The rise of the Web as a social medium has changed the ways in which traders and investors manage their money. Growing social and information networks have provided us with greater information and more money management options than we've ever had before. It is this changed financial landscape that I'm referring to as Trading 2.0.
One of the important elements of Trading 2.0 is that expertise becomes transparent. Thanks to the online medium, we are now able to see exactly what expert traders are doing and how they're doing it.
Consider the VesTopia site, which is now in beta and offering free registration for traders. A group of pre-screened "investment directors" (experienced money managers with verified track records) post their strategies and their specific trades to the site. Site visitors can follow the directors whose strategies most interest them and develop trading/investment ideas from the portfolios of those directors. Best of all, blogs written by the directors explain their strategies, market views, and stock picks. This latter feature turns what would be a fine informational source into an educational one.
A great example of the educational content is Mark Hines' recent post in which he illustrates specific stocks to buy that enable investors to participate in hedge fund returns. It is rare that individual traders would get to hear ideas from managers of billion dollar funds and model their ways of thinking. That's a huge benefit of Trading 2.0: the opportunity to learn within a social network.
A different form of transparent expertise can be found in James Altucher's StockPickr site. Here stock picking becomes a social activity, as members share their portfolio selections. An added, unique feature, however, is that the site also tracks the portfolio maneuvers of leading money managers, so that you can see what the pros are doing. James constructs a variety of spotlight portfolios, such as "Great 5-Year Charts", which highlight stocks that have attractive technicals, fundamentals, and sponsorship.
The appeal of the StockPickr site is that it takes traders and investors down the path of thinking thematically. Instead of narrowly focusing on single markets and instruments--which may or may not have opportunity--visitors to the site can identify broad themes that are attracting professional interest.
Over time, I expect the Trading 2.0 wave to bring additional innovations, as trading and portfolio management become public activities that attract attention (and assets) by combining ideas and education. In upcoming posts, I will explore further changes to the financial landscape wrought by the social revolution in computing.
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5 comments:
I continually fail to understand why any successful trader would wish to share.
Time is always at a high premium and tends to be highly correlated with success in trading.
Given how crowded the markets increasingly are, what is it that motivates traders to dilute their edge - charity?
Nick
Hi Nick,
Great question; thanks for posting. What these money managers realize is that staying hidden only benefits the incompetent. If you have talent, this is a great way to demonstrate it and thus to attract attention (and assets) to your firm. There are many talented but unknown portfolio managers out there. This gives them an opportunity to walk the walk. I don't think their disclosures will dilute their edge. They'll reveal, for example, that they're trading a long/short equity strategy, but they won't provide every detail of their stock selection model. By the time they reveal their portfolio selections, they're already in those positions and can only benefit from others jumping on board.
Brett
I have recently started using the Covestor site (www.covestor.com) which lets anyone share their investment performance and is an open market for tracking great investors. It is fantastic that anyone can compete on a level playing field with so called 'professionals'..
Trading 2.0 Expertise?
You feature Mark Hines as an expert when his Trading 2.0 portfolio is down 12%.
In fact, no portfolio on Vestopia is above negative 2.0%.
Most of these experts are averaging down as fast as the Fed can artificially inflate the markets. If your readers follow this expertise, they will get banged by a margin call.
Who might be sitting pretty today? Not RIEF. But Automated Trading Desk probably is - they are fully out each trading day. Since they were just acquired by Citi, I doubt they will share their expertise.
Cheerleaders. This issue is the downfall of your Web 2.0, and of blogging.
Hi TokinTrader,
I think there's a lot of validity in your critique. And, yes, the networking that is central to Web 2.0 can devolve into cheerleading.
With respect to Mr. Hines and the VesTopia investment managers, I have to say that I know quite a few excellent and experienced PMs and firms that are down decent money during the July-August break. I'm not sure I'd judge performance on that basis.
And, yes, I know of experienced PMs with great track records who will selectively add to positions as markets get lower, adding at levels they determine as value. Often that is done in a hedged way that does not magnify risk unduly.
The managers at VesTopia have a great opportunity right now to educate the public re: how they deal with drawdowns. That could provide a real value to the developing trader.
That having been said, I do think a weakness of many stockpicking sites is that they are pretty much long only. When markets tank, everything goes down and portfolios move in tandem. That is not good risk management. My hope is that, over time, we will see long/short Web 2.0 portfolios of fixed income, currencies, metals, and other commodities in sites such as VesTopia.
It's not performance that counts; it's risk adjusted performance. And that requires diversification. Thanks for your cautionary note.
Brett
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