This App Tells You What Your Friends Invest In. Is That a Good Thing?by
The best way to monitor your investment portfolio is probably to monitor it not very much at all. The Set It and Forget It approach says that once you’ve made choices about how much risk you’re comfortable with, constantly checking returns can be harmful—that thrilling over today’s gain and despairing over tomorrow’s loss is not just stressful but encourages bad financial behavior. Betterment, the online investment service, recently posted a good rundown of why this is the case. The more often a person checks his portfolio, the more risky he perceives it to be, and the more likely he is to make decisions based on emotion, buying high and selling low. Betterment believes in this so much that it may be the only startup that wants some clients to use its app and website less. It refers to those who log in less than once a month as “superstars,” and says users who monitor their portfolios as often as every other day “are likely stressing themselves out needlessly, without any improvement in performance.”
However, for many investors, that’s tough advice to follow—especially at wild times like right now. The Treasury market freaked out on Oct. 15 in a way it hasn’t since the fall of Lehman Bros., and on half the trading days in October, stocks have moved more than 1 percent in a single session. Which investments are holding up? Which are cratering? Am I an idiot or a genius for having this or that allocation to equities?
For those who must check, a startup called OpenFolio, founded in 2013 by two former Wall Street bond traders, offers a new way to monitor performance: relatively, vs. your peers. OpenFolio is a mash-up of a portfolio tracker and a social network. It allows users to compare their allocations to friends, and to see how their performance stacks up against various groups—by age, gender, college, and industry. It grabs these demographic details from users at signup, either directly or via their Facebook or LinkedIn profiles. Users connect OpenFolio to their brokerage accounts, so all of the data is real: If your college roommate’s profile shows he’s 100 percent invested in gold, it’s not just talk.
OpenFolio says it never displays a user’s dollar totals—only percentages. In other words, you can’t tell how much a co-worker has in the market; you can only see where she’s putting it and how well or poorly it’s doing.
The company released an iPhone app on Oct. 15. As much as I subscribe to the idea that the less-scrutinized portfolio grows best, the insights that OpenFolio provides can be pretty interesting. I can see how my investments are performing relative to various demographic groups: I’m slightly trailing my cohort of 25- to 34-year-old men, which OpenFolio says is up 10.1 percent in the last 12 months, and way behind the best performers—women between 35 and 49, who are up 27.6 percent. Clicking around a bit gives a clue as to why. The 65 women OpenFolio tracks in this age range have on average 26 percent of their holdings in technology, a sector that’s outperformed the broader market this year.
OpenFolio also shows performance by school. People affiliated with Northwestern University have done best this year, up 19 percent; Cornell is doing the worst of the Ivies, with a 3.9 percent gain.
The industry breakdowns might be the most intriguing. “What we’ve found consistently is that finance guys are towards the bottom of the barrel,” says Hart Lambur, who was a Goldman Sachs bond trader before starting OpenFolio. With a 6.8 percent return over the last 12 months, Wall Streeters rank 17th out of 23 industry groups.
Lambur has a few theories why. First, finance workers have 13.8 percent of their portfolios in cash, more than other groups—one possible reason being that they get much of their compensation in the form of February bonuses. There was much chatter about an imminent correction to the stock market during the late winter and spring, and anyone who kept cash parked on the sidelines, waiting for it to arrive, would have missed out on the gains that occurred instead.
Second, finance professionals are overexposed to bank stocks. Again, this might be related to how they’re compensated; bankers are paid partly in company stock, which can’t be sold for certain periods of time. The KBW Bank Index has delivered half the gains of the S&P 500 this year, and less than a third of the tech-heavy Nasdaq 100 Index.
Lambur and his co-founder, Yinon Ravid, a former bond trader at Oak Hill Advisors, say the idea behind the startup is to re-create the collaborative feel of a trading floor, where colleagues freely share investing ideas and opinions. The insight OpenFolio users get into others’ portfolios is a radical departure from the norm—most real-world friends, in my experience, talk about their investment choices in only the vaguest terms, if at all. But is knowing more a better thing? I am now aware, from clicking on Lambur’s profile, that he moved 18 percent of his portfolio out of stocks and into cash this week. That makes me slightly nervous, with equities at record highs. Even so, I think I’ll leave my portfolio alone.