My Favorite Money Manager
The Gotham Gal and I have our assets spread across a number of asset classes and money managers and our allocations and managers have changed a fair bit over the years. We’ve seen a bunch of managers in action up close and personal.
Right now, my favorite money manager is an optical surgeon named Robert Freedland. Robert is 56 years old, he’s been managing his own investments for 42 years, and he’s been blogging and podcasting about stocks for the past seven years. I invest with Robert on Covestor (which in the spirit of full disclosure is a portfolio company of Union Square Ventures).
About a year ago, we put a modest but non-trivial amount of cash into a Covestor account. We only invest with model managers in risk tiers 1 and 2 to keep our capital at lower risk. There were about five or six model managers in those tiers at that time so I put the minimum on all of them. I would check each month and slowly I left most of the managers. But I kept putting more money with Robert. And he kept performing. Now we have close to half of our Covestor portfolio with Robert and I am thinking of giving him even more.
We are up about 11% on the money we’ve had with Robert in the past year. Since some of those funds went in a year ago, but most went in more recently, I suspect our annualized returns are closer to the 17% return he’s annualized since he started on Covestor.
I like that Robert has delivered excellent performance with an emphasis on value investing in highly liquid stocks. I like that he doesn’t short stocks and doesn’t own anything I don’t understand or recognize. I like the fact that he has a strategy and he sticks with it. And most of all, I like that he is investing his own capital as well as mine.
If you want to invest with Robert, you can. He has a $5,000 minimum and you’ll need to open a Covestor account to do it. This is not a recommendation to invest with Robert, but it is an acknowledgement that there are great investors out there who don’t work on Wall Street and that thanks to the Internet they can manage your money as well as their own money and that is a very good thing.
I think it’s very interesting to see this kind of social filtering/curation. Many have tried to apply this to news in the past, but I can’t think of any really successful attempt.I wonder if there are other types of area who could benefit from this?
How about restaurants? Picture a site where you enter days & times you’re interested in going to restaurants and you automatically get reservations at local restaurants that got good reviews from amateur restaurant reviewers you follow. Top reviewers could earn a small fee from the restaurants for each customer who dines there based on their review.
sounds like a feature for OpenTable
Make the deal, Richard. I’ll take my advisory fee in bread sticks.
shrewd move Dave, given the Russian wheat crisis at the moment.
As long as they’re not radioactive bread sticks.
Julien — since I was up at the wee hours just want to acknowledge that yours was the FIRST comment of the day. 😉
I’ve never really spent much time thinking about covestor, but this is a big deal. To the extent that big money managers can be disintermediated, the long term impact of this could really be huge. Imagine if pension funds and other large money pools of money started doing this instead of hiring individual managers to make bets. Or at least, imagine if something like covestor became part of the expected asset allocation mix for large pools of money.
imagining is something that i really like doingit is why i do what i do
lol. yeah that was more me musing than suggesting *you* imagine, since obviously given that you invested that is exactly what you did! Great vision. I love the idea of brining Goldman et. al. down a bit.
i loved your comment
looks like Disqus need to come up with a new category of “like” button (with a limit on how many times it can be used in a year)
Now that you mention it, also thinking that the Disqus community box should have the number of likes given rather than just received. I think that’s an important component of showing someone’s participation.Yo — Mark Essel — you’re supposed to “like” this comment.
On it Donna.Tied up Mon-Wed. Tough to catch all the comments.
Fred forgot to like Hank’s comment. I think it’s his VC training (or GC Grammaton Clerics) that causes him to limit the number of positive affirmations he can give per year to 2-3 to avoid getting spread too thin (and dodge bullets).
What I meant was a “loved” button (shaped like a heart!) that you can only use a few times a year 🙂
Goldman loves that this type of thing exists!
Goldman and others are always watching. Ask Michael Burry.
a lot of people would. I just want the nastiness to end and a normal that feels normal to come into beging. Goldman is not a God, for Christ Sakes. I feel like I am stuck in some sort of period before I am born, where it was all money or no money.
My mom always told me to stop daydreaming.I can’t help it.
