Mike Hogan of Barron’s writes:

YOU DON’T NEED CAMERON DIAZ’ LOOKS OR WARREN BUFFETT’S smarts to achieve stardom on the ‘Net. Sometimes, it just takes a good eye for picking stocks — the kind that SpecBear, TDRH and dwot possess.

Correctly calling the direction of the stocks in his virtual portfolio 83% of the time, SpecBear (a.k.a. Spectacled Bear) is numero uno in the 57,000-strong Motley Fool CAPS community (http://caps.fool.com) — at least for now. No. 2, TDRH, whose picks turn a profit just as often, trails him only because SpecBear has made more selections. Meanwhile, dwot’s 80% accuracy rating puts her 19th.

The usually anonymous bloggers (some asked Barron’s to use only pseudonyms in print) who are considered All-Stars tend to draw a crowd: More than 2,100 groupies follow SpecBear’s moves — Motley Fool groupies being other CAPS players who try to draft behind the investing expertise of All-Stars by following their portfolios and blogs, and swapping news and ideas with them. “I get lots of insights from them, too,” notes TDRH, a 40-year-old St. Louis-based sales representative named James Hill. He tracks the work of 40 other All-Stars.

Like all the investors mentioned here, TDRH has no professional investing background, but his personal portfolio has grown 6% so far this year on oil-service picks like McDermott International (ticker: MDR), versus about a 5% drop for the S&P 500 year to date. His market education began in the spring of 2006, when he first tried out his ideas on CAPS — just one of many social-investing sites.

The sites are like an electronic version of investing clubs. Their names often suggest their mission: Marketocracy (www.marketocracy.com); Tickerspy (www.tickerspy.com); Social Picks (www.socialpicks.com), whose motto is “Invest Smarter Together,” and StockPickr (www.stockpickr.com), where stars like Buffett are held up for emulation alongside community members who do the best job of emulating them. (Motley Fool’s CAPS refer to colored hats awarded based on an investor’s score of correct picks.)

There’s usually plenty of news and research to be had, personal blogs and other ways to share ideas, and electronic cubbyholes for storing your investing inputs, from e-mails to articles. Most members like to check how they’re doing frequently, so there’s an investing simulation, with a variety of benchmarks. And winning takes commitment. SpecBear had to make more than 450 picks to get his ranking; TDRH logs a couple of hours a day. Dwot (née Deborah Wotherspoon) says she regularly spends four-to-five-hour stretches researching, reading or blogging about stocks.

HERS IS A FAMILIAR STORY. A high school teacher in Canada’s Yukon Territory, Wotherspoon got tired of having professionals lose money for her. So she began building her own model portfolios in the summer of 2006, tripling her real portfolio’s value in 15 months — mostly on Canadian mining stocks — before going to cash in the market peak last autumn.

Her investing philosophy isn’t any more complicated than buying a stock she “likes,” and selling when she doesn’t “like it any more.” No charting, no fundamental analysis — just a careful shopper’s sixth sense of what’s hot and what’s not. But the four to five hours a day she spends sifting blogs and news stories don’t hurt.

Her approach is similar to that of T.J. White, whose virtual portfolios are among the most-watched on Marketocracy. Another self-made investor, White has a knack for putting obscure facts together — concluding, for example, that global warming will impact copper prices by melting the glaciers that feed the streams that feed hydroelectric plants powering Chilean copper mines. His onscreen avatar, “auminer,” reflects the days he panned for gold in the Rockies, before discovering his life’s work as a puppy-sitter in a small town near Dallas. His portfolio, he says, throws off about $100,000 a year, affording the 39-year-old a lifestyle that his passion for animals never could.

White’s secret is to focus on sectors that he understands: mining, industrial, materials and energy names that he calls “blue-collar, profitable, dividend-paying stocks.” He steers clear of tech, biotech, pharmaceuticals — anything subject to catastrophic “black swans,” like a loss of Food and Drug Administration approval. He pays a lot of attention to an issue’s net tangible asset value and price/earnings growth (or PEG) ratio, but not so much to its P/E or technical analysis, which he calls “voodoo.” While his screens carry 7,000 stocks and his 15 Marketocracy portfolios total 300 to 400 names, White rarely holds more than a few stocks. Right now, mining-giant Freeport-McMoRan (FCX) dominates.

Spurning diversification, White says, “I don’t want to put money into my sixth-worst pick.” Surprisingly, his portfolio’s beta is under 1.0, meaning it’s less risky than the Standard & Poor’s 500. His alpha is something else; White’s materials portfolio has quadrupled in value in five years.

Know your strengths and sectors also is the motto of Rajan Rajen, 36, one of the most-watched members of Tickerspy. The San Francisco-based software engineer is a prolific portfolio-builder, reports Tickerspy’s community manager, Max Magee, and Rajen’s picks consistently garner the most eyeballs due to his spade work. Rajen identifies a sector he finds interesting, then digs deep into the companies and metrics that drive it. Although he’s managing dozens of sector portfolios at any given time, he leans toward energy, commodities, materials, China and Brazil. His current favorite, Petrolio Brasileiro (PBR), has helped lift his own portfolio 5% this year.

