Investor Brain

Tuesday, July 03, 2007

Dear Kathy Yakal

The current print edition of Barron’s includes Kathy Yakal’s last column for The Electronic Investor, entitled “Dragging Edgar into the 21st Century.” The tag on the end of the column, which says, “Editor’s Note: This is Kathy Yakal’s final Electronic Investor column for Barron’s after 11 years,” just isn’t enough of a tribute to her fine work.

I’ve known Kathy for a long time—well before we both started writing for Barron’s. She has been the grande dame of financial technology reviews at PC Magazine for about 20 years; I covered similar topics for other Ziff publications.  I was lucky enough to have the first EI column, back in March of 1995; at the beginning of its run, EI was a once-a-month guest in the publication. 

Then in mid-1996, following our first review of online brokers in early May, the powers-that-be at Barron’s decided to double the production of the column.  They asked me for suggestions of other writers who could pitch in, and I could only think of one person:  Kathy.  Fortunately, she accepted the Barron’s challenge, and became my tag-team partner in providing content for the publication. 

EI went to weekly a few years later, so Kathy and I have been trading off the byline since then.  It’s been a great rhythm, and I’ve always enjoyed reading her columns.  She is such a professional and I’ve learned a lot from her approach to her work.

I suppose that, technically, we are competitors—but I never felt that way about her work.  There are a handful of other folks who cover the financial technology realm, but (especially in the 90s) few of them understand the issues as well as Kathy does—and frankly, most of the others republish large quantities of rewritten press releases.  What I have always appreciated about Kathy’s work, and what she has given to me, is an intense hands-on perspective, based on years of experience covering the industry.

What has also been fun is hanging around with her at various trade shows.  The main reason I miss attending Comdex is the opportunity to get in trouble with Kathy in Vegas.  Hey, it’s true—what happens in Vegas stays in Vegas.  ‘Nuff said.  Our last get-together was in Nashville.  It’s been too long. 

Kathy is still around, but will be writing marcom materials for a major software publisher, which generates enough conflict of interest that she can’t do reviews for the various publications any more.  I will miss her intelligent, critical voice more than I can say.

Sunday, June 17, 2007

A Shiny, Trendy Tool Kit

VANTAGEPOINT’S INTERMARKET ANALYSIS Software brings an intriguing, albeit somewhat pricey, tool kit to the short- and intermediate-term trader.

The package analyzes individual markets both individually and in relationship to 25 related markets. Its goal: provide trend forecasts, based on the relationships between these markets.

According to the publisher, Market Technologies (http://www.tradertech.com), VantagePoint predicts short-, medium- and long-term moving averages for up to four days in the future, using the pattern-recognition capabilities of neural networks.

Then, VantagePoint computes a crossover leading indicator, based on the difference between the predicted moving average and today’s actual moving average. Changes in the value of the crossover indicator from one day to the next can help you determine if the market will be choppy, maintain its trend or change direction.

THE DATA IS PURCHASED from third parties. During our test, we used the Commodity Research Bureau (CRB), which provides end-of-day quotes on commodities, stocks, mutual funds, financial indexes, futures, options on futures, major markets, commitments of traders and fundamental data. The CRB charges $25 per month, plus a $60 setup fee, or $300 for a full year, with no setup fee. Other data providers are Commodity Systems and Genesis Financial Technologies.

What I found intriguing comes from my background in econometrics and my joy in solving simultaneous systems of equations. VantagePoint crunches stock, commodity and currency information to generate intermarket analysis, analyzing the relationships between markets and how one might impact the other. If you’re studying one particular market, say heating oil, you can look at reports that are based on the 25 markets that affect it.

THAT SAID, VantagePoint isn’t touted as a trading system. Instead, it shows what the various indicators are predicting the market will do over the next few days. Each user must decide how to apply this knowledge; the program’s goal is to complement one’s strategy, not replace it.

Founder Louis Mendelsohn released the original version of VantagePoint in 1991, so this isn’t a new product by any means. I saw an early version in the mid-1990s, but didn’t review it because the data integration was both difficult and expensive. That’s changed, thanks to high-bandwidth Internet connections.

