When it comes to his investments, Jerry Richardson has few secrets. On May 5, he bought Yahoo stock and promptly sold it on May 15, pocketing a 14 percent gain. In April, his bet on American Apparel netted 23 percent, although he lost a half percent on Google. Currently, his entire portfolio consists of one stock, Apple, "until the new iPhone comes out or until the stock hits $200—whichever comes first," he says.
Anyone with a browser can track the portfolio of Richardson—aka "miraclebaby"—on CakeFinancial.com, a website that combines social networking features with investing. It's similar in concept to Facebook: Cake users get updates when anyone in their chosen network buys or sells stock. They can also track friends' portfolio returns, trade stories on stocks, and post messages. "I like the competition of it," says Richardson, a 36-year-old Web programmer who lives in Warsaw, Ind. "When I have a score at the end of the day to compare to others', it's visceral feedback. At some level, that's a better motivator than the money."
Top trader. Richardson is something of a star in the Cake Financial community. His portfolio, which actually tracks holdings and trades in his 401(k)—a self-directed plan that allows him to invest in individual stocks—is one of the site's top 20 performers (it has gained an annualized 50 percent over the past two years). On Cake, he befriends other top investors with similar strategies and monitors their trades for ideas and their performance for comparison. Richardson also broadcasts his trades on Twitter and a personal blog "to goad other people into joining my investments or to brag, if I buy something that's going up," he says.
Aside from Cake, a handful of other websites allow amateur stock pickers to link up, share ideas, track one another's trades, and compare performance. The sites don't execute trades; instead, users import data from their brokerage accounts. For privacy, returns and portfolio breakdowns are expressed in terms of percentages instead of actual dollar amounts, and investors can opt to share their portfolios anonymously. Gabriel Dalporto, chief strategy officer at discount broker Zecco, says the concept appeals to "validators"—investors who want to bounce ideas off others before making buy and sell decisions. Users range from buy-and-hold investors to day traders.
Investing as a social activity began with old-fashioned investment clubs, in which groups of investors meet regularly to gab and trade stock tips. With the Internet came online forums and message boards, where anonymous posters dish about their favorite—and not-so-favorite—stocks. But with online boards, says Steven Carpenter, founder and chief executive of Cake Financial, "you're never really sure if what a person is telling you is the truth."
A prime example, he says, was the July 2007 revelation that Whole Foods CEO John Mackey had been posting on the Yahoo Finance message boards for years under a pseudonym, trumpeting his company's stock and blasting then rival Wild Oats. The new generation of Web-based communities makes it difficult for investors to deceptively hype stocks, since they're sharing real portfolio holdings and real trades imported from their brokerage accounts.
Another distinguishing feature of the new sites is their look. "With a social network, you get a rich sense of who a person is," Dalporto says. Users create a profile that describes their investing style, along with basic information and sometimes a photo. They can also build a network by searching for investors with similar strategies or holdings and keep tabs on others' trades with instant notifications. When users log on, they typically see a graphic display of their portfolio, along with updates and comments from fellow network members. While the sites may resemble Facebook, Dalporto notes, there are "no conversations here about dating, or sharing pictures. This is about serious investing."
Here's a guide to three leading sites:
Cake Financial allows investors to import data from 60 different brokerages to track the performance of one portfolio or combine several to see aggregate returns. A Cake application lets members share portfolio and trading information on Facebook, and Cake also notifies users via E-mail or Facebook newsfeed when anyone in their network buys, sells, or posts a discussion. Users can search by stock symbol to find other shareholders, view the network's most widely bought and sold stocks within the past two trading days, and uncover "hidden gems," stocks held by top performers that aren't widely held among the community. There's also the "Cake Take," which gauges the entire community's sentiment about a particular stock, based on trading activity.
Another site, Covestor, also pulls data from members' brokerage accounts, but the goal here is to replace professional investors and to "deinstitutionalize money management," says Perry Blacher, the company's founder and president. "Instead of putting money into a mutual fund, you can just invest alongside brilliant self-directed investors," he says. The idea is for users to track and piggyback on the real-time trades of fellow investors, who are ranked by the performance of their portfolios and other measures. Eventually, says Blacher, members will be able to set up managed accounts that automatically execute trades in sync with a chosen investor, "who will be compensated like a pro," he says. For now, users can sign up to receive automatic E-mail notifications when members of their network make a trade.
With ZeccoShare, Zecco account holders can post their portfolios and join groups such as Green Investing for Tomorrow or Boomers Retirement Investing. (The site's most active group is the New Investors forum.) Users can track others' holdings and performance (including the community's top-performing portfolios) and receive instant notifications when anyone in their network makes a trade. They can also see the network's most widely held stocks, as well as the most-traded stocks of the previous business day. The site features user-generated blogs and old-fashioned forums, too. Soon, ZeccoShare aims to allow customers of other online brokerages to upload portfolios.