Kernan's caviar dreams may become reality one day, thanks to an online competition that lets amateurs manage virtual mutual funds in cyberspace. He came in third for the second quarter in Marketocracy, which is celebrating its one-year anniversary this month. The company shells out $1 million in pretend money to each participant and lets them pick their own stocks. The ultimate prize? After three years, the top five players earn spots as professional portfolio managers for Marketocracy, which offers mutual funds to the public.
Many of Marketocracy's 45,000 funds have been impressive so far. The m100 index, which tracks the service's top 100 virtual funds, has returned 10.4% cumulatively since its inception last July. During the same time, the Nasdaq Composite fell 12.5% and the S&P 500 dropped 7.3%. And according to Morningstar, Marketocracy's m100 beat 94% of professionally managed equity funds last year.
FOR SOME, TECH PAYS. After a sluggish first quarter, Kernan's tech-heavy fund finished third for the second quarter, up 55.86% during that time. He jumped on shares of Priceline.com (PCLN
) at just over $1 a piece and watched them rise to more than $9 when he finally sold. Kernan plans to stick with technology for the long haul and has his eye on Nokia (NOK
) and WorldCom (WCOM
). "I'm still obsessed with tech," he says. "I think the market has overreacted with some stocks but hasn't reacted enough to some. There are some that are incredible bargains right now."
Among Marketocracy's youngest investors, Doug Wickert, 22, saw his fund rise 35.81% during the second quarter. While the University of Toledo senior admits that he probably won't secure a spot in the top five, he would jump at the chance to become a professional manager. "It would be a great job running a fund," says Wickert, who has been investing since he was 13. "But it would be kind of weird doing it without any other job experience."
The folks at Marketocracy (www.marketocracy.com) believe that there are plenty of great investors who didn't take the traditional business-school route. The Los Altos (Calif.)-based company is hoping the next star money managers are already out there, disguised as civil engineers, sociologists, and homemakers.
LUCK OR TALENT? Marketocracy is the brainchild of Ken Kam, formerly of Silicon Valley fund family Firsthand Funds. It plans to set up mutual funds for each of the winning investors to run. The company already operates three mutual funds with $31.3 million in assets, run by Kam and others. Execs won't say much specific about the company's funding, but it earns revenues from subscription and money management and also has some backing from venture capitalists and private investors.
Some market watchers are not surprised these would-be millionaires are leaving Wall Street's finest in the dust. "It's true that there are people who just have an inherent talent," says Harvard University financial markets professor Sam Hayes. But he warns that the current leaders of the pack shouldn't celebrate just yet. "The people who are at the top [after] one year could be just lucky," Hayes says. "The results when averaged over the three-year period will be much more reflective of a true skill."
Marketocracy attracted about 12,000 wannabe managers during the service's first six weeks, and the roll has steadily increased to 37,000 members in 75 countries today. Word of mouth has helped Marketocracy grow. "There seems to be a cult following," says Robin Stevens, a Marketocracy vice-president.
PICKER TRACKER. Kevin Fravel's diverse approach has kept him in Marketocracy's top 100 since he joined last August. The 33-year-old programmer heads for the computer every night after work to track his progress using Marketocracy's online tools. Up 40.62% during the second quarter, his fund includes Bradley Pharmaceuticals (BPRX
), Meritage Corp. (MTH
), and Beazer Homes USA (BZH
). "With tens of thousands of people, I can't say I thought I'd be considered as one of the top performers overall," says Fravel. "Otherwise, I would've used real money."
Marketocracy offers investment tools, such as individual "performance stratification" charts that identify players' best and worst performers. In addition, members can pay $29.95 each quarter for the m100 subscription service, which provides weekly updates on Marketocracy's top-ranked performers and their strategies.
Many of the 250 subscribers say the service has given them an edge. "I've learned a lot because your performance is well tracked," says 32-year-old Jean-Hugo Drouillet, a former broker in Madrid who now works as a language tutor in Philadelphia. "It also helped to see what other people do. You can exchange information, which is important." Loading up on biotech stocks, including IDEC Pharmaceuticals (IDPH
), Drouillet vaulted into Marketocracy's No. 8 spot during the second quarter with a return of 42.91%.
Player James Dayley, though, is not interested in joining the pros. A retired Air Force engineer turned entrepreneurial consultant, Dayley uses Marketocracy to stay sharp. "All I really want to do is keep my skills up and have somebody else keep score," says Dayley, a 67-year-old great-grandfather who says life would be intolerable without the Internet. His S&P SmallCap Index has been one of the top 15 performers since Marketocracy's launch. Quips Dayley: "It keeps me out of the bars and the pool halls."
At the end of three years, if more than five very talented money managers come to the fore, Marketocracy may declare more than five winners. At that point, all they'll need are investors in the funds to be managed by amateurs. Stevens says: "When we find the best [managers] in the world and launch a world-class fund, we'll have the basis for a good ongoing business." By Rod Kurtz in Washington