Another new start-up enters the social investing space, this time with an intelligent crowd-sourcing component to weed out the losing stock-pickers.
As Lehman Brothers slid towards its demise in the summer of 2008, many of the investment bank’s younger staffers found themselves with time on their hands. One banker, Lowell Putnam, says his team passed the hours by working on their personal portfolios and sharing investment theses. The collaborative experience, he says, was a blast — and he wondered if he could expand it beyond the trading floor.
When Putnam was laid off a few months later, he decided to pursue that inkling of an idea. The result is a website called Quovo, whose name combines the words “quote” — as in stock quote — and “vote.” The site, which is currently only open to users on a selective basis, is a registered investment advisor that picks securities for separately managed accounts by polling its user base. Every week, the team puts new stock and market trend ideas up to a vote, and then makes purchases for the accounts based on the results.
Putnam, now 28, created Quovo with the help of a former Harvard classmate, Niko Karvounis, and Michael Del Monte, a programmer. They’ve financed the site by friends and family, and they plan to fully open it to the public by the beginning of next year.
Quovo is built on the idea that wisdom of the crowds can generate better investing ideas — but it isn’t a democracy. Some people’s votes count more than others, depending on how they’ve actually performed on real world investments (and, to a lesser degree, by their responses to polls about investment choices). Like the personal finance site Mint.com, Quovo can access its users’ brokerage accounts on a read-only basis to give them “IQs,” which also weigh the users’ response to polls.
For example, if a user has a good track record of picking healthcare stocks or funds, his or her vote on a poll about, say, Pfizer would matter far more than the vote of someone who has never invested in healthcare.
“There’s a really fine line between collecting hunches and collecting valid opinions,” says Putnam. “The old model of crowd sourcing online would just say, aggregate as many voices as possible. We’re trying to refine that a little bit through more rigorous analysis.”
Mutual funds 2.0
The social investing sector is becoming increasingly crowded. There are websites with large communities of investors who rate investment ideas, like StockTwits and the Motley Fool, but those forums aren’t connected to actual investment platforms. Two sites that do offer real investing accounts are Covestor, which enables users to mimic the trades of other amateur stock pickers, and Wealthfront (formerly KaChing), which hooks small investors up with top money managers. Both have attracted venture capital investments — Covestor is backed by Union Square Ventures and Wealthfront by Andreessen Horowitz.
Quovo is unique, says Putnam, in that it combines an intelligent crowd-sourcing component with a real-world investing platform.
In addition to its investment accounts, Quovo also gives users detailed analysis of their investments — metrics like beta and Sharpe ratios, or, for a small fee, more complex financial reports. The company will also profit from charging a management fee of 1% of total assets invested in the accounts, a fee that’s competitive with many actively managed mutual funds.
Eventually, Putnam hopes to launch a low, all-in expense ratio mutual fund that utilizes the same “optimized collaboration” algorithm. It isn’t wholly surprising, he admits, that he wants to go into the fund business: His great-grandfather, George Putnam, founded Putnam Investments in the 1930’s. Today Putnam is one of the country’s biggest mutual fund houses, with 79 funds and more than $120 billion in assets under management.