Posted by: Rob Hof on March 11, 2009
Several years ago, I wrote a story about online people power that mentioned an interesting company called Marketocracy. The company lets people set up model portfolios of stocks to see how good their picks are. Since then, the company has been joined by a number of others, from SocialPicks to Cake Financial to Covestor, each offering a little different take on the notion of the wisdom of crowds as applied to financial services.
This morning, March 11, an especially ambitious new entrant is holding its coming-out. UPDATE: I misinterpreted the coming-out, which was actually a couple months ago. What’s new today is an application programming interface, or API, that gives investors open access to investment data and research that had not been so freely available before, such as real-time stock prices and investment portfolio analytics. This will allow outside software developers to build new applications on top of kaChing.
kaChing, cofounded in 2007 by self-described “millennial investor” Dan Carroll and Benchmark Capital cofounder Andy Rachleff, is unveiling its marketplace for investing talent. The service allows members to emulate successful investors’ virtual portfolios among some 350,000 portfolios managers on the site. The idea is to allow unknown people who may have undiscovered talent for picking stocks to shine. It’s the best of times and the worst of times to push a venture like this: In these volatile (but mostly down) times for the stock market, kaChing offers a new alternative to mutual funds that’s promising but certainly not for the faint of heart.
The company is backed by Netscape cofounder and new venture capitalist Marc Andreessen along with a glittering cast of investors such as Kleiner Perkins’ Kevin Compton, Benchmark Capital’s Bruce Dunlevie, Open Table CEO Jeff Jordan, Andreessen partner Ben Horowitz, and others.
One thing that’s different about kaChing is that it has registered at the outset with the Securities and Exchange Commission to be an investment adviser. In the second half of this year, kaChing plans to charge members for mirroring the trades of their favorite investors in their own brokerage accounts—that’s right, with real money. In that respect, it’s probably closest to Covestor, which soon will allow people to invest their money alongside their portfolios.
I haven’t had a chance to check out the site in detail (and I’m not a programmer), so I can’t yet confirm the site is as transparent in information about and from these amateur portfolio managers as Carroll says it is, or how good the API is. kaChing features what it calls a behavior-based analytical engine that attempts to analyze whether portfolio managers generate returns that match their stated investment strategy and whether any good returns are due to luck or skill. It’s also going to be choosy on whom it allows people to follow with their money, requiring these managers to follow standard laws and rules of conduct that any money manager does.
Even Carroll admits that nobody should replace their mutual funds wholesale with these portfolios. Good advice. But he may be right that younger investors, now growing up in an era when nearly every mutual fund has negative returns, are craving an alternative. And they’re likely to be open to social sites like this one, especially since more than 1,500 of the portfolios generated positive returns last year. The new API may help kaChing spread the gospel more widely.