After the Delta Air Lines (DAL) bankruptcy wiped out 82% of his pension, retired pilot Bob Craft joined the online investing community ValueForum.com in 2004 to help protect his remaining savings. At the time, he was such an investing novice, he was hard-pressed to think of a stock to recommend on ValueForum's discussion board, a requirement for the earliest members.
With the help of advice from other ValueForum investors, Craft steered his pension account to a 30% return in the first year, trouncing the 8% gains Fidelity Investments and Bank of America (BAC) were bringing him on some nonretirement accounts. After beating the pros for a second year, he took charge of all his accounts. Now Craft, 64, spends about six hours a day trawling for information to back up what he hears from other members. He places orders through Fidelity's Active Trader Pro. One of his biggest triumphs was unloading mortgage broker NovaStar Financial at $43.29 a share in November, 2004. He paid around $21 for it in April, 2003, before joining ValueForum, and the stock now trades at around $3. "The beauty was ValueForum told us when to get out," he says. Year to date, his portfolio is up 19%—it had been ahead 38% before November's market carnage—and he no longer worries about his nest egg.
Take-charge investors are turning to a new generation of Web-based investing communities. Whether they allow members to see one another's trades or just share advice, such networks convey a sense of trust and transparency many people feel is lacking with professional advisers. They also welcome those with portfolios of less than $1 million—a group increasingly overlooked by money managers.
Besides ValueForum, the new sites include CakeFinancial.com and Covestor.com. Unlike online brokers such as TradeKing.com and Zecco.com, which have social-networking features, these sites don't execute trades.
CakeFinancial.com - This free site opens a real-time window onto each member's investment portfolio by aggregating trading information from online brokerage accounts. Any stocks, exchange-traded funds, and mutual funds a member has owned within the past 10 years show up. In the future, options and fixed-income trades will also appear. This info does not reveal how much members are trading, only the percentage of their portfolios the trade represents. Eliminating the sensitive stuff allows users to communicate freely, says Steven Carpenter, the site's founder. He has plans to add a fee-based advisory service for members.
Covestor.com - Join this site, and it will import up to three months of trading data from your various brokerage accounts, then rank your entire portfolio by absolute, risk- adjusted, and sector returns. You can see other members' portfolios and stats, and they can see yours.
Eric Wolff, 25, who uses advice from Covestor to manage a portion of a family trust, likes ranking portfolios by a measure of risk called the Sharpe ratio. "That allows you to filter out people who just got lucky and focus on people who have better risk-adjusted returns," he says.
To join Covestor, you need a portfolio worth at least $10,000. Membership is free now, but sometime next year the site will charge to follow the portfolios of the top performers. Co-founder Rikki Tahta says he would eventually like to set up a program in which members can automatically replicate trades made by market-beating members.
ValueForum.com - This four-year-old community has 1,400 members—mostly over 55 and retired with an average portfolio of $1 million, says co-founder Adam Menzel. Users pay $220 annually. ValueForum doesn't track members' accounts, but it lets them gauge one another's performance in other ways, such as through quarterly stock-picking contests. Investors come to this site for the discussions. They can even vote to dispatch off-topic posts to a separate conversation board called the "Coffee Shop" to keep the main threads focused on investing matters.
Building on the idea of community, the site organizes an annual conference called Invest Fest (one is planned for February in Orlando). It includes presentations not only by members but by investing professionals and even on occasion the chief financial officer of a company the members are following.