest % winners/losers, Jim's lightning round, various creens for value, top share buybacks, stock splits, etc all presented in our format
- Recommendations at the portfolio level using collaborative filtering.
The list goes on (forums, blogs, bookmarks, analysis by DIYs, etc)
We are also about to unleash some new features in about a week or so so I encourage people to check back. Thanks should feel free to contact me with questions/suggestions or anything.
-James Altucher
Posted by: James Altucher | Jan 6, 2007 10:58:17 AM
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