Rajen, too, learned the old-fashioned way how markets work: by losing money, until he “got it.” His voracious reading and casting of trial portfolios led him to his key investing insight: Good stocks in bad sectors don’t do very well. The personal motivation for his hard work, besides money, of course, is to gain more insight into the world. “I just feel more comfortable in life after I’ve gotten a handle on some aspect of the market or the economy,” he says.

Validation is a big part of the payoff on social-investor sites, which seem to be multiplying. Still in beta, Bullpoo (http://bullpoo.com) promotes “connected investing.” Another new site, UpDown (www.updown.com), is building its membership by paying real dough to any virtual portfolio manager who beats the Standard & Poor’s 500 in a given month.

If a dozen heads are better than one, imagine how well thousands gathered in an electronic square can do.

Tags: Cake, Marketocracy, SocialPicks

KillerStartups.com writes:

If you’re an investor, you understand the value of getting accurate and inexpensive information about the market. Since unfortunately financial advisors don’t always provide this information (be it lack of knowledge or putting their own interests ahead of yours) you might want to go an alternate route when it comes to choosing a stock. Cake Financial is a new web-based investment service which combines the power of the “wisdom of the crowds” with data from major online brokerage firms. You can use Cake to keep track of your existing stocks, but more importantly, you can use it to help you discover what might be a new profitable investment. The Cake system is based on a Harvard Business School study that showed that “there are many individuals who consistently beat major stock market indices and investment professionals”. Cake believes a number of these individuals could be your friends and family. Armed with this knowledge, Cake allows you to construct a secure network of confidantes with whom you may collaborate to share ideas and guidance. To do this, sign up for an account (free), and start establishing your network. You can browse portfolios and follow real-time trades of top-performing investors and keep track of your own investments and those of your contacts. Lastly, if the thought of publishing stock information online makes your knees shake, you’ll be happy to know that Cake has a state-of-the-art security system which even comes with a guarantee to reimburse any potential financial loss you might incur from a security breach.

	Why it might be a killer

Cake Financial offers all the components of a successful startup: it’s easy to use, innovative, backed by credible partners, and created by a knowledgeable team. Its service is truly unique; using the “wisdom of the crowds” to predict a certain outcome is certainly a popular technique these days, but not one that I’ve ever seen used in this way. Cake could really help investors by learning from others’ experiences by contrasting your network’s results with those of online brokerage firms. In short, an simple yet powerful tool for making an informed investment choice.

	Some questions

It would be great if the site offered some testimonials so we could see proof of Cake Financial’s potential. Given the importance of your social network, it’s also unclear exactly how you create one; do you send out email invites, add existing Cake users, or both? How can you browse someone’s profile to check out their investment history?

Tags: Cake

Tags: Cake

Each week you get a new helping of market analysis from Cake Financial CEO Steve Carpenter and engineering director Sven Junkergård. They’ll make you laugh, they’ll make you cry. More importantly they’ll satisfy your appetite for fresh market analysis. Cake is good!

Tags: Cake

Cake Financial unveiled two new features today:

The Cake TAKE

For the first time ever, you can see what the collective “take” of Cake members is– Buying, Selling or Neutral.

This snapshot summary of Cake member activity is based on what members are actually buying and selling, and it’s updated automatically as trades happen.

Here’s how it works:

• First, we count all of the Cake members who bought or sold a particular stock or security during each Take time period— the prior week, month, quarter or year.

• We then consider the specific rank of each Cake member who bought or sold, giving extra weight to the trades of more highly-ranked members.

• Recent trades are also given more weight in the Take calculation since they better reflect the current sentiment than do trades that occurred some time ago.

• Finally, all of this gets rolled up into the collective “take” for each time period.

There is a Cake & Coffee Chat scheduled, if you want to get together with the Cake team, not face to face, but on the StarBucks stock page on Cake:

Cake & Coffee Chat

We’re eager to hear what you think of these new features. Please join us for a Talk about the Take.

What: Cake & Coffee Chat w/ Steve and the Cake team

When: Wednesday, April 16 at 5:00 PM PT

Where: One of our favorite coffee shops: SBUX Talk page.

See you there.

My Cake Badge:

Tags: Cake

RedOrbit has an article titled Many Ways to Mine for Gold on the Web, which talks about Cake Financial:

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 recommends Michael “Mish” Shedlock’s blog, globaleconomicanalysis.blogspot.com and the weekly commentary that mutual fund manager John Hussman publishes at hussmanfunds.com.

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.”

Tags: Cake

TechCrunch reported that Covestor, which competes more directly with our investment Cake Financial, and less directly with our investment SocialPicks, raised money:

There are no secrets online anymore. People share everything, even the performance of their personal stock portfolios. Social investing site Covestor raised $6.5 million in a series A financing based on the appeal of this concept. The round was led by Union Square Ventures and Spark Capital. Europe’s Amadeus Capital Partners also participated. The startup previously raised $1 million last June from the founders of Seekingalpha, Betfair, Tribe.net, and Wallstrip.

