Cake Is The Best Way For Investors To Navigate These Times
Posted by: Steve Carpenter on 
Dec 16th, 2008 | 
Filed under: When Cake Financial launched at TechCrunch40 in September of 2007, we were one of the first companies to introduce the idea of complete transparency in retail investing. Our mission is to help the 30MM investors in the U.S. maximize their returns by giving them personalized insights they can’t get anywhere else. Cake is not a “social investing” site- a term meant to convey the application of the communication capabilities of social networking sites to investing- but rather a personal service to help people make better investing decisions. Cake is incredibly powerful even without the community component.
Over the past few months, a variety of new companies have been compared to Cake, collectively calling us “social investing” websites. I thought it would be helpful to categorize these newer sites so that investors can be assured of getting the kind of help they need.
Cake is a service for the people who want to minimize the time and expense of managing their investments, while increasing the likelihood that they will have enough money when they retire.
Only Cake provides both an immediate and detailed analysis of an individual’s investments AND of the aggregated data of individual investors. Cake places unprecedented power in the hands of everyday people by providing insights about their own performance they can’t get anywhere else as well as from other Cake users.
Cake delivers value in three unique ways:
1. Cake is about you: We enable investors to add an unlimited number of retirement and brokerage accounts and to instantly and easily see their risk, asset allocation, and returns for up to 10 years;
2. Cake gives you context: We provide context for your investment performance by showing how your returns and metrics compare to common benchmarks and, for the first time ever, other investors; and,
3. Cake gives you personalized ideas: We assess your investments and give personalized ideas for improving your investment scenario.
Here are the three types of “social investing” websites, none of which are based on real investment data.
1. Fantasy Stock Sites:
These are websites that give users $1MM or $10MM in play money and allow them to build a portfolio. These sites enable users to keep track of and display their “returns” to the community. The hope is that some users will pick stocks that significantly beat the markets and that they will develop a large following that will want to mimic their moves in the real investment markets.
The biggest challenge for these sites is that they use “fantasy portfolios” that provide no incentive to create valid investment strategies with real money at stake. These sites also only track a limited time period, so they may have difficulty giving enough people the confidence required for them to put down real money to follow these “outperforming” portfolios.
2. Model Professional Portfolio Sites:
These are websites that take the opposite approach to #1; rather than trying to identify great everyday investors, they seek to decipher what the pros are doing and mirror the performance of top funds. These sites take the regulatory filings that all mutual funds and some hedge funds are required to make on a quarterly basis and develop model portfolios for investors to emulate.
The challenge for these sites is three-fold. First, the reason these managers do not mind the filings is that there is a 3 month lag between their moves and when they disclose their positions. By the time they report something, the funds have most likely changed significantly. Second, a majority of top hedge funds are exempt from such reporting requirements and therefore provide no insights into their holdings. Last, there is no evidence that shows that professionals outperform individuals.
3. Market Predictor Sites
These are websites that allow users to “predict” whether the market or individual stocks will go “up” or “down.” Similar to #1, users develop a track record of predictions and then their votes are weighted more heavily than others on the site. The idea is that this aggregated data will give insights into where markets or stocks are headed and that you can capitalize on this “collective sentiment” by buying or shorting those stocks. The biggest challenge for these sites is to provide an incentive for people to want to come back and continually make predictions.
With the current economy and market situation at the worst most of us have seen in our lifetime, we need all the help we can get. The Cake service offers the best way for investors to navigate through these difficult times.
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