Investing with the Crowd

An interesting article in the NY Times yesterday detailed a tech start-up called KaChing. The site basically allows people to create mock portfolios and try their hand at investing in the market. The big news in the NYT article is that KaChing now allows you to be able to create actual investment portfolios that mimic user portfolios on KaChing.

The site seems to have built some pretty interesting ideas around investor transparency – you can see current holdings and trades, investors are rated on returns over time, etc. The metrics aren’t so different from what’s offered by mutual funds (at least on a quarterly basis), but there’s something very powerful about the service being framed around an actual person. It also allows KaChing to position themselves as an interesting alternative against this big, evil, opaque $10T mutual fund industry.

On the face of it, it seems like a pretty brilliant service. This total transparency puts you ‘in control’ of your money. Doesn’t everyone want more control? The truth is I have a job, and when I pay an investment service, I’m paying them to watch my money, that’s their job. I pay them for a service, you get the idea. Now that bit aside, I think KaChing’s ability to tell a very simple, human story is an indication of a bigger trend to come in financial services.

Financial Services is pretty much an arms race. For the most part, financial service providers do they best they can to offer the most attractive services while exposing themselves to the least amount of risk, and charging as much as their competition will allow them to get away with. (I know that sounds cynical, but let’s just call it like it is). What KaChing could be evidence of is that people want/need/will-go-out-of-their-way to invest on their terms.

People cross a confidence chasm when they make an investment. The big trick is how can service providers help them feel more secure when there’s inherent risk at play. Would it help if I boiled the offering down to an actual person (instead of a faceless mob of traders)? Would it help if I could see any and all historical trades to see if my provider really walks the walk? Would it help if I could compare across money managers so I can align on investment philosophy? Would I just like to be able to scratch the service (not that I would, but I could)? Would that feeling of control help me cross the confidence chasm?

The thing is KaChing isn’t even promoting all these types of interactions – they aren’t a mutual fund, they’re an investment portal. But because the service starts with a certain amount of transparency, they create all these interesting byproducts around trust and possible pretty compelling investment interactions. Those interactions don’t have anything to do with what I invest in, but rather how I invest. I’m hoping that this site and a handful of others will start to mold financial services into a very different beast in the next 5-10 year. I think it will be a cocktail of new service providers, and new visualizations that help us slice and interpreting all the data and transactions going on. My bet is that the big guys will be compelled to offer similar services, or they’ll wither because they force everyone to view the world as they view it.

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