I’m liveblogging notes from tonight’s MIT Enterprise Forum event on The Smart Money of Crowds: Collaborative Investing Startups. This was not hard to organize, and I’m very happy with how the event turned out.
Roger Ehrenberg, Moderator, Managing Partner of IA Capital Partners, LLC
Roger Ehrenberg is Managing Partner of IA Capital Partners, LLC, his personal venture investing vehicle. IA has made 27 investments since 2004, principally in the areas of digital media and financial technology. IA`s portfolio companies include TheLadders.com, Mimeo.com, Clickable, Covestor, BlogTalkRadio, Buddy Media, Silicon Alley Insider and Stocktwits. Roger was also an original investor in Wallstrip (sold to CBS Interactive) and MyTrade (sold to Investools), sits on five Boards of Directors and advises the gaming company Genesis Interactive and the location-based messaging platform Socialight.
Prior to founding IA, Roger spent 18 years on Wall Street in Mergers & Acquisitions, Derivatives and Trading. Most recently, Roger was President and CEO of DB Advisors, the $6 billion multi-strategy hedge fund trading platform of Deutsche Bank. As head of derivatives businesses at both Citibank and Deutsche Bank, Roger`s teams twice won awards, securing Global Finance magazine`s `Interest Rate Deal of the Year` in 1998 and Institutional Investor magazine`s `Equity Derivative Deal of the Year` in 2000.
Roger has penned the popular business and technology blog Information Arbitrage since July 2006, and has had over 1 million readers since inception. He has also been interviewed broadly on topics ranging from hedge fund regulation and algorithmic trading to deep-web search and building vertical communities by The Financial Times, The Wall Street Journal, the BBC, NPR, Reuters, CNBC and many others.
Roger received his Bachelors in Business Administration from the University of Michigan/Ann Arbor, and his Masters of Business Administration from Columbia Business School. Roger is Trustee of the Little Red School House/Elisabeth Irwin High School and a Board Member of the Integrative Pediatrics Council. He lives in New York City with his wife Carin and two boys.
Divya Narendra, Founder and CEO, SumZero
Before founding SumZero, Divya was an Associate at Sowood Capital Management, a $3.5B multi-strategy hedge fund located in Boston, MA. At Sowood, Divya analyzed investment opportunities across the capital structure, spanning credit and equity. Prior to this, he was an analyst in the Mergers & Acquisitions Group at Credit Suisse Securities in NYC. In 2004, during his senior year at Harvard College, Divya co-founded ConnectU.com, an online social network dedicated to the university community, and predecessor of Facebook.
SumZero is the largest online community of professional investors worldwide, currently consisting of more than 1,200 analysts/PMs from nearly every well-known buyside fund. The site is free to use, but membership is by invitation-only. Each member lists 3 or more tickers for companies he/she has extensively researched. As such, an analyst can search for a company he is interested in and find the buyside analyst at another leading firm who has already spent months researching that name and initiate a dialogue. As a by-product, an analyst grows his network. SumZero also contains a fully searchable database of concise investment write-ups focussed on valuation. Though not required, only those members who contribute an idea can access the database. Please firstname.lastname@example.org for more information and an invitation to join.
Stacy-Marie Ishmael, Writer, Financial Times Alphaville/Long Room
Stacy-Marie Ishmael is a New York-based writer and blogger for FT Alphaville, the Financial Times’ award-winning blog. Her responsibilities also include FT Alphaville`s Long Room, which is a “digital restaurant” where finance professionals are encouraged to share research and comment on the work of others. Stacy-Marie is actively involved in the development of the FT Alphaville platform and brand.
FT Alphaville is a Webby-award winning blog focused on global financial markets, with a team spanning London, Tokyo and New York. The Long Room, which was launched in October 2008, is a members-only extension of the main site, focusing on comment and analysis. Both FT Alphaville and the Long Room are free to readers (an FT subscription is not required to access content) and are supported primarily by display advertising opportunities on the site and in FT Alphaville`s email briefings. In the case of the Long Room, revenue is generated from the sponsorship of “digital tables”.
Phil Pearlman, Director, StockTwits
Phil Pearlman was a co-founder of Lumina Fund Management, a long/short equity hedge fund which focuses on behavioral and sentiment analysis to exploit under and overreactions in options markets. He is an expert in the area of market participant behavior and emotion and consults with professional investors employing strategies adapted from empirically validated psychological treatments to improve trading performance. Phil has developed a proprietary prescriptive model of investor experience which integrates empirically validated clinical models and behavioral finance. He is a contributor to Real Money, a paid service owned by TheStreet.com. He currently trades a private account in New York.
