kaChing, an investing website started under the name FSX in 2008, has automated the process of imitating successful investors (something Warren Buffett calls “riding coattails”). Simply select the portfolio of one of kaChing’s certified “investing geniuses,” then set your own portfolio to mimic it. kaChing’s website describes how they select geniuses:
Leveraging its “Radical Transparency,” kaChing developed Investing IQ, the first objective and data-driven metric that separates the lucky from the good. Investing IQ is based on the same three factors used by Ivy League Endowment managers, the world’s premier evaluators of investment talent, to rate investment managers:
* Risk Adjusted Returns- based on an investor’s Information Ratio
* Sticks to Strategy- based on an analysis of how an investor made returns
* Quality of Rationale- based on a kaChing behavioral algorithm that measures community response to an investor’s research
An investor on kaChing who earns an Investing IQ score of 140 or greater is dubbed a “Genius.” kaChing customers can then automatically invest like the Genius by mirroring the Genius’s virtual portfolio trades in their own brokerage accounts. Investors who qualify as Geniuses on kaChing range from talented amateurs to investment management firms that have $400 million under management.
kaChing offers followers the option to receive emails whenever their geniuses execute a trade. They also offer linked accounts with Interactive Brokers that give you an automated way to replicate that investor’s trades, so you don’t have to lift a finger.
Mirroring an investor also cuts out the need to have a fund manager, which is precisely what kaChing is going for. BloggingStocks has more on kaChing’s strategy:
(Cofounder/CEO Andy) Rachleff’s new venture is a for-pay website that will provide advice to investors that don’t really trust Wall Street any more. kaChing is a registered financial adviser that’s using an angle consisting of lower fees, transparency, and easy-to-use technology to attract users. Since many financial professionals are starting to come under attack because of the fees they’re charging, kaChing thinks there’s room to win by coming in cheap and overdelivering information.
According to Rachleff, in Reuters, “This is a $10 trillion industry with no innovation in 25 years,” continuing, “there are a lot of consumers that are upset and frustrated with their mutual funds. But how do you decide if your mutual fund manager is doing a good job? No one is quite sure.”
Unlike most of what we saw before the financial crisis, in which the big gun clients are the hottest turf, kaChing is going after investors with net worths below $1 million. This group has invested an aggregate $3.7 trillion in mutual funds, so a company that can get some traction has plenty of upside. To expand its reach and make it easier to grow rapidly in a large community of smaller investors, kaChing’s capabilities are being extended to the Apple (NASDAQ: AAPL) iPhone, Yahoo! (NASDAQ: YHOO) websites, and Facebook.
The financial industry certainly needs more transparency. These guys could be onto something. Warren Buffett has cautioned investors against riding coattails (or “mirroring,” as kaChing calls it), but then again, people have been scoring wins by riding his for decades. There’s no reason that harnessing technology to help investors do something they do anyway won’t succeed, either.