Me too! We would have been fast friends as kids. Although, in actuality, I would have been your babysitter instead.deleted that last bit — TMIAnd actually, it was my teachers who told me to stop daydreaming. My mom “got” the daydreaming thing. My teachers also told me to stop talking but it would floor them that I could repeat everything they had just said while I was chatting away.
my favorite song of all time:”you may say I’m a dreamer, but I’m not the only one”Imagine – John Lennon
Great, great song, Fred. But, you are much more than a dreamer. Good place to start though.
LOL. My favorite babysitter!!I was constantly bumping into tables, forgetting things….but boy did I have a crystal-clear view of the future!
Not sure if this is a fair question or even one that can be answered, but I wonder if the element of “imagination” helps determine whether someone moves toward VC rather than private equity? Although I guess the type of risk one can tolerate is somewhere in that mix.
Putting a little bit of money with a lot of people starts to get to the wisdom of crowds … maybe you can stack the deck with a crowd of smart people that makes it even wiser.
Looking at this Robert’s guy charts it seems that in the past year, it’s been better to just invest in the S&P 500. i.e. he (like many others) was not able to beat the market.maybe you can talk about it on MBA mondays
In an updraft market it is hard to beat the tide. The real question is what did his returns look like from Aug of 08 to Feb of 09. How much less did he lose?
You can see his personal track record on Covestor here http://covestor.com/robert-…I’m a big fan of Robert too and have been following his blog and twitter feed. As Fred said he invests in things we can all understand and gives a perfectly reasonable – and coherent with his strategy – rationale for each move.
Stefano,You are very kind and I thank you for your loyalty. There are many ways to invest in the market. I believe the best is to go for high percentage shots that yield base hits on a regular basis. Excuse my mixed metaphors, but I think you get the point. Hope you are holding up in this volatile and difficult economy with an associated difficult decade for stock investing!
His performance relative to his style…which Fred has pointed out is Value…is what needs to be measured. His returns on a value basis relative to that benchmark are pretty outstanding. One would consider addressing Alpha here. Relative to and on an absolute basis…great job.
You also have to take risk into account. Relative to the S&P, he could be getting more value with less risk.
What a great topic
Yes, and it’s possible to make (or manage) money on the Internet, as long as you know about this guy.
SmartMoney magazine did a profile of Covestor a few months back – http://bit.ly/arLpzG. When I read it then it seemed interesting, but the idea of giving money to a “stranger” made me move on. Now with your recommendation I will investigate a little bit more, I still have questions regarding how “real” the returns are, and the fact that it seems that pretty much anybody can join can certainly make it challenging for Covestor to avoid scams.
Amazing concept. What are the fees charged. It did not seem clear?
It looks like Robert charges 1.5% per annum (which I assume includes Covestor’s fee). Then you’d have whatever commissions and fees your brokerage account charges.
Invest your money in yourself!
i do that for sure Andybut i also like some diversificationi don’t want all of our assets in venture capital
Ya sorry wasn’t talking to you. Was talking to the readers and commenterslike me that don’t yet have “F-you money”
I thought you already had “F-you money”, Andy. Hence, the Pappy.
Fake it til you make it! 🙂
Guess it’s on its way =)
Bah, who needs F-you money when you’ve got F-you skillz?
Andy lives in a nice neighborhood. He’s gotta be in the gray area between us and FU money.
guess what? every few years my definition of F-You money goes up by a few notches. i am still not there in my own mind. maybe never will be.
“How many yachts can you water ski behind? How much is enough?”
I think it’s more about how much do you want to be able to leave your kids and family when you’re gone, and what kind of life you want them to have.But maybe that’s just me.
Isn’t that what’s great about life? We’re always wanting more, producing more, progressing.The poorest among us in the US would be considered to be living like a king merely 250 years ago.How much is enough….how much do you really want?”More”
We are aspirational creatures, all of us. That primal instinct drives just about everything.
Incidentally, Rikki Tahta of Covestor is one of the judges in the Thomson Reuters StreetApps Challenge, in which I submitted Portfolio Armor for iPhone as an entry (which you can vote on at the link, if the spirit moves you).