Covestor, which is still in beta, lets you link your real brokerage account to the service so that you can compare your returns against other Covestor members, professional fund managers, and the overall market. As I wrote last October:

The idea is that eventually, the best investors will emerge, and Covestor plans on creating ways to invest in their “funds.” They are actually just going to be selling the data and linking it to the brokerage accounts of people who choose to be followers. The investing stars who arise from this social soup will be able to offer their trading data for a fee once they build a track record or give it away for free and enjoy the notoriety of being an investing whiz. Covestor will take its cut as a management fee.

Covestor competes with Cake Financial—which also lets you link to your real brokerage account and tracks more than $1 billion worth of investments—SocialPicks, and Motley FoolCaps. Covestor won’t disclose the total value of the funds it tracks, but last October it was $100 million. Presumably, it is now much higher.

Tags: Cake, SocialPicks

VentureBeat covers Covestor’s $6.5M raise:

Well known venture capitalist and blogger Fred Wilson, who happens to be an investor in Covestor through his firm Union Square Ventures, writes that social platforms such as Covestor “might be the best option for investors looking to generate outperformance in the market.” He shares his stock portfolio performance (not good; see left).

While Wilson has put his proverbial money where his mouth is, whether Covestor can separate from the growing field of social investment sites including Zecco and Cake Financial remains to be seen. Back in February, we made up a list of 11 contenders for the social investing market.

Tags: Cake, SocialPicks

The Banktastics Blog’s WebSite Of The Week is Cake Financial:

Brad’s favorite site of the Week is CakeFinancial.com. CakeFinancial merges social networking and stock trading in a really awesome way. You can see your friends’ recent trades, track the top companies, and so much more. It’s a smart way to track your investments while connecting you with the best information available. It’s good to see a site making trading really interactive like this.

Tags: Cake

The The TickerHound Blog mentions our portfolio company Cake Financial:

Here are the main problems with the financial services industry as I see it:

1. Broker/Client Interests are NEVER Aligned

You may be asking, “Well if I make more money doesn’t my broker make more money? And isn’t that good for the both of us?”

Theoretically, yes. However, as long as an adviser is paid based on the number of trades you make or the amount of money you keep in your account then he or she is NEVER motivated to do well for you.

They are not paid based on how well your stocks perform – whether or not your account goes up or down they still get paid a commission every single time you buy and sell a stock.

That’s like having a car mechanic who gets paid for the number of times he fixes your car – he’ll just make sure it stays broken for as long as possible and will continue to steal your money!

2. It’s Never About Making You Wealthy

The other thing to realize is that the people who work on Wall Street don’t want you to become insanely wealthy. If that happened then there’s a chance you’d leave them.

There’s a chance you’d stop playing the game.

So why would they try to make you wealthy? Answer: they won’t!

Instead they feed you products like Mutual Funds and Index Funds so you’ll just mimic the market and do average! Not good, not bad, just average.

3. They Always Keep Control

And one of the biggest scams that Wall Street has going for them is that they convince the investing public that investing on their own is dangerous. They convince everybody that in order to do well you need an army of analysts and bankers to tell you which stocks are good and which stocks are bad. Then, and only then, can you profit in the market!

If that were the case then why do most Mutual Funds have a tough time beating the market? And on the flipside of that argument, why does the most successful investor in the history of the world have an office of only 8 people?

Bottom line: There’s no good reason why you can’t do just as well investing on your own if you equip yourself with the right information!

Blurring The Line

As you can see there’s a serious problem in this business – there’s always a clear line in the sand: “you” and “them”. It’s never “us”.

We need to change that and we need to change it fast. We need to come up with a way where you and those you take advice from are sitting on the same side of the table.

The only way that gets done is if we change the nature of the client-advisor relationship – it can no longer be a “one way relationship”, it has to become a relationship of reciprocation, a “two way relationship”. Let me explain what I mean…

As of right now what happens when you buy a stock?

Your broker calls you (or vice versa) and rattles off a couple of stocks – you pick the one that sounds best and you buy it. That’s a one directional relationship – your advisor pushes information toward you.

Now, think about it this way – what if you could sit down at the same table as your advisor and have him teach you his process for digging through stocks?

Well, we know that would never happen due to the reasons we talked about before – if they gave away the “secret sauce” then you wouldn’t need them anymore. If they showed you how to invest, then you could go off and do it on your own.

Well, for most established companies in this industry that logic makes a lot of sense – it wouldn’t be in their best interests to make you a great investor. It would be in their interests to make you dependent upon them.

That’s why I’m so excited about what we’re doing at TickerHound - we have a distinct advantage here and that’s why our perspective on the situation is dramatically different from most. Our business isn’t predicated upon keeping you (and other individual investors) under our control.

We want to set the information free and allow you to live up to your fullest investing potential!

There are other companies in this space doing the same thing - Covestor.com, CakeFinancial.com, Wikinvest.com - all great companies and all looking to do the same thing: level the playing field so the individual investors out there have a shot at taking their financial futures into their own hands and making better financial decisions today!

Tags: Cake