Social Investing

I attended another MIT entrepreneurship event last night - this one was on Social Investing. The four start-ups presenting were all pretty different each focusing on a different aspect of the space:

1) Financial Times / Alphaville - the FT's blog & forums to discuss macro economics ideas
2) Sum Zero - wikipedia for investors (similar to wikinvest) except with a closed community of financial analysts
3) Stocktwits - filter for stock tweets on twitter
4) Covestor - democratizing fund managment - [hopes to] allow anyone to be a fund manager by providing a transparent way for individuals to publish their trades and positions

While all were interesting, Covestor seemed to be particularly innovative - challenging the way an entire industry is run. As Rikki explained, thanks to cheaper tools and access to information, anyone can open up an e-trade account and trade. But until this point it has been difficult for you to trade on behalf of other people (manage other's money). By simply publishing what trades each person makes, you could essentially invest alongside the best investors. With a subscription model [coming] and a revenue share deal, the investors publishing their trades can now generate revenue for their research, retail investors effectively have access to actively managed funds for a fraction of the price and Covestor has a business.

As you're probably thinking, there are a whole host of questions and problems as usually happens when you re-invent an industry. Rikki and his largely London based team are working hard to solve them and he was quite adept at fielding tough questions. I would be interested in hearing what Nassim Taleb would say (I'm currently reading Fooled by Randomness). My guess is that in his eyes this would just perpetuate, if not exacerbate the problems caused by mis-judging randomness. Competition among traders even in the Covestor fashion will not do anything to weed out those traders who are are at risk for a major blow-up but doing well (likely the best) in the short term. Perhaps Covestor should reccommend the book and educate the retail investor before they join.

In any case, I like the idea and look forward to seeing how this develops. At this point, transparency is a good thing and more of it is certainly welcome.