BusinessWeek Investor -- The Barker Portfolio
Making Sense of the Web's Hot Tips
If you've ever lurked in a stock market chat room, you know what a waste of time that is. It's the cyber equivalent of those old guys you see wandering the beach, heads down, waving metal detectors over the sand. But imagine: What if you could comb only those beaches with lost, buried Rolexes?
That's the impulse behind iExchange.com, the brainchild of an ex-investment banker named David Eisner. Last year, he hooked up with Bill Gross and his Pasadena (Calif.) incubator, idealab!, raised $35 million, and set out to end the chaos reigning over Internet stock tips. "There are kernels of brilliance, but it's totally disorganized, and there's no accountability," Eisner said. "We'll do for financial chat rooms what eBay did for collectibles."
The minute I heard this, I thought: great idea. After sampling the tools and tips at www.iexchange.com, I still think that. Yet I can't suggest you spend much time at the site. iExchange.com has some growing up to do before most investors would feel their time wouldn't be better spent on the beach.
This surprises me because in many ways, the site is off to a fast start. Since October, 5,500 "analysts" have posted 45,000 reports on 4,939 stocks. Who can be an analyst? Anyone, just by registering for free and filling out an online form detailing what you like (or hate) about a stock, a target price, and when you think it'll hit the target. For example, "sholmes" on Feb. 28 predicted that Internet Capital Group will rise to $130 from $96.94 by Apr. 15. Is sholmes worth listening to? That's where iExchange.com comes in, tracking a bunch of statistics to gauge each analyst. At a glance, I saw that just one of sholmes's four picks is up, that they're off 7% on average, and that sholmes's rating is 1.5 out of 5 stars. Good thing sholmes's reports are free.
Other analysts charge a fee, typically $1 or $2 per report but sometimes $10 or $20, payable via credit card at the site. They split proceeds with the site 50-50. No one is getting rich yet. No. 6-ranked Michael O'Keefe's 52 picks are up 46%, but he's making less than $1 a week selling reports. O'Keefe is a 47-year-old civilian systems analyst with the Army Corps of Engineers in Rock Island, Ill. He impressed me with his quantitative stock-picking model, which he uses in his own account, and his skepticism. Some iExchange.com analysts "are doing a lot better than the guys at A.G. Edwards," he says (table). "The problem is separating real performance from luck."
Exactly. You can search the site for analysts ranked five ways, or you can search for every analyst on a given stock. I did lots of this but found little compelling stuff. Top-ranked "EBay_ of_Pigs," for example, is selling a $20 report on a small cap called Superconductive Components. Its top half is copied right from the company's home page, and the rest is mostly hype: "Look for this one to really, and I mean really, move."
Is this worse than a lot of Wall Street research? Not much. Yes, there's nothing to stop analysts from trying to pump up stock they own only to dump it on you. Yet iExchange.com repeatedly warns against "a few `bad apples' who might include information in their reports that is misleading or just plain wrong." The Street should bare its conflicts of interest so plainly.
More analysts, more picks, and more time for them to play out will make iExchange.com's stats mean more. Eisner knows this, so he's luring amateurs with contests and cash even as he strikes deals on the Street to track the pros, too. "Our goal is to attract the widest and best group of stockpickers," he says. Better search tools, plus reviews by users on each report, also are due soon. If it comes together, iExchange. com could become a great place for you to get or confirm investment ideas. It just isn't there yet.Questions? Comments? Send an e-mail firstname.lastname@example.org or fax (321) 728-1711By Robert BarkerReturn to top