Sometimes it takes a Web-based village

The Globe and Mail: Grant Buckler, 11.26.2008

The stock market meltdown of the last couple of months has hurt virtually everyone who owns stocks or mutual funds. Edmonton investor William Nichols is no exception, but he says his portfolio would be in much worse shape if he hadn't been warned in 2005 that sub-prime mortgages were a disaster waiting to happen.

Mr. Nichols, a retired public servant and part-time consultant, is a member of, an online investment community with more than 1,400 members. Three years ago, he recalls, there was a lot of discussion on ValueForum about the dangers of sub-prime mortgages and which stocks would be affected when the bottom fell out.

As a result, he says, "many of us simply got out of those equities."

Mr. Nichols says he has come through the crash better than many investors he knows, and is a more active and confident investor, because of advice gleaned from ValueForum, which costs its members $250 (U.S.) a year.

He's not alone, says Adam Menzel, who in 2003 co-founded ValueForum, which is operated by BNK Invest Inc. of Locust Valley, N.Y.

Mr. Menzel says the overall performance of ValueForum members who participate in its quarterly contests has been 2.7 per cent since the beginning of 2004 - a period in which the Standard & Poor's 500 lost 18 per cent if measured the same way.

That might be partly because people who join investment forums tend to be serious investors who do their homework, but it also suggests these communities can help investors make better decisions.

"In an environment like this," Mr. Menzel says, "in which everything is crazy and things are changing day to day, there's a tremendous benefit in having a group of people you can run your ideas by."

Such communities follow different models, but all have the same basic purpose - to allow investors to share ideas and learn from each other.

Vancouver-based Stockhouse Inc. launched an online message board for investors in the mid-1990s.

Like other such services, in the late 1990s it started attracting advertising and spam, chief executive Marcus New says.

The problem got worse until, in 2005, Stockhouse reworked the site, putting more emphasis on blogs, and started developing a "reputation filtering" program - completed this year - that shows information about other members' investment performance and lets them rate comments in the discussion forum.

A small team of editors reviews and rates user-generated content, Mr. New says.

Stockhouse gets about 700,000 visitors a month, he says, with 15 to 18 per cent of them creating content.

Covestor Inc. of New York lets its members track their portfolios online and see what other members are doing, says its president, Perry Blacher.

The total amount in a member's portfolio is confidential, Mr. Blacher says, but members can see which stocks another member holds as a percentage of the person's total portfolio and view trading activity.

By linking to members' brokerage accounts, Covestor can ensure trading activity is reported accurately, he adds.

Today, Covestor members - who number in the tens of thousands, says Mr. Blacher - can emulate other investors if they wish.

Within a few months, Covestor hopes to offer its members the option of allocating money to be invested alongside that of a trusted investor.

Members would first choose an investor based on that person's past performance, then put in a certain amount of money and watch it be invested, move for move.

"We're really out to try and take on the institutional fund management world," Mr. Blacher says.

"Really what we're trying to do is build an open-source hedge fund, if you like."

Jeff Pierce, a Vancouver investing blogger and Covestor member, thinks members will benefit from decisions made by more experienced investors. "I have a vested interest in doing well," he says, more so than a mutual fund manager who is investing other people's cash.

Zecco Trading Inc., based in Pasadena, Calif., is an online stock-trading site that launched an investment community called ZeccoShare late in 2007. The community is mainly about discussion and sharing ideas, says Craig Prickett, Zecco's vice-president of marketing.

But, like Covestor, ZeccoShare asks members to share information about their holdings as percentages, without revealing dollar values of their portfolios.

In contrast, ValueForum doesn't share members' portfolios but focuses instead on discussion. "The focus of the site is really collaboration," says Mr. Menzel.

Members can signal agreement with a ValueForum comment with a click of the mouse, which places a green thumbs-up symbol below the comment.

Edmonton investor Mr. Nichols says many of his fellow ValueForum members are retired executives, some with experience in Fortune 500 companies, who offer a wide variety of experiences and background in many fields.

For example, Mr. Nichols says, if an investor has a question about walnuts, he'll likely get an answer from a walnut farmer.

To illustrate the clout that online communities have, Mr. New points to a group of Stockhouse members who contacted a company in which they had invested and arranged for a special presentation. Sixty-seven investors attended, he says, flying in from across Canada and the United States.

Some of the forums, such as ValueForum, charge a fee.

Others are free, such as Covestor, which hopes to make money in the future on premium services like its planned automated matching of other investors' trades.

Online investment forums may not replace formal investing advice, but they do provide avid investors with a handy networking tool.

"It's the dialogue that takes place in the hallways of the seminars and the investing trade shows," Mr. Prickett says, "only it takes place in the convenience of your own home."

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