After this fab endorsement I wonder if Robert is gonna quit his day job? LOLAnd I bet his patients have no idea what Robert’s doing between surgeries. Checkin’ his Berry, that’s what!I love being surprised by hidden or “side” talents.For about 20 years when I was growing up we had nice neighbors, Mr. + Mrs. Stern. In high school they threw the occasional party and I’d serve and wash dishes. And we would go dip in their pool some evenings. I knew he dabbled as an entrepreneur in a bunch of different businesses, but it was a hodgepodge. Something different each conversation and I couldn’t keep track. Real estate brokerage? Day trading? Porcelain wholesaling? Huh? Whatever.Modest house, very kind people, always with interesting stories to share. They gave me wedding and new baby gifts. When my parents died, Jean called to check up on me.Bob called me last summer to tell me Jean died. He’d sprinkled her ashes in a local wooded cemetery. We agreed next time he’s up here we’d visit together. He’s 85, is still working, having the time of his life. He manages all his friends’ money! I think it’s Merrill or Smith Barney — they gave him an office because he’s brought in so much money, and he loves having a place to go. In between, lots of trips to see his grandkids and other neat places.A couple months ago I was listening to NPR Storycorps. The trailer said: “Brought to you by the Bob and Jean Stern Foundation”. I’ve heard it a million times. But, wait…holy crap…is that OUR Bob and Jean Stern??”I called him. Yes, it is. Over the years they gave away probably $5m+, all to NY-area causes: NPR, PBS, Planned Parenthood and a bunch of others. Jean managed it, so since she’s gone he’s just about wound it down. Really amazing people. Made tons of money, enjoyed a little of life, and gave the lion’s share away. They certainly never bragged about it. They just did it.Anyway, goes to show, you never know what someone is doing in their “spare time”. It may blow you away.
Did the Sterns have kids?
Yes. And one died so some of the giving is in his memory.
Awesome story! I forgot I was reading a comment. Tells you how good it is.
Thanks, doke. A bit long, I know, but I needed to set up the punch line. 🙂 They were among the leading benefactors to liberal causes in the NY area. Who knew??!A reason why, when people draw conclusions based on stereotype, it pisses me off. Brilliance comes in all shapes, sizes, ages…
Great story, T. When I heard Bob’s age — and given the context — I remembered that one of my acquaintances — who owns an investment management firm in Chicago — has two or three men on his staff in their 90s. One is close to 100. They come to the office every day. Can you believe that?Correction — one is slightly over 100.
yes, actually. I believe one of the people my brother is named after was like that. And also day traded back in the 60’s in his retirement in florida. That, and sung in a men’s chorus. Some people are just like that.
Gosh. I am still just 55. (Turn 56 next month :)). I never figured I would ever be compared to investors in their 90’s and 100! Ironically, as we get older, we learn to be less in a hurry than some of our younger counterparts who actually have ‘more time’ to invest. I hope to be investing into my 90’s some day as well!
Oh, you’re young! When I wrote that comment you were still Robert — amazing how well we’ve all gotten to know you today — now you are Bob. The Bob I was referring to at the time was from Tereza’s comment and he is 85.I’m glad you still have some good years left in you. Given Fred’s endorsement, I’d like to know you might be around to invest MY money when that elusive ship comes in. It may take a while but hopefully well before your 90s.
Thank you for your comments and no I do not plan on quitting my ‘day job’. I have always had a hobby of investing and love the challenge of developing a strategy that I can implement for my own use. However, there is nothing that can match the satisfaction of assisting somebody with as simple an operation as a cataract procedure in restoring vision that they have gradually lost. Beats a 3-bagger any day.
I said day job for dramatic flourish. Sorry I may have offended you.Restoring sight — that is a true vocation.
