Lots of research has been done over the past couple of decades that focused on legal insider trading. I make the distinction between executives buying and selling their own stock legally and the type of nefarious activity we read in the news and see in Hollywood.
The distinction is nuanced: insiders (senior corporate managers and large shareholders) can buy and sell their stock as long as they are not basing their decisions on non-public information that, if made public, would affect stock prices.
It turns out that insiders have been doing this for years and really profitably. You can see a list of the best resources for following insider moves here.
Follow those with better (in)sight
While the research hasn’t necessarily shown that there is a connection between market movement and insider purchases and sells (in the aggregate), insider activity seems to work much better when looking at individual stocks. It turns out that it works even better when we focus on stocks that are small and mid capitalization companies, have clusters of insider purchases (multiple executives buying around the same time) with larger purchases in dollar terms.
Tradestreaming is all about following the smart money: hedge funds, smart crowds, and certainly, corporate insiders. Portfolios can be designed to take advantage of this data and profits can be made by mimicking these activities.
We’re looking for an experienced, versatile, high-motor blog editor specializing in business news targeted at both sophisticated and mass-market audiences. The successful candidate will write and report his or her own stories, as well as hire and manage a small team of professional bloggers to curate and create original content for the largest audience on the Web. This person will set the strategy for and oversee the publication of financial blog content for programming on Yahoo! Finance, the Yahoo! network and consumption on the Web at-large.
Forbes and Forbes.com have always been about content. Forbes has always employed professional editors in a mixed outside-inside model for content, blending its own staff reporters with content contributed from asset managers and thought-leaders in their field. Never known for its ability to break stories, Forbes really was about highlighting interesting opinions from experts in their verticals.
But Yahoo is different than Forbes
Yahoo Finance is a different animal. While Yahoo Finance hasn’t changed much in the past 10 years (much to my chagrin), this move changes its tack. Remember, Yahoo Finance, as a giant financial portal, has always been about aggregation of both data and information, taking feeds from tens of information and content providers. By the way, check out ValueCruncher’s CEO’s, Mark Clare, great breakdown of Yahoo Finance, its past, its business and potential to disrupt providers like Bloomberg in the future.
Yahoo Finance is still the 800-lb gorilla in online finance as evidenced by its majority of traffic in the online finance category (see graph to the right). What’s made Yahoo Finance so strong was an early-mover advantage and a site that just worked quickly and had enough information on it to act as a proxy for a research terminal (Why Google Finance still sucks at its news offering is beyond me). With a deal it consummated with Seeking Alpha in 2007, Y! Finance dipped its big toe into the wild and woolly financial blogosphere. Now, with the job posting mentioned above, it appears that Yahoo Finance is changing its strategy.
How this may play out
This is a risky strategy. In essence, the financial portal is pitting itself opposite all its content partners — many of whom pay the portal for the firehose of traffic it throws off. I’d be less willing to partner with a company that is introducing a product to compete directly with mine. And this is a common problem with channel marketing for any platform — and Yahoo Finance is certainly a finance platform — in that the platform, given where it sits in the whole matrix of supply-demand, can always just mimic other offerings that are working. This is the fear of developing any tools that work on Twitter of Facebook – that the social media platform can quickly just put you out of business.
Such is the life now for Yahoo Finance content partners. If (and this is a big IF) the Yahoo Finance offering is a combination of serious, professional editorial oversight with smart curation with a good understanding of what’s important to Y! Finance readers (a-la Abnormal Returns) with thought-evoking and decision-supporting articles, Yahoo Finance can evolve itself from a financial resource to a must-see, must-read site for both individual and institutional investors.
What if it doesn’t work
If, however, Yahoo Finance doesn’t do this right and takes a half-assed, half-baked approach, the results could be pretty serious: both for the company/site and for content, in general. As Steve Lubetkin argued with me yesterday in the comments on PRNewser’s article Is Steve Rubel the Future of Forbes, aggregation using free, contributed — outside content — risks turning everything into an “echo chamber” where the biggest voices (those voices appearing everywhere) drown out newer, more creative content by people who take content creation really seriously. If Yahoo Finance’s own content offering isn’t managed well, it could cause other partners to leave the site, taking their money and their contribution to the estimated few hundred million dollars in annual revenue Yahoo Finance generated.
