Marketocracy + Foliofn: Power of the People's Portfolios
Posted by: Rob Hof on February 19, 2007
It’s one thing to trust your restaurant reviews and technology news to the Web 2.0 masses at the likes of Yelp and Digg. Are you willing to trust your investments to this kind of system, too?
Don’t rule it out. Marketocracy, the unusual investment management firm I mentioned briefly in my people-power story The Power of Us in 2005, is teaming up starting Tuesday morning with the online securities firm Foliofn to let you give it a try.
Some background: Marketocracy lets people set up model portfolios to see how well they can pick stocks. Some 55,000 people have set up 65,000 of them. For several years, Marketocracy has offered a mutual fund, the m100 Index, that aggregates the picks of the top 100 portfolios among those model portfolios. It has beaten the S&P 500 index for eight of the 11 quarters since it began.
Now, it’s expanding that program with Foliofn, allowing investors to put as little as $10,000 into four of the very best of Marketocracy’s thousands of portfolios—those whose returns would place them in Morningstar’s top 10 mutual funds—through a brokerage account at Foliofn. Investors don’t have to follow each portfolio slavishly, in case they violently disagree with one or more picks, or already own all they want of some of the stocks. These aren’t mutual funds; investors actually buy shares, including fractional shares if need be, through Foliofn.
Marketocracy CEO Ken Kam, formerly with Firsthand Funds, feels so strongly about these portfolio managers that he has invested most of his extended family’s money into the portfolios. “I’m willing to put our best guys up against anyone on the Street,” he says.
The most interesting thing is that the managers of these portfolios mostly aren’t professional managers—or they weren’t when they started. One’s an IT consultant in Austria, another a onetime British sailor living in the Dominican Republic, a third a Pennsylvania-based writer of questions for the LSAT, and the last a former software engineer in Canada. Since they started these portfolios, though, several have gotten jobs managing money.
As they say, future performance may not match past performance, so the two firms say this kind of investment is only for the “explore” portion of one’s overall portfolio. That’s for sure. But this will be one of the most interesting tests yet of how far the wisdom of crowds can go.
VentureBeat has more detail.