There are a huge number of investing-related Web sites that people can go to for advice and ideas, but many of them are not worth your while. It takes time—and a fair amount of digging—to get a sense of the usefulness and accuracy of the information that these sites provide.
With all those choices, where should an investor turn first? For those short on time or patience, BusinessWeek has some ideas to get you started.
Online tools for investors come in three major categories: investment advice, investor education, and investment planning of the sort offered by most online brokerage firms. For advice, investors are increasingly gravitating toward investing communities that allow their members to track the actual performance of each other's portfolios and verify that members are recommending stocks and other assets they really own and strategies they are really using.
Moving to Better Sites
Many investors, frustrated with what they call a low level of conversation on popular sites such as Yahoo Finance, have migrated to better-monitored sites like ValueForum.com, where, for an annual fee, they say they get a more sophisticated exchange of ideas and a closer sense of community and mutual support.
Craig Jennings, a former cabinet maker and kitchen designer in Gilmanton, N.H., was one of the 200 people ValueForum initially invited to pay a flat fee for a lifetime membership. Although he has been investing for 16 years, he says the returns he made in mutual funds for most of that time don't compare with the gains he's had in the six years since he joined ValueForum, ranging from 22% in 2005 to a peak of 158% in 2003. Like many ValueForum members, he spends an average of 40 hours a week doing research on stocks. His portfolio is now worth roughly $1 million, most of which he credits to advice from ValueForum members.
Online discount brokers such as TradeKing, which combine trading capabilities with online investing community features, are also beefing up their platforms with new offerings. In March, TradeKing introduced an All-Star Commentary by a couple of trading experts who regularly analyze different members' trades, drawing out lessons that can help all of the community members improve their understanding of how certain transactions like options work.
Expanding the Conversation
A big part of the allure of these sites is their collaborative aspect, which tends to encourage broader participation and expand the conversation and the potential for more diverse input.
Wikinvest is a classic example. Like other Wiki sites, this one, launched last October by two former Harvard roommates, is set up to allow users to create content and edit existing entries. The sense of an enduring single document, as opposed to the posts on sites such as Yahoo Finance that disappear off the page as more recent posts accumulate, encourages contributors to put more thought and care into the content they post, say founders Parker Conrad and Mike Sha.
And unlike most finance portals, which are organized around ticker symbols and individual companies, Wikinvest allows users to research a concept, which Sha believes is a more natural way to think about investing.
Digging Deeper with Wikinvest
Someone pulling up an article on aging baby boomers, for example, can see the various industries and individual companies likely to benefit as this disproportionately large segment of the U.S. population hits retirement age—from cruise-ship operators to pharmaceutical manufacturers.
Wikinvest has come up with some innovative ways to treat even traditional research on individual stocks. Wikidata, the feature it launched Apr. 7, allows investors to dig down to a deeper level of detail when they compare stocks, looking for one with the best growth prospects.
While most finance portals stick to one-size-fits-all performance data such as price-to-earnings ratios and free cash flow, Wikidata provides industry-specific operating metrics that can give a clearer picture of a company's relative strengths and weaknesses. "When we created Wikinvest, one of the things we thought was missing was this whole rich world of operating metrics," says Sha.
Let Them Eat CakeFinancial
In analyzing airlines, for instance, specialized metrics such as cost per seat mile and fuel costs provide much more insight into these companies' competitive positions than more general data points, says Conrad.
"What's interesting is a lot of this information is out there, but it's buried in SEC [Securities & Exchange Commission] filings," says Sha. "A platform like this makes it incredibly easy" to access, saving an investor time he would have to spend laying out financial reports of individual companies and rummaging around for specific data points. And because it's all public information, it's sourced to a URL so readers can trace a particular metric back to the original place where it was published.
CakeFinancial.com, the San Francisco-based online investing community, just launched a feature called Cake Take, which rates the trading activity on a group of 500 stocks, providing a quick snapshot of how the community as a whole feels about each one. The rating reflects bigger weights given to the activity of members whose portfolios have performed better in the past and smaller weights for members who haven't done as well.
