With Covestor, everyone is a money manager

16 Comments

coverstorlogo.gifSo you think you are a smart investor, the kind who always beats the market, and tells your friends and family what stocks to invest in, and what stocks to sell. You think you can out perform the money managers and investment advisers who collect hefty fees. If yes, then you might be interested in a new service from New York-based start-up, Covestor, likely to launch sometime tomorrow.

Here is how it works:

You sign-up for the service, and plug-in your online brokerage account information and your portfolio shows up on the site, and the system creates its relative performance to the broader indices, sector indices and also creates a risk profile. It’s not a fantasy game; instead it is your real portfolio, where real money is at work.

The site, while no-frills has all the elements you would see on say Morningstar fund screen. You can see a person’s holdings as percentage of their portfolio, with relevant charts and other relevant data. Lets say, you are good at picking broadband stocks; others on Covestor can track your investments. There are shades of social networking, with a built-in reputation system. There are other features that help you gauge the quality of investment information you are getting from a person.

If the “covestors” agree with your investment style, then these covestors can allocate say a small portion of their own investment dollars to mimic your investment style. The more successful you are, the more followers you get. Think of yourself as their virtual money manager – an attractive proposition for those who take (very vocal) pride in their investing prowess. It is not that different from a blog, where unique voice or view points lead to a ‘following.’

“The idea came to me, when I heard from my contacts in the investment business, that hedge funds were asking research firms to put their ideas on the web so that they can track them,” says Richard ‘Rikki’ Tahta, who has co-founded the company along with two other co-founders, Perry Blacher and Simon Veingard, a few months ago. They have raised $1 million in funding from angel investors.

Tahta is a repeat entrepreneur who has been involved with four start-ups in the financial information sector. “With the advent of zero commission brokerage accounts, the friction of replicating six people in my own portfolio has vanished,” says Tahta, pointing to new offerings from Banc of America. One of the first thoughts that crossed my mind after hearing Tahta describe his company: isn’t this a system ripe for being gamed, especially when the site is a tear away success, and the portfolio’s following becomes a self fulfilling prophecy. The followers’ actions can have a negative impact on a highly illiquid stock, pushing it higher, making the system prone to manipulation.

“Since you actually need to spend to build a reputation, and all your information is with the brokerage, the potential of gaming the system is pretty low,” says Tahta. I still remain unconvinced – and that’s a challenge Covester will have to overcome before it can be deemed a success.

16 Comments

Edmond

I’v looked at both covestor and Vestopia, and i think both have a good offering. I like the fact that vestopia don’t require any details from me, and that I follow trained professionals.
Also, i think that if covestor allow you to manually report transactions and holdings, there is no real transparency.

Thomas

Sounds like a great way to ensure that you can get people to follow you into an investment and support the price once you’ve bought in…and bail out before they will! Brilliant!

Geoffrey Windermere

There is an investment adviser that actually provides all portfolio information for free, since they have nothing to hide. Their performance has been excellent, to say the least.

The company is called Pariveda (http://pariveda.com). To view the portfolio advice, which is updated quarterly, you will have to log in.

Would be cool to see their portfolio compete with others over a longer term.

In an up market everyone can look good, but what when things go south?

Prashant

i think this is the most brilliant idea for a startup i have come across recently . i know a thing or two about investment and how actually people go to their friend for advice on which stock to buy .
in countries like India where very few [retail] investor understand the working of stock market most of the investment decision are made mostly on the basis of recommendations only . so its logical that they are trying to emulate this real world reputation system on net .

good idea . i will follow the progress of this company .

just as a thought , Impact of internet is not visible on financial sector as much as it is visible in other industry . ofcourse
there are ATM,Net Banking and PayPal but most of these venture are reinforcing old institute . I am yet to see a “disruptive” technology in this space . my bet ??
its either Covestor or prosper.com

Zecco Editor

Zecco.com, the company that introduced access to $0 stock trading last year, is actually offering a similar and free service to its members, called ZeccoShare.

With ZeccoShare you can put your mouth were your money is by sharing your actual portfolio holdings, as well as recent trades with other community members.

You are all invited to check it out in Beta.

Joe Ben

David Jackson from seeking alpha just posted on this subject, http://financial.seekingalpha.com/article/37383
, indicating there’s another player in this sector : vestopia.com
from quick look at both, seems as though covestor tries to give an opportunity to those who are unknown, whereas vestopia carefully select their “Investment Directors”. Just by terminology, I would follow invesment directors, and not some guy who may or may not outperforme the market. I want real names & bios attached to the guy I will put my trust in. regardless, this sector is really boiling up.

Yaser Anwar

I think Covestor has done an absolutely terrific job. This is what I call transparency 101! They’ve basically taken the managed accounts platform, the new marketing gimmick in hedge fund investing, and brought it to users.

No more BS like newsletters recommending something and taking opposite positions- THIS SHOWS YOU EXACTLY what and how they’re doing, and whether they’re worthy of following.

Revolutionary, in a word.

trevor kampmann

Who’s going to give up their brok. info??? I sure will, especially if it means being compensated for my talent as a stock picker. Stock Bloggers, time to put your money where you mouth is! If this thing will enable you to verify and track and potentially profit from the knowledge of talented traders; It’s a slam-dunk from my perspective. In fact, i’d go so far as to call it a disruptive tech. The guys that should be freaking are the no-talent money-managers and hedgies. I hope they go public soon.

douglas eisenreich

This new site wins by a mile because no more play money nonsense or empty posts but someone making real trades. AND there is something there about charging people to get your trades. I don’t think that’s running yet but it’s there.

david bogdonovich

You guys are totally missing the beauty of this thing-it’s way better than anything else out there by far! REAL MONEY = no more empty (eg. worthless) message board touts, now it’s put up or shut up. And there’s something there that says when you get enough ppl following you you can charge people to then still get your picks. If they deliver that to me, this is a total gamechanger like ebay or amazon were.

Yvonne Only

First, Yousef Ourabi, what do you have to hide? Are you the only one with the stocks, or mutuals that you have in your portfolio? Forgive me if this too personal but my first reaction is that you sound paranoid. I would welcome the advice, the information about the performance of other investors, and their successes or failures. I do that anyhow. I am in an Investment Club (417 Investment Group) and we send our information to Better Investing Magazine. When it is published or featured, we can do a comparison and
make decisions about what to buy and what to sell. Covestor would be better than the magazine. It would not take weeks or months, it would take the click of the mouse. Go for it, Covestor!

Damian

In a phrase: f*ck that – who’d be stupid enough to give up their brokerage info to some startup with $1m in the bank? Scary if people actually sign up….and all for just ego.

Rick

I was thinking this was good until I found there’s no way to make money off your good research and hard work.

Yousef Ourabi

How is this better than socialpicks, and do they really expect me to plug in my brokerage account info? Seriously? No way.

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