Phil is an investor in and director at StockTwits. He also makes angel investments in other social media based start ups and focuses on the relational and community aspects of online social networks. Phil earned a doctorate in clinical psychology from Argosy University in Washington DC.
Rikki Tahta, Co-Founder Covestor
Rikki Tahta has held a number of senior roles in Finance and Information Services. Previous start-ups include ARK Information (acquired by Thomson Financial), WebTrack (acquired by Jupiter Communications – later public on NASDAQ), Steelhead Systems (acquired by Merrill Lynch) and Bookpages (acquired by Amazon.com). Other positions include Chase Capital Partners (private equity) and Thomson Financial (Securities Data Corporation). Rikki lives in New York and loves fishing. Username: RikkiTahta
Covestor is a portfolio sharing service for proven self-investors and for those wishing to track them. Tens of thousands of self directed investors share their real trades and you can follow them live for free. Covestor is funded by New York based Union Square Ventures, Boston based Spark Capital and London based Amadeus Capital Partners. We also have a strategic investment from Independent News and Media Group.
I just spoke with a major ebroker. They’re not worried about trading volume, which is fine. They’re worried about durability, because they feel that their community is not loyal.
You remember stock message boards in the first dot-com wave. Problems of anonymity. Whole Foods CEO going online and bad-mouthing other peoples’ companies.
I spent 18 years on Wall Street at Citi/Deutsche. Left in 04 after running a hedge fund business for Deutsche
Officially, she’s a credits market reporter for FT. Unofficially she’s a web geek there.
Alphaville was viewed as the ‘badly behaved little brother’ of FT: their first blog. It was a response to perceived need for real-time interaction/dialogue.
Performed two functions: a) trendy (in 2006, everyone had to have a blog), and b) increased engagement.
Alphaville has 9 person team, based mainly in London. We do combination of reporting and commenting. We’re encouraged to have an opinion on financial stories.
When we launched, traditional FT readers were slow to respond. We got 2 comments/week. FT’s historic market were C-suite.
Brits much slower to take up social media. We had a lot of readers but minimal interaction.
Shortly after, we launched MarketsLive: a real-time chat every day at 11am ET between two senior market reporters. When this launched , we were the first. It made people realize that there were real people behind the concept of Alphaville. We got to a point of 420 comments per MarketsLive event, and quality of comments went up.
In late 80s, there was a well-known restaurant known as the Long Room, which attracted all the significant traders in the City. That’s the origin of the name.
Today we feel that our main job is to moderate and edit, not write, because there’s so much quality content.
Our vision was to create a Wikipedia for investing, but focused on professional investors.
We wanted to be as universal as possible.
Most writing to date is on single-name credits
We launched a year ago.
1700 analysts are members
Even if you haven’t submitted a note, you can still see who has extensively researched a given company.
You can send a message to other analysts and start a dialogue.
This is the first way that analysts can communicate with one another about trades.
We have an earnings template which is searchable so you can run a screen based on buy-side consensus. We believe that’s much more valuable than sell-side consensus.
Phil Pearlman, Stocktwits
A community built atop Twitter
We’re getting a lot of people, including amateur investors, professional investors
There’s a high correlation between people we see subjectively as being experienced, and the number of followers they have
We have 2 semantic tags: 1) Put $ in front of a ticker, or:
2) general market comment: $$ at beginning or end of tweet.
Certain stocks are very popular on certain days.
Finance websites usually have huge dropoff on weekends. So in response, we’ve set up programming on weekends, where professionals do Q&A.
We also have a discussion, Macrotwits, Sunday night. Our speaker will advance a global macro thesis and debate it.
Rikki Tahta, Covestor
Our goal is to democratize fund management. We don’t care about what you do ; we care about what you invest in.
(Teten note: I like his model, but I would never be a customer. It’s like Marketocracy; there’s so much noise in the data that I’m very uncomfortable delegating my investing decisions to someone else’s etrade account. Investing is not a democracy; it’s a game rigged in favor of the professionals.)
Most of the tools for investing are available free on the web.
BofA has even launched a free market trading platform.