Bringing CakeFinancial to Facebook
By clicking on different time periods, community members can see how sentiment has changed over time, from five days of activity to one year. That enables users to see patterns of buying, selling, and holding, says Steven Carpenter, Cake's founder and chief executive. "Hopefully, it's our first stab at creating an easily digestible sentiment [index] of what real investors think by what they're actually doing," reflecting a collective wisdom among the community, he says.
While he compares it to the buy, sell, and hold ratings that traditional research analysts provide, he explains: "We're not in the rating and recommendation business. We're just giving you information."
Cake also recently launched an investing application on Facebook that lets the social networking site's members securely share portfolio and trading information from their brokerage accounts with their trusted network of contacts without disclosing sensitive information such as net worth.
Investors Want Usability Overall
That's similar to recent efforts by Covestor, another online investing community, to improve the ways it links to members' own blogs in order to enhance the site's usability for community members. That has resulted in more commentary among the members, says Covestor Chief Executive Rikki Tahta. "It's part of a general move in the Web, where you want to write once and publish often," he says. "We obsess about user usability because that's what it's all about. You want to leverage what people do already."
An April, 2007, study of online brokerage firms by Aite Group, an independent research firm in Boston, also found that investors are seeking usability over a wish list of educational and interactive features. "It was all about making it easier to use, easier to find things, easier to understand things," says Adam Honore, senior analyst at Aite.
Among the online brokerages, Charles Schwab (SCHW) was the clear leader for usability for several portfolio tools, from stock screener to asset allocation, and for such trading tools as charting and e-mail alerts, the study said.
Following the Trends at Marketclub.com
Another useful Web site is marketclub.com, a trend-tracking service that helps identify entry and exit points for buying and shorting stocks, commodities, currencies, and other assets, based on price trends identified on charts for different time periods. The site offers an easy-to-understand graphic tutorial that shows users how to pick entry, exit, and re-entry points for both long and short positions.
Jennings, also a user of Marketclub.com, says that rather than trading all the recommended signals, he keeps a spreadsheet of all the trends, which he then organizes by sector. He prefers to make a decision based on a trend he can see across a particular industry instead of within a certain stock.
"If I see a whole sector falling apart, I decide it's time to get out," he says. "A year and a half ago I was into all the uranium stocks and I did well. By watching those scales, it gave me a heads up [that] maybe it was time to exit these stocks or this sector, which I did."
Aggregating Investing Blogs at Seekingalpha.com
Jerry Daughan, another ValueForum member, likes a premium site within realmoney.com—itself part of TheStreet.com&mdash that highlights stocks priced under $10 a share which can grow beyond that limit. Daughan says these aren't merely cheap stocks but ones that are thought to have a strong business model and growth prospects.
There are also several sites that offer general education to investors through articles, blogs, and discussion boards. The best known of these is probably Seekingalpha.com, which serves as an aggregator of many other investing-oriented blogs. Eric Wolff, a member of Covestor, says that lately it's been focused more on volume than on high quality of the posts.
The quality of content "depends on the person more than the platform," Wolff wrote in an e-mail message to BusinessWeek. "All these different sites are only as good as their contributors. I think Value Investors Club has the best contributors, but Covestor has the most promising platform for helping investors long-term."
Macroeconomic Commentary from Michael Shedlock
Investors who want to understand how bigger economic trends are affecting the markets before committing their money can check out Web sites and, more and more, blogs, that offer macroeconomic analysis of things like the housing crisis, commodities, foreign exchange, and interest rates.
Wolff says he finds Hussman's frequent focus on market valuation very helpful. By reminding readers that profit margins are cyclical and that cheap valuations are often based on unsustainable profit levels, the site urges investors to use alternative ways to gauge how expensive stocks are relative to their entire histories.
With investing groups starting to pop up on social networking sites such as Facebook and LinkedIn, it seems clear that online investing tools will continue to gain in popularity.
People just under retirement age with $100,000 to $1 million in investable assets are increasingly interested not only in online tools but ones that allow for a more collaborative experience, says Honore at Aite Group. "They don't like the total-control broker model. They want to be able to check their balance and to do some interim trading," he says. "They see it more as a partnership with their broker."