Stock Sites Get 'Social' In 2.0 Era

Investor's Business Daily: Brian Deagon, 7.29.2008

Two years after retiring from Microsoft, Peter Kurata decided to manage his own stock portfolio, dismayed by the performance of his financial adviser.

He began studying investment methods and strategies, and today has 80 "followers" who watch -- literally -- his trading to consider whether to buy or sell the same stocks. Kurata's trades are followed on, which he joined in August 2007. Covestor is one of a new crop of investor-oriented Web sites where users gather to chat, read or write blogs, and look over the shoulder of fellow traders.

''There is no better way to learn investing than to see trades in real time and ask investors how they do it,'' Kurata said. ''It's like having a personal training coach.''

Kurata was having a good year. On July 15, his portfolio was up 35%. But the next day one of his holdings -- an ETF, or exchange traded fund -- plunged 21% and continued a downward spiral for a few days, wiping out his gains for the year.

''OK, I really blew it,'' Kurata wrote on his blog page. ''I had two successful trades then let emotions kick in. Greed, pride, all the stuff that kills investors.''

On his Covestor-linked blog site, where the longtime IBD subscriber is known as IBDInvestor, Kurata explained why he initially bought the stock and the sell signals he missed on that fateful day.

''I had my biggest one-day loss ever,'' he wrote. ''Best of all, I learned a valuable lesson which will equate to future profits.''

Covestor lets its users track members' trading activity, with the members' permission. It doesn't disclose the number of shares traded, but it identifies the stocks traded and the prices. The data come from an investor's online trading account, to guarantee accuracy. Some investors tracked on boast triple-digit gains.

''I have been amazed by the talent,'' Kurata said. ''Their performance consistently runs circles around mutual funds.''

Try To Outperform Pros

Covestor and sites like it have brought online investors into a new world. The Internet fueled a major upheaval in the financial services market more than 10 years ago, with the arrival of online discount brokers.

The newer sites have added a Web 2.0 element for individual stock investors, such as social networking features that let people inside the minds of active traders. Many users of these sites are passionate about investing and believe that they can outperform the market without help from professional advisers.

''There's little evidence to support the notion that professionals outperform individuals who manage their own portfolio,'' said Steve Carpenter, chief executive of Cake Financial, an investor Web site launched last year. Cake tracks the performance of its members. It posts a wide array of stock information provided by users and notes which stocks are being widely sold or bought, among other features.

The site is launching a new feature that will suggest stocks to consider, based on an individual user's trading profile, much like the way Netflix recommends movies based on what people have rented from it in the past. The combined asset value of all Cake members is approaching $1 billion, Carpenter says. ''These are smart investors who do their homework,'' he said.

A recent report by consulting firm Corporate Insight says the potential of social networks are just starting to be tapped by financial services companies.

''Over the long term, these sites will have an impact on traditional financial advisory services,'' said Alan Maginn, an analyst at Corporate Insight. ''Traditional brokerage firms will have to get involved with this whether they want to or not.''

Other investor-oriented Web sites with social features include,, and

Online brokerage firm Scottrade recently added a community forum to its site. It lets Scottrade customers collaborate and discuss new ideas and how they trade, says Kristin McDougall, Scottrade's customer education manager.

As to whether Scottrade would add more Web 2.0 features of the kind Cake and Covestor offer, that's being studied, she says.

''We're watching this space more closely,'' McDougall said. ''We'll roll out new features slowly to be sure we do it right.''

Other brokerages are treading cautiously as well. Most offer chat rooms and forums on their Web sites, but most don't have platforms that let clients engage more fully.

'All About Trust'

But at least two online discount brokerages, TradeKing and Zecco, have been aggressive in rolling out Web 2.0-type community features.

Zecco, which allows free trades with a minimum deposit account, has social networking features, forums, communities and blog activity on its site. It has teamed with Motley Fool, another personal investing Web site, to offer a rating service that recommends stocks and tracks their performance in real time.

''This industry is all about trust,'' said Jeroen Veth, Zecco's chief executive. ''We allow our audience to share factual portfolio data, showing that they own the stock they're recommending and putting their money where their mouth is.''

Zecco lists the top stock holdings of its members and which companies are being actively traded. On the day before Apple was to launch its new iPhone, for example, Apple topped that list, with 14 people buying the stock and 10 selling. Another feature spotlights Zecco's top-performing traders over the past three months. A recent look on the site found a gain of 899% for the leader. The next five also had triple-digit gains.

Zecco has more than 100,000 account holders, and it says half are actively involved in communities.

''Communities are a great research tool,'' said Tony Leach, Zecco's product manager.

Some agree.

''The typical brokerage only provides you with a basic set of research tools,'' said Perry Blacher, chief executive of Covestor. ''But they don't tell you how you're performing against benchmarks and how you're doing compared to other individuals.''

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