Your Investing Prowess on the Line, Online
Go to any cocktail party or Internet chat room these days and it seems like stock tips are a dime a dozen.
Now there’s a Web site where stock picks actually may be a dime a dozen.
IExchange.com, a Pasadena start-up that launches today, is a cross between an old-fashioned investment newsletter and a freewheeling online message board.
Like many other Web sites, IExchange.com will allow people to recommend stocks. Any individual investor who opts to make recommendations becomes an “analyst” on the site.
But there are two twists: IExchange.com (https://www.iexchange.com) will systematically rate the analysts on how well their picks perform over time. And the analysts can charge fees to investors who want to look at their picks and any accompanying write-ups that explain their reasoning.
To draw investors initially, many stock recommendations on the site are likely to be free. After that, they could be priced from a few cents to a few dollars per pick.
In theory, analysts with strong track records will attract loyal followings and make money by charging for their recommendations.
The benefit for investors, according to IExchange.com, is that the site itself will provide an objective rating of analysts’ stock-picking prowess. That’s something investors can’t get in chat rooms, where the dominant voices may be the loudest and sometimes the crassest--but not necessarily the savviest.
“An investor will get the benefit of having somebody else sort through the thousands, and perhaps ultimately millions, of investment ideas so that they can find the best stock pickers,” said David Eisner, IExchange.com’s chief executive.
Here’s how the site works. Anyone can submit a stock pick, but each analyst must include a projected price and a date by which the analyst expects the stock to hit that level. That will allow the site to track every pick and rate analysts’ performance.
Each analyst will be rated on three criteria.
One is the average return of his or her picks. The second is “directional accuracy,” or whether stocks head in the direction predicted by the analyst.
The third, “predictive accuracy,” measures how close a stock gets to a projected price. Making gutsy calls will pay off: Correctly anticipating a 50% jump will yield a higher rating than being right on a 5% move.
Along with price and time projections, analysts will write brief reports to back up their theses. The site says it will open with more than 50,000 reports on more than 2,500 companies, including 450 firms in the Standard & Poor’s 500 index.
Analysts do not have to identify or give information about themselves. But doing so might enhance their credibility, Eisner said.
IExchange.com was started by some Wall Street and Internet veterans. The co-founders are Eisner, a former high-ranking executive at Los Angeles investment bank Jefferies & Co., and Bill Gross, chairman of Idealab, a business incubator and venture-capital firm that backed EToys and other well-known Web firms.
Big-name venture-capital firm Kleiner Perkins Caufield & Byers also is an investor.
A basic premise behind IExchange.com is that some individual investors can match or beat Wall Street pros’ insight into stocks, either because the individuals work at a particular company or in a particular industry, or by dint of their personal research.
IExchange.com is a “fascinating idea,” said Ken Clemmer of Forrester Research. But to thrive, its analysts will have to know what they’re talking about, he added.
“Their success really hinges on their ability to attract people who actually make good choices, and--the more important factor--their ability to get people to actually pay for information, which is a very difficult thing to do on the Web,” Clemmer said.
One established Wall Street firm, Argus Research, has agreed to put its research on the site, Eisner said. However, other firms might scoff at the notion of contributing recommendations from their high-priced analysts.
Jim Laird, a senior analyst at the Yankee Group consulting firm, says IExchange.com is another example of how the Internet is intruding on Wall Street’s strongholds. “This looks like a first stab at giving the research analysts of the world a run for their money,” he said.
One concern, however, is that unscrupulous investors might try to manipulate stock prices by using IExchange.com as a platform.
In an attempt to limit that risk, analysts may submit recommendations for only the 5,000 or so stocks in IExchange.com’s database, thus making the most obscure and illiquid stocks off-limits.
Besides chat rooms and the multitude of sites where investors proffer stock picks, IExchange.com also faces competition from two firms that sell research reports from professional analysts: Multex.com and Investext Group.
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Times staff writer Walter Hamilton can be reached at walter.hamilton@latimes.com
