Looking For A Leg Up? Join The Online Club

Investor's Business Daily: Brian Deagon, 11.14.2008

William O'Conner spends weekdays researching and trading stocks with the help of a few dozen like-minded investors he stays in touch with online.

O'Connor, a former Wall Street whiz, knows them through Valueforum.com, where 1,400 members share views on stocks, commodities, mutual funds and the economy.

"If I find a company that pays a good dividend in a sector where I see positive trends, I start buying it," said O'Conner.

He'll then post reasons he likes the stock. The responses from Valueforum members might cause him to reconsider the trade or buy more.

"It's an extremely useful tool," said O'Conner, who makes about one trade daily. He adds that the past five years, he's averaged a double-digit gain annually.

Valueforum is one of many Web sites investors use to get a leg up on Wall Street. The trend began years ago with chat boards on Finance.Yahoo.com and the like. Serious investors became dismayed with the chat boards as they turned into soapboxes for people to pump and dump stocks and post spam.

It's a new day. The Web 2.0 element puts people inside the minds of active traders. Investors can see trades by other investors, view charts of their performance and see what industry sectors they follow. They can chat live, trade e-mails, share chart data, post relevant news and blog their activities.

"Many people are still counting on one person to help them invest — their financial broker," said Adam Menzel, co-founder of Valueforum. "We offer a forum where 1,400 people can collaborate on ideas."

Among the sites catering to active investors are Zecco.com, Covestor.com, TradeKing.com, Vestopia.com, UpDown.com and CakeFinancial.com.

Some sites provide online trading services. What they all share is a wellspring of information and advice.

The established online brokerages — Charles Schwab, (SCHW) Scottrade, Fidelity Investments and TD Ameritrade (AMTD) — have been adding Web 2.0 features that enable collaboration among their users, but they have nowhere near the depth of features of the upstarts.

More than 8,000 customers have joined Scottrade's social networking community since it opened in August, with 4,100 members jumping on board Schwab's.

"We are just in the beginning of a very strong growth path for the role of community in making better investing decisions," said Gabriel Dalporto, chief strategy officer at Zecco.

He added: "We believe this is the future of investing. It's all about the democratization of information, from sources that people haven't used in the past."

About 40,000 customers use Zecco's social networking features. TradeKing has 11,000 members.

The free flow of investor information is also reaching cutting-edge social networking circles. Among them is Twitter.com, where people sign up and create a user profile. They can then connect with other Twitter users and send short messages to whoever links to them via computer or cell phone. Messages are limited to 140 characters or less.

On Nov. 11, a Twitter message from someone called Predict said this: "Dow sentiment dropped to extremely bearish overnight. Market opened down."

Other Twitter users who focus on stock action include StockTwits, StockAlert and TradingPost.

Investors are also moving onto Facebook.com, the second most popular social networking site next to MySpace.com.

Covestor and Cake Financial have Facebook pages, which let users get deeper profiles of each other. Zecco plans to launch one soon. "There are many outlets for communication, and we want to leverage as many as we can," said Dalporto.

Another popular social networking site, SecondLife.com, has a location designed to educate mostly novice investors.

Second Life is a virtual world with millions of users.

People create characters of themselves, known as avatars, and can roam from location to location, where they communicate and socialize.

One location they can visit is Investing InfoIsland, where tutorials are provided on investing basics, selecting a broker, investment strategies and estate planning.

InfoIsland is a joint development project of the Financial Industry Regulatory Authority, American Library Association and Alliance Library System.

InfoIsland holds monthly book discussions and weekly education seminars — and may evolve into a location where people discuss investment activities.

"It takes a while to build something like that," said Lori Bell, director of innovation for the Alliance Library System, which has set up more than 30 virtual libraries in Second Life.

The abundance of Web sites with social features that cater to investors reflects a new development for the financial services industry, according to a recent report by Corporate Insight, a market research and consulting firm.

"It represents a cultural shift in the way individuals obtain information, and vetting that information among peers," said Alan Maginn, a senior analyst with Corporate Insight.

More industry giants have entered the field.

American Express (AXP), Bank of America (BAC) and Visa (V) have all added Web 2.0 social networking features.

"It's too early in the game to know how all these social media tools will play out and how useful they will be long term," said James McGovern, vice president of consulting services at Corporate Insight. "But it would be unwise to ignore them."

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