What this all means for aggregation sites? We’ll have to see how it plays out. There’s most likely room for multiple aggregators if they end up focusing on slightly different readerships (a retirement investors reads different content than a day trader).
The wisdom of the crowds has been used to better predict world events, elections, and the outcomes of sporting events. It’s now being used for more accurate forecasting of stock prices. Instead of following experts, crowdsourcing investment ideas seeks to assess what the masses think about a specific stock. The crowd is frequently more accurate in its predictions than top analysts?.
Enter Social Media
But with the onslaught of investors publishing their thoughts on stocks and the market on Facebook and Twitter, it’s hard for investors to monitor all the noise. Determining what the crowd thinks about a specific investment is tricky. Therefore, we’ll also explore different ways that investors can effectively plumb the wisdom of the crowds to build a portfolio populated with stocks the crowd thinks are going up.
What if there was a way to leverage the collective knowledge of all investors out there and use it to make a profit? What if you could build a portfolio that took investment ideas from the throngs of day traders and couch-potato investors, firemen and police officers, lawyers and doctors—a population of millions of investors? Figure out where the herd mentality thinks profits are and damn the experts.
Somewhere in the meaty space between IR, PR, and investment research falls DearCEO. The site is essentially an investor and corporate management network that allows investors to submit questions about a stock to corporate management and then provides a mechanism for management to respond.
Jim Cramer, the hyper television investing personality, is more than just an investor, he really is a performer. I’ve told clients and other investor to focus more on his ideas and how he arrives at his analysis than his actual performance. Why? Because that’s what he should be judged by — he’s made an entire generation of people excited about the stock market and empowered to do their own research.
If you are interested in researching Jim Cramer’s performance, here’s a list of resources that should help:
JIM CRAMER’S GETTING BACK TO EVEN: Cramer offers the most detailed guidance he has ever given on how to invest in a changed market. Savvy investors will not just survive; they will thrive. Cramer begins with six rules for protecting the money you have and making sure that you have the money you need.
Confessions of a Street Addict: When I joined the hedge fund, this book was a must read for all new analysts. Great look at Cramer’s experiences and performance at his own hedge fund.
The Street.com: Cramer is Chairman of the Board for TheStreet.com and one of the sites numerous investing personalities.
CNBC’s Mad Money: If you haven’t watched Mad Money, Cramer is at his best ranting and taking unscripted calls from the public. You can get a feel for his encyclopedic knowledge of the market, sectors and individual stocks.
This article actually shows that investors would do better by shorting Cramer’s Mad Money Picks rather than going long them. See accompanying graphic.
Proof: Jim Cramer Isn’t a Lousy Stock Picker: From the Business Insider, this article reviews a recent academic study (mentioned below) that found: while Cramer may be entertaining and mesmerizing to many of his viewers, his aggregate or average stock recommendations are neither extraordinarily good nor unusually bad.
Engelberg, Joseph, Sasseville, Caroline and Williams, Jared, Market Madness? The Case of Mad Money (January 23, 2009): This more recent study showed that Jim Cramer influences market prices through his recommendations on the show Mad Money and that overnight returns following his recommendations are highest for small stocks, stocks with high idiosyncratic volatility, stocks recommended on days when wealthy viewer-
ship is high, stocks that have performed relatively poorly over the previous twelve months, stocks recommended on days when relatively few recommendations are issued, and stocks recommended during the discussion segment (as opposed to the lightning round).
Must See Jim Cramer Videos
Cramer’s famous “They know nothing” rant on the Federal Reserve.
Tradestreaming is a community of investors learning directly from experts. I’m Zack Miller, investor, entrepreneur, and founder of Tradestreaming.com and I literally wrote the book on how to invest in the age of Facebook and Twitter. Tradestreaming is the resource I’ve created to help me become a better investor. I believe it will help you … Continue Reading
Tradestreaming is all about using technology tools, social media, and strategies to become better -- more accurate -- investors. Zack Miller is the author of Tradestream your Way to Profits: Building a Killer Portfolio in the Age of Social Media (Wiley, 2010).