To allow intra-day forecasts, VantagePoint aims to incorporate real-time data into the program by the end of the year. The current version, 7.09, was released in January 2007. Version 8 is expected during the fourth quarter.

The program is offered in categories, such as health care, financials, technology and basic materials. The Foundation Package will set you back $3,900 for one category; additional categories can be added for $2,500 each. Fees are charged once and include a year of support. Additional support is $249 a year.

CONTINUING OUR COVERAGE of the very quiet conversion of accounts from TD Waterhouse to TD Ameritrade (http://www.tdameritrade.com), we found that the main complaint lodged was the sudden disappearance of Goldman Sachs research. TD Ameritrade spokesman Jim Frowley said that the Goldman contract went through a re-evaluation, and that it will go live again for retail customers on June 12.

According to Frowley, the research was brought back to TD Ameritrade’s institutional customers fairly quickly. He adds that TD Ameritrade will be able to keep the research at least until the end of the year.

E*Trade (http://www.etrade.com) is giving its Power E*Trade Pro users a new quoting tool called Market Depth. This tool includes free access to Nasdaq TotalView and Nasdaq OpenView, which replace Level II quotes. TotalView provides access to every quote and order at every price level in the Nasdaq Market Center. OpenView offers full order-book depth for NYSE and Amex market makers.

Says E*Trade spokeswoman Tina Martineau: “For customers, the value of Market Depth is that they will be able to see every market maker involved in a stock. Also, the Market Depth graph and the momentum bar provide customers with visualization of what they previously had to conceptualize with the data on Level II.”

Published in Barron’s, June 11, 2007.

Friday, April 27, 2007

Disagreeing with Consumer Reports

Consumer Reports has issued their online brokerage rankings, and their list bears little resemblance to the Barron’s results.  The Barron’s survey has such different criteria from Consumer Reports that this should not be much of a surprise.

Reading over the CR results, I don’t get the feeling that they did any hands-on testing.  Also, their target customer is quite different from the target we use at Barron’s.  The Barron’s customer profile is of someone who is relatively wealthy, has at least $100,000 in their account, is a moderately active trader, and is technologically savvy. 

CR’s Money Lab graded firms on the services it says are “most valued by typical small investors.” They looked only at web-based brokers rated them based on grades for trading cost and scope, minimum trade fee, mutual fund programs, the amount of available no-transaction-fee funds, banking and asset management services, the availability of free research and education tools, and customer support.

In contrast, the Barron’s rankings evaluate the trade experience, broker’s technological offerings, usability of the site or software program, what can be traded online (with partial credit given for things that can only be traded via a live broker), research amenities, portfolio analysis and reporting (with an emphasis on tax reporting), the quality of help and means of access, and costs. 

The Barron’s emphasis on the quality of the trade execution, smart-order routing technology (which finds the best bid or offer), and the absence of internalized orders and reliance on payment for order flow were necessary to earn a high rating. CR’s ranking scheme doesn’t consider this at all. 

Our range of offering score considers how many stocks a broker allows their customers to sell short, looks at complex options trading, and the availability of mutual funds, futures, commodities and international trading.  CR just counted up the number of no-transaction-fee mutual funds offered by each brokerage. 

The Barron’s emphasis on portfolio analysis and reporting is also completely missing in the CR ranking.  CR’s cost analysis looked only at the commissions for trading stocks and mutual funds, while Barron’s also considers options trading, margin fees, and any maintenance or software fees levied by the brokers.

I think a key difference is also the Barron’s emphasis on hands-on testing.  We get a trading account with each broker, and run the sites and software offerings through a comprehensive script. 

It’s not at all surprising that our results vary widely.  The firm they ranked first, Firstrade, came in 10th in our web-based category and earned only 3 stars (out of 5) overall.  FirsTrade got the second-lowest trading technology ranking, a mere 0.8 out of 5 points, of all of the brokers ranked.  Their 2nd place firm, E*Trade, was 6th in Barron’s.