Saturday, December 19, 2009
Social Investing Doesn't Quite Click
IF YOU BELIEVE YOU’RE AN INVESTING GENIUS, you most likely already have a system to choose your trades. If you’re not an investing genius, a site called kaChing, which styles itself as “the Web’s largest marketplace for investing talent,” is there to help you out.
KaChing (http://www.kaching.com) lets you scroll through a list of investing “geniuses,” and choose one or more to track. The site features “Unparalleled Transparency,” which includes a genius’ complete trading history, performance chart, return breakdown, portfolio composition, risk metrics and published research. Geniuses each have a personal message board where you can ask for more details.
What you do on kaChing is browse its list of investment advisors and choose a few you’d like to emulate. Open an account, deposit some money, and then, in theory, sit back and watch your portfolio grow. You invest a minimum of $3,000 with each genius you choose to follow. Each genius sets a management fee, which ranges from 0.25% to 3% of assets; 1/12 of that annual rate is charged for each month you follow a particular advisor. In addition, when a trade is executed on your behalf, you pay approximately two cents per share transacted.
You can also follow a genius, or even another kaChing member who is not an investment advisor, and just get e-mail alerts when they make a trade or post research.
The account you fund is held at Interactive Brokers (http://www.interactivebrokers.com), but the funds can only be used for your kaChing activities. In this space earlier this year ("New Ways to Manage Your Portfolio,” Aug. 24), we discussed a site that uses a similar social-networking strategy: Covestor Investment Management (https://cv.im) also uses Interactive Brokers, though its customers can also trade through TD Ameritrade (http://www.tdameritrade.com).
KaChing launched in October, and we were treated to a demo of the site at the time. Your humble columnist has been struggling to figure out a way to cover this particular product ever since, mostly because the firm’s marketing efforts are, in my opinion, off-putting.
It focuses on negative talk about mutual funds, a stance shared by kaChing’s competitor, Covestor. That’s not what I consider the most compelling reason people would want to sign up. (I’m not crazy about the site’s name either, but my age bracket is not the site’s target market.)
It was on Twitter, where one of the people I follow helped me put it all together. Bob Brinker, author of The Brinker Fixed Income Advisor newsletter (brinkeradvisor.com) tweeted, “Both Covestor and kaChing are so close to a great product—but just miss it. Wonder who gets it right first. Big market for the winner.” I called Brinker and we talked over our issues with both sites.
Brinker is a potential genius on kaChing, but says he isn’t likely to participate because he doesn’t want all of his recommendations to be public. Brinker finds the idea of having Covestor or kaChing act as the custodian for his customers’ funds very appealing for legal and regulatory reasons. Yet he’d prefer they were set up so that only people paying to invest with him could see what he’s doing in real time. Brinker says, “I understand the need for the clarity, but I don’t think someone who isn’t paying me should know what I’m doing.”
He also believes that the winner in this space will tailor it to investment-newsletter writers with solid long-term results, and that the firm will also let the customer choose his or her own broker. Investors who are looking for an expert to follow should be focusing on the longer term; month-to-month gains should not be the immediate goal, he says.
Like me, Brinker is annoyed with the attacks on mutual funds—charging them with cheating customers. Sure, some extremely high-fee, mediocre-performing funds deserve to be criticized and exposed—as Barron’s often does—but not the entire business. For its part, a Covestor spokesperson says its marketing message seems to resonate with customers.
I do believe there’s a place for services like the ones provided by kaChing and Covestor. But I think they are selling themselves short by focusing their marketing efforts on denigrating mutual funds. I appreciate how kaChing spells out exactly what it is you hold in your portfolio when you choose a particular genius. It would be helpful, too, if investors had transaction costs spelled out for them before they pulled the trigger on a trade.
SO LONG TO FLAT PRICING: OptionsHouse (http://www.optionshouse.com), which has featured flat-fee pricing for stock and options trades, is changing part of its fee structure to reflect changes in the way exchanges operate. George Ruhana, CEO of Options-House, detailed the new fees for us.
Stock-trade pricing will remain the same, at $2.95 for any transaction up to 50,000 shares. But options pricing of $9.95 for any number of contracts ($14.95 for any multi-faceted trade) is going away. In its place, customers will be able to choose from one of two pricing structures.
For those who trade in relatively small lots of options contracts, one choice is $5 for up to five contracts; anything over five contracts is $1 per contract. In this tier, spreads are $10 for any number of legs (or different options symbols traded) up to 10; it’s $1 per contract for more than 10 contracts.
Those who trade large blocks will be more interested in the other pricing structure, which is $8.50 plus 15 cents per contract. Both price structures would cost $10 for a trade of 10 contracts. Spread trading is $12.50, plus 15 cents per contract.
New customers will be asked to choose a plan when they sign up for an account. These prices aren’t locked in, though; customers can switch plans every 24 hours, to go into effect the following trading day.
MORE ABOUT BONDS: The BondDesk Group (http://www.bonddeskgroup.com) has relaunched its Website, and it has a variety of articles, along with data of interest to retail investors. Click on “Individual Investor” on the left-hand side of the main page for resources about bond-investing strategies and building bond ladders. You may also find the data on yields and most-active trades helpful.
Published in Barron’s, December 14, 2009.