People often work to define terminology as part of working to define an industry. Witness the emergent nomenclature for community-oriented investment tools: “trader networks,” “social investing,” “collaborative trading” and so on – each with a focus on improving an individual’s investment returns by making connections among a larger group of people, but each with its own area of emphasis.
Sometimes the “larger group of people” being connected is merely that: a larger group or “crowd.” And sometimes members of the group are connected to each other in a “network” (or even a “community,” if the ties are close enough and the interests are sufficiently aligned). The group might serve to generate new ideas (“crowdsourced” ) or feedback (“crowdsorted”) or both (as with Wikipedia, Threadless, etc.), and that feedback can be solicited explicitly (Amazon compiles it, Netflix filters it) or derived implicitly (such as when you buy certain items at a store).
These ideas hold a great deal of promise for the investment industry due to the extraordinary increases both in the number of variety of people participating and in the transaction data that exists, increases that stem from a series of mutually-reinforcing developments during the past several decades:
· Regulatory revision and industry innovation brought new products and lower prices that significantly expanded the prospect pool.
· Employment and economic changes have largely replaced employer-directed pension plans with self-directed retirement investments.
· One demographic development brought a wave of baby boomer retirement capital, and another is now bringing their “DIY”-minded children.
· Shifting social norms turned what used to be private conversations about finance into public postings of purchase and investment decisions.
· Technological advances brought us electronic trading, made it accessible via the internet, and increased the ability to capture, store and share information on each trade.
The earlier changes brought us a rapid rise in the number of transactions (US participation in the stock market during the second half of the last century rocketed from 5% to 50% of population but has been roughly flat since then), and internet era brought us a rise in the fraction of those transactions that are captured, stored and shared. Only a small group of mid-market brokers bridged that transition. The question is whether the community-based tools being shaped are an indicator of another transition ahead and, if so, what it will take for brokers to make it to the other side.
When it comes to online investing, the “five SAFES” – Schwab, Ameritrade, Fidelity, E*Trade and Scottrade – have the biggest crowds, but none has made a meaningful move in the community direction. And so now a varied collection of potential competitors is working to crack that elite online circle. TradeKing has the longest-established network, and eToro may well have the biggest (almost certainly the fastest growing) network. If you want to talk community, no one can touch Stocktwits (though the long-term effects of Twitter’s cashtag swipe are unclear). Motley Fool may have the best crowdsorted equity research available to the broad public. Zecco has elements of all of the above, so their merger with TradeKing should be worth watching. As will what Marissa Mayer does with Yahoo! Finance or what Rich Fairbank does with ShareBuilder.
So where is Array in all of this?
Array puts the “wisdom” in the “wisdom of crowds.” Or, perhaps more accurately, we find the wisdom in the crowd. Brokers (and platforms, as we must acknowledge now given recent Twitter and Facebook moves toward finance) have the crowds; our system finds the wisdom by turning securities comment and transaction databases into sources of crowdsorted research that can be provided back to the customer base. Array will be partnering with brokers to help investors assemble their networks, pick their stocks or construct their portfolios – or all three. However the system is deployed, we’re confident Array will help investors build a ton of value. And we’re pretty sure that helping investors build value is the best way to ensure our partners thrive through whatever transitions lie ahead.