In 2000, a big change in UK investment research : Marshall Wace led a movement towards ‘Alpha Networks’: a focus on actionable ideas instead of just opinions. They then quantified who gave the best advice and allocated trading flows instead. This concept never took off in the US.
This was a complete disassociation between brand name of the institution. We said investment talent does not logically have to be inside a financial institution.
- Treat anyone as a fund manager. But, they have to be investing real money, which we verify. We also require full transparency, so you can’t selectively share your trades. We create a Morningstar tear sheet for individuals.
- Find best and invest alongside. Covestor replicates in your own account what other people are doing. Madoff is something of an inspiration: We think you should keep your money in your own account, and just take advice from others. This is like a distributed UMA. Our investors can treat their own account like a fund of funds.
- Benefits for investors. More choice, more control, more transparency. This is what big banks give people with $30m in assets. This is a better way to get active management
Does community matter?
It matters less to us. Our focus is building an ability for an individual to invest with better resources than he would otherwise.
Credibility matters. We help people vet out their ideas.
Community definitely matters.
We have people who make a lot of bold calls. 50% of the time they’re right. We find out what they’re really like when they admit (or don’t admit) their mistakes).
If you hold a position, you have strong incentive to publicize why you hold that position. The guys who run their own funds are happy to discuss. The junior guys are nervous about ticking off their bosses. The people at very large hedges (e.g., och-ziff) and large investment banks are more hesitant to talk about their positions.
People who are great performers but don’t communicate, don’t attract as many investors as those who can do both. The former is a much bigger driver than the latter. (Teten note: Jim Cramer is a far better performer than investor.)
Who gets into the community?
We have very strict criteria for joining. We independently verify that a person is who he says he is. The person must be an active participant in the financial markets. This ticks off a lot of Alphaville readers who did not qualify for entry into the Long Room. There was a lot of angst over this among some readers. We don’t allow people to discuss specific trades. Most of the discussion is about sectors/macro issues. So pumping and dumping don’t happen.
Because people are anonymous, talent will out. People decided whether to trust the source or not based on commentary.
The only hurdle is a $10,000 account. We run rankings on 78 different criteria. I learned this from Thomson: the more rankings the better.
Screening process is viewed positively. They have to work at a reputable fund, or submit a quality writeup showing they fit in.
We earlier built a vote up/vote down feature, but we found we didn’t need it. The crowds made the picks for us. We subjectively made picks of who we thought was most value-added. The better people were building large followings.
if we hit our targets, we’re very monetizable. Our content has tremendous value. We could charge our members for access. Set up section on website for outsiders to access our content for a fee. We could license our content to SeekingAlpha for a fee.
We view ourselves as a farm system. We’re launching next week 2 premium products with two guys who are pros, and have built significant findings: Brian Shannon (technician) and Joe Donahue (hedge fund manager) . Next product will be options product.
In finance vertical, people will pay for information.
I work for a news organization..that itself is a problem. We’re one of the few parts of the FT which is completely free. You dont have to be a FT subscriber to get into Long Room. This is a constant source of friction between editorial team and ad team. We think being free is critical to our success in getting the community where it is. We’re a loss leader. We do sell advertising.
Alphaville readers are much more sticky than FT.com readers. Our uniques and repeat visits are very high. We have people who are constantly updating RSS feeds.
We haven’t launched revenue model yet. We’ll charge investors a management fee.
Which B2B communities are making money now, besides your own?
Gerson Lehrman Group. Revenues around $300m, valued at $1b by Silver Lake. 280,000 experts.
Bloomberg. They own the major messaging system used on trading floors. They were a community before people talked about communities.
Look at ResearchEdge in New Haven.
How can users manipulate each of these sites; how are your users doing so now; and how are you defending?
We eliminated microcaps.
We also monitor the stream very closely and remove anything that smells funny.
We think reputation is the solution. Other users can rate content.
We allow people to use pseudonyms. A certain analyst at a bank kept posting “CIT looks great today.” We emailed him at his work address, and that put a stop to him doing that.
We’re very strict on copyright and libel issues; as a news organization our awareness of those issues is high.
What sites do you recommend for discussion of macro issues?
Use disqus to track individual comment streams, which creates a community around a comment thread.
9pm Sundays: Gregor Macdonald discussion. We squeeze a lot of meaning into 140 characters.
Zerohedge came out of nowhere and has really taken off. We’re sensitive to paranoid about whom we link to, since they can be thought of as sources. Look on our website for links to blogs we think are most worth reading.