I was not in the least offended at all. Instead you flatter me with your comments! I am lucky to have a job working on restoring sight. I am also fortunate to have had a father who encouraged me to read stock prices when I was little and who was also my role model growing up learning about the investment world.What we do in life isn’t as important as how we do it and whether we add some value to our experiences with others.
his average subscriber made 9% (20% less than the SPY for the past year). his sharpe ratio is 1.68.my average subscriber made 19% (80% MORE than the SPY in the past year) and my sharpe ratio is 1.47.my annualized returns in covestor investment management are 113%.http://covestor.com/douglas…
What is your benchmark…the S&P? Is your porfolio in line with your benchamrk? Are you value or growth or blended?What is your alpha relative to your benchmark if not the S&P. Is this an apples to apples comparison?
ouch, brutal diss…..but alas, the markets are brutal, so perhaps it is fair play.i checked out doug’s profile and robert’s profile. i prefer to manage my own money, but i would bet on doug over robert. this is a traders’ market.of course, doug’s inception is only since april 2009……haters will have some ammo with that little tidbit.but best of luck to all market participants! let us hope the trader can beat the house in the wall st casinos!
Thanks Kid. I was on covestor investment management since it launched.Been on covestor since it launched in May 2007. http://covestor.com/douglas…465% since inception and 71% annualized return.
Looks like there’s a problem with the “since inception” button on the Covestor chart then, since I only saw a track record back to 2009 for you there too.
imagine covestor having a technical problem….but it is on this pagehttp://covestor.com/douglas…
Lower risk profile choices?
your numbers are awesome doug.i can’t invest in you though because of your risk scorehave you thought about running a lower risk portfolio?
Great to see you comment here to offer another potential covestor direction.How do you profit from others following you and doing well?
Mark,Let me be try to answer this question for Doug. It is my understanding that Covestor pays their model managers in two fashions. If indeed they are a certified analyst and advisor, they can share in the management fees generated. If an amateur like myself, Covestor pays a subscription fee to the model portfolio manager in those cases per number of subscriptions to the feed.As an amateur, I do not actually manage anyone else’s money nor should I be doing so. Covestor itself is the money manager that utilizes my trading information as a basis for their own management decisions.
Thanks Robert, that clears it up and reminds me of the first time Fred described the service.
I would like to be the first to encourage all of you to examine Doug’s outstanding returns. I always stand in awe of his statistics which are genuine and impressive. Doug is a rare bird in the investment world and I am glad to be sharing the Covestor website with him.
Since inception on CV.IM, Doug has returned an ASTOUNDING 175.75% (http://search.covestor.com/…. He is the #1 performing manager on Covestor. I am happy to be #6 with a 24.09% return as of yesterday, and listed as #1 in the “value category”:Doug has done an absolutely phenomenal job on Covestor and I would not want any comment I make to take away from his record. Kudos to you Doug!
Nice post. I’ve been aware of Covestor for about one year now, and as a former volatility trader, and migrant of “wall street”, I can tell you it’s a fantastic and much-needed service. I have to also say that I’m particularly pleased with the organic steady growth of the service, and timely nature of the release in light of the need for transparency in the industry. Keep up the great work!
I’m very surprised you’re an advocate of paying for “active management”. Virtually every piece of serious academic research on this topic shows that low cost index funds outperform active management on an after transaction fee basis for large and liquid markets like U.S. public equities. Obviously normal statistical deviations will mean that at any time there are several active managers who may be doing well relative to the indices, even for several years, but this can be explained by normal random statistical fluctuations. Even the vaunted Bill Miller, who beat the market for fifteen years in a row (stretching the ‘random statistical fluctuation’ theory for sure) had such a bad 16th year that is trailing TEN years were below the S&P500. My personal belief is that there are a VERY short list of people who can outperform their asset class index on a post fee basis for an extended period of time and the odds that any individual knows who they are before they’ve done it for 10 – 15 years is very low. The data and research is very clear.
Not to get too far off track here, but IMO the conventional wisdom focuses too much on fees and active-versus-passive and ignores that un-hedged, long-only equity investing is generally a bad idea during secular bear markets such as the one we’ve been in since 2000.For example, here’s a chart of a market neutral fund versus the S&P over the last 6 years. The market neutral fund charges an expense ratio of nearly 2.5% per year. Would you have been better off paying a tenth as much in fees for a low-cost S&P-tracking fund or ETF? Absolutely not, right?
