Invest With Your Friends
By Thomas M. Anderson, Associate Editor
From Kiplinger's Personal Finance magazine, November 2008
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Some brokers want you to mingle more online. They have created social networks on their Web sites that allow you to share investing ideas, show selected customers your actual trades and view their trades. The idea is that you build a rapport with the cyber community, and the firm keeps you as a loyal customer. It's like Facebook for your portfolio.
The trend has legs. TradeKing and Zecco have attracted scores of social networkers since the firms started in 2005 and 2006, respectively. Charles Schwab and Scottrade both launched social networks this summer for investors to rub elbows with each other online. Firstrade, OptionsHouse and OptionsXpress say they are working on similar projects.
The value of social networking varies greatly. "We have built this wonderful, safe neighborhood," says Don Montanaro, TradeKing's chief executive. He brags that when a novice asked the firm's network users about buying worthless penny stocks, experienced investors persuaded the greenhorn to avoid them. TradeKing posts a board of top-performing customers who share their picks. Zecco lets you scan the performance of network members by investing experience, trades per month, portfolio diversification and time period.
But among online brokers, Zecco flogs its social network the hardest. For instance, when you pull up the trade screen on Zecco, you see a display of what its online community thinks about the stock on the page. "Zecco is like a social-networking site that happens to have a brokerage," says James McGovern, vice-president of consulting services with research firm Corporate Insight.
Don't expect most online brokers to make social networking a major feature of their services. Bill Doyle, an analyst with Forrester Research, finds that although investors who trade online are more likely to use social networks, "younger users dominate social networks while the older investors with the money aren't demanding that service."
Reader Comments (1)
Posted by: Craig Prickett at 10/14/2008 11:23:21 AM
I wouldn’t discount the concept of online dialogue with like-minded investors as something only the younger, less experienced investor is interested in. I think the best analogy is to observe investor behavior at trade shows or conferences. The action is not in the speeches or meetings; it’s in the hallways where investors exchange ideas and eavesdrop on conversations between other passionate investors. The folks I’ve observed in the last 20 years have been and continue to be the “more mature” folks with some (or a lot) of grey in their hair. I think of the online investment community as that hallway discussion on adrenaline. While we’ve seen the larger brokerages dip their toes in community, they’re mostly dealing with early 90s modalities: message boards. There have always been problems with this old model of investing community. (1) you never knew if the guy you were talking to was a lousy investor and you really shouldn’t be listening to him, or worse (2) if he was just trying to pump up some thinly traded penny stock and dump it on you...I don’t think we've coined the “social network” term properly when it comes to this emerging investing phenomenon. I think it is a misnomer because the really useful investing resources that allow investors to exchange ideas and gain insight aren’t “social” in the Facebook sense. The purpose of the investing community is to give investors the opportunity to exchange ideas, learn, and share with each other for the purpose of making more informed investment decisions and hopefully, making more money... We’ve found that the traditional independent online investor does warm considerably at the concept of sharing and gaining insights with investors just like them. So, our challenge as leaders in this area is to make it easier for investors to find each other and facilitate the exchange of ideas... Craig Prickett VP Marketing Zecco Holdings Inc.