Democratizing stock picking

03Jan07

Above all, we like to think of Abnormal Returns as an educational site. In that light we are always gladdened to learn about how the Internet is being used to democratize the investment decision-making (and stock selection).

Jane J. Kim in the Wall Street Journal has an informative piece on the many sites that have sprung up recently that allow individual investors to both share stock picks online, but also view the picks of other individual (and professional) investors.

A new generation of Web sites has cropped up in recent months designed to help investors share ideas online with others who have similar investment styles, such as which Asian stocks or technology issues offer the best value. Unlike the Internet chat rooms that were popular in the late 1990s, which allowed any anonymous user to post opinions, the latest sites seek to maintain their credibility by rating participants. Users are assigned a score based largely on the performance of their stock picks and the accuracy of their forecasts.

The article discusses the ways in which the sites differ and includes some worthwhile caveats on how investors should be careful about sharing too much personal (or financial) information with others online.

One of the sites not mentioned in the article, StockPickr.com, is the brainchild of James Altucher of TheStreet.com fame. In this piece he describe the genesis of the site and how investors can best utilize the functionality of the system. One can view the portfolios of other individual investors as well as those of professional investors.  Worth a look.

We don’t endorse any of these sites simply because of the fact that we do not use them on a regular (enough) basis. However, we would note one important caveat. While these sites of this kind can be useful, one need defend against the temptation to careen from one investment style to another, dependent on what is working right now.

In our experience great investors, by and large, generate their own investment ideas, while keeping an eye out for noteworthy ideas from investors with like-mindsets. There a real danger of trying to jump on the latest and greatest investment theme or style. This ‘chasing behavior’ will in all likelihood lead to poor results for an undisciplined investors. In short, caveat emptor.

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