You’re right – there’s no question that the most important and threshold decision is asset allocation. It’s a whole different debate whether one should have exposure to U.S. public equities at the current time and what level (i.e., what % of your invested assets). But the original post states that he likes the fact that the money manager invests in known, liquid, stocks (I’m presuming U.S.). So by giving him money, Fred has already made a decision to buy US value stocks … so the question remains whether it’s worth the extra fees relative to a lower cost index fund which does the same. But you’re right, asset allocation is the most critical decision.
When most purveyors of conventional financial wisdom talk about asset allocation, they aren’t including the decisions to hedge or go market neutral, unfortunately.But even among long-only equity managers there are some who have pretty consistently added value. For example, Bruce Berkowitz with his Fairholme Fund.
I own and respect Fairholme , but it’s unusually eclectic and risky – “Berkowitz has nearly two-thirds of the money in just 10 stocks. Most of those are names that sound incredibly “high risk” to mainstream investors. Many are battered financials. The top names include AIG, Citigroup, Bank of America, bond insurer MBIA, bankrupt mall-owner General Growth Properties, and Florida real estate stock The St. Joe Co. And he holds 15% of the fund in cash.” Heebner’s CGM Mutual is similar, and he’s had a couple of tough years, although way ahead over the long term.Google WSJ article – How Fairholme Is Breaking Wall Street’s Rulesmorningstar charts http://quote.morningstar.co…http://quote.morningstar.co…
Fairholme isn’t “unusually risky” at all, and there’s nothing especially risky about having most of your assets in 10 stocks if you know what you’re doing. Excessive diversification ameliorates idiosyncratic risk, but does nothing to ameliorate market, sector, or industry risk. Investors in index funds did much worse than Fairholme investors in 2002 and 2008, despite being more broadly diversified.Fairholme also has little in common with Heebner’s CGM Focus Fund. I don’t agree with all of Berkowitz’s individual stock picks (I happen to have a bet against St. Joe, currently, though so far it’s gone against me), but it’s worth noting he bought all of those financials after the crash, and I understand his logic for doing so (the big in the python of bad loans), even if I don’t entirely buy it.I thought I understood Heebner’s logic, but seems like he just flies by the seat of his pants. He has a great long term track record, but I wouldn’t invest in his fund because I don’t understand his methodology. He also isn’t as good at following Rule #1 as Berkowitz is.
A fund with a few concentrated, correlated positions, would generally to be considered to be taking more risk than one with a larger number of smaller uncorrelated positions.Of course, if you like those bets, you might think it’s not especially risky…risk is in the eye of the beholder…logic is in the eye of the logician.I like it and the point of having an active manager is to take meaningful bets and not be a closet indexer, but if I had a target of having x% in a larger cap value bucket, I would make sure I understood what Berkowitz is doing before having the whole bucket be Fairholme.
Concentration in 10+ names doesn’t necessarily make a fund especially risky. Correlation is a different issue, but as we’ve seen in recent years, when the crap hits the fan, correlations of most stocks (and some other assets) tend toward one. Which is why hedged and market neutral funds make so much sense: when the crap hits the fan, their hedges and shorts will tend to increase in value.
The problem is not that active investing never works, it’s that the average person doesn’t have the tools and ability to evaluate money managers and determine where and when active investing is worth paying for, and to avoid chasing whatever performed well recently, and then avoid bailing out at the best time to be buying in.(Research reveals inefficiencies in the market. For instance small underfollowed companies tend to outperform, but someone like Fama will say it’s liquidity premium and risk premium. Research does not, as far as I know, show that money manager outperformance is randomly distributed – it’s serially correlated and there are managers who are good or bad and stay that way longer than chance would predict)Passive investing is the right choice for many people. As Ayn Rand says, you have the power to choose, but no power to escape the necessity of choice.
Great points. Active management insofar as selecting stocks within a portfolio is quite a challenge and I don’t believe anyone has consistently been able to demonstrate their ability to do this. However, I am trying to do something even more difficult in this process which involves developing a system that more or less automatically moves me into and out of equities and into and out of cash as indicated by the performance of my own holdings. This is a distant adaptation of Lichello’s ‘AIM’ system that he wrote about in his what I would refer to as a classical text, “How to Make $1,000,000 in the stock market automatically.” A great read I would add that one to all of your reading lists this summer!
