Earlier this year, Rutgers University student Daniel Moran noticed that his investment portfolio was being dragged down by tech stocks. To reverse the slide, Moran, 22, took a page from Warren Buffett, buying shares of recognizable companies Coca-Cola (KO) and Kraft Foods (KFT), and investing in Ford Motor (F) after reading about the automaker's growth in emerging markets. His total return since April has been about 6.5 percent, beating the Dow Jones industrial average and Nasdaq Composite Index.
Moran is no stockpicking prodigy. He learned how to improve his returns using a new investing site called Kapitall, designed for people who know little about the ways of Wall Street. The site lets newbies search for stocks by popular brands—say, Mustang—and packages the portfolios of investing luminaries like Buffett into square, app-like icons that can be popped open and browsed at will. "Everything is so visual," says Moran. "It's simple for someone who just wants to jump in as a casual investor."
Kapitall aims to open up the financial-services business to a broader range of investors by making trades easier. "Just as Apple made the computer for the rest of us, we see this as building a brokerage for the rest of us," says Cordell Ratzlaff, the creative director for Kapitall, who in the 1990s headed the unit of Apple (AAPL) that designed the Macintosh operating system.
Other Kapitall employees include veterans of investment bank Morgan Stanley (MS) and video game pioneer Atari. By making stockpicking more about intuitive point-and-click, Ratzlaff and his team hope to reduce the amount of expertise that's typically needed to build a lucrative portfolio, and encourage younger and more inexperienced people to invest.
Encouraging Online Investing
Among Gen Xers and Millennials in the U.S. (roughly, those ages 19 to 49), about 11 percent, or 38.5 million, have online brokerage accounts, says Sean O'Dowd, capital markets analyst at IDC Financial Insights. The potential for luring more of this Web-savvy set into active online investing has spawned a host of tech startups offering a range of financial services.
StockTwits, a stockpicking community that uses microblogging site Twitter to organize discussions around specific stocks, has more than 100,000 users.Members of trading site Zecco can set up a profile page where they can put their buys and sells on display for others to track. Cake Financial, an investing community that included an application on Facebook, was purchased by E*Trade Financial Corp. (ETFC) earlier this year and later shut down.
Kapitall makes trading into a kind of video game. The site, which began letting in some users last year and opened to the general public Oct. 14, uses tactics commonly employed by game designers. Users start with an empty dashboard, called a "playground," and then type companies, brands, or stock tickers into a search engine to find stocks and indexes they want to add to their playground. New users are given "missions," such as buying or selling a security based on a company's earnings results. If they make the right call, users earn points, progress to a new "level," and are eventually rewarded with access to specialized tools for market analytics. Corresponding applications for Apple's iPhone and iPad let users take their portfolios on the road.
As users gain experience, they can look for stockpicking ideas from simple cheat-sheets, such as a list of hot environmental stocks, or call up more complex stock screens, such as "ETFs that may gain value if oil prices rise." All the while, the dollar value of their portfolio hovers in the top-left corner of the playground. For many users, that's play money: The site allows virtual portfolios that don't represent real money. "Just like in games, the best way to learn something is to try and fail," Ratzlaff says. "We don't want people to fail with real money."
When it's time to play for keeps, Kapitall lets users synchronize the site to the funds they have deposited in a real brokerage. For now, only TD Ameritrade (AMTD) accounts are supported, but makers of the trading software expect to partner with other brokerages over time. Each time someone signs up with a broker or makes a trade with real money, Kapitall collects a fee. Next year, the startup is aiming to have tens of thousands of users, each performing at least one money trade per month.
The site has built safeguards for novice investors, such as showing a warning when someone is about to invest in a stock that has been highly volatile in the past five days, or before they invest in a company that's in bankruptcy proceedings. "It is all about educating the consumer and investor and cultivating them to be more successful and sophisticated investors over time," says Kapitall President Stephan Roche.
As more people sign up for free and practice trading on Kapitall, a portion of them will end up graduating to using real money.
Moran was using play money over the summer, but now that he's had success, he plans to plunk $2,000 to $3,000 into an account this fall. How many freeloaders will convert into real-money investors? "It's a difficult question because it is a model that is new," says Gaspard de Dreuzy, the company's co-founder and chief executive officer. Still, video game veteran de Dreuzy is optimistic he can convert 5 percent to 10 percent of nonpaying users.
Incumbent financial services are taking note of Kapitall and others like it, says IDC's O'Dowd. Not all will view the game-like tools as a threat. "One group is sitting on the sidelines of this new retail-trading sandbox," says O'Dowd. "Some of them are waiting to see what business models may emerge and try to copy or acquire them."