Active management that can consistently beat the related index is indeed the Holy Grail of investment management. My only personal slant on this is not that I have selected stocks that I believe can out perform the index (I hope to do so), but also, my attempt to do an even harder feat of timing the market in terms of shifting into and out of equities and into and out of cash in some sort of mechanical fashion. It is a tough challenge. Time will tell if it will work or not. You are absolutely right to be skeptical.
My favorite money manager has been investing since he was 14.Taking unabashed self-promotion to a whole new level 🙂
I presume that’s you, right?You go, girl.
After I make a pile of capital from my own sweat, I’ll revisit Covestor. Dig the concept
Fred: Long time reader, first time commenter. I really enjoy your blog, so to make up for the fact that this comment is negative, I’ll balance it out with some positive comments in the future :-)You should be more careful with terms when writing about financial performance. Though his returns aren’t bad, I definitely wouldn’t call them excellent. The annualized return on Robert’s “Buy and Hold Value” Portfolio is 6.5% below the return on the market, and the fees to invest with Robert are about 5 times what you can pay for an index fund. Overall, his portfolio is down 15.69% since he began on the site, almost 2 years before he started the “Buy and Hold Value Portfolio.”Additionally, while Covestor has Robert in their lower risk category, I would argue that his risk is pretty huge. His portfolio has only 6 positions, which is a very high concentration.I definitely don’t know enough about Robert to know if he’s a good or bad manager, and ultimately “Your Favorite Money Manager” is completely subjective judgment. I briefly checked out his blog, and he seems intelligent. If the focus of your post had been about how Robert has an awesome financial blog, and with Covestor you can finally invest like him, that would have been much better.Ultimately, I don’t think Covestor solves a huge problem in the investment industry, since people are already overwhelmed with investment options. That doesn’t mean it won’t be interesting to enough people to make money though. I have a few other problems with the site, but they aren’t important enough to include in the comment.Also, I’m posting this anonymously because I’m licensed, and if I use my name I would need to get this comment approved by my compliance department. Argh FINRA…
excellent is in the mind of the beholderi think it is excellent
Thank you though. And this is really interesting just to show the limits of social media. I’m sorry mr/ms anon that you have to be this way and there isn’t a way to speak on the record but off of finra’s
Your comments and observations are accurate. My performance before being a “model manager” included trades and activity that were not within my own current disciplined approach. One of the advantages of being part of the Covestor system is the integrity to one’s strategy that is required of each of the model managers. For credibility, we need to state clearly our strategy and decision-making process and stick to it. Risk levels are determined by more than the number of holdings. They are determined by staying in cash without utillizing margin and by the volatility and quality of the underlying stocks. In addition, responding to difficult market environments by methodically moving into cash away from equities will reduce my own volatility vis a vis the overall market and make for better preservation of capital.
i am increasingly ‘tired’ of how you warp a sales pitch for your companies into a supposedly unbiased discussion.you have followers and credibility – the more you do the sales pitch, the more you devalue that trust.coming from the internet space, you should know how valuable that trust is, and how easy it is to go away.on the other hand, i would gladly pay you for an editorial mention of my product…on a performance basis of course.
You think Fred shouldn’t hype his own companies?I think 99% of people understand that he’s going to promote his own companies, considering that he spends most of his time thinking about how to do that.
I agree and am totally OK with it for 3 reasons:1. it’s Fred’s soapbox2. it’s helpful to look behind the official announcements to understand what Fred’s liking and why3. if I were his portfolio co I’d view it is a value-add of having USV as an investor…differentiated exposureI probably do comment less on the portfolio endorsements…at least the ones which are less aligned with what I’m into. But it’s fair game that they exist. There’s no church + state separation in blogging.If I recall, Twitter and Foursquare discussions have gotten quite heated. That’s expected, they serve a broad consumer market. Covestor is narrower. Fewer, but deep/passionate users.# of comments provides plenty of signal into audience engagement with a topic.
LOL – your last sentence shows that you have no idea what this blog and community are about. You should probably take up residence at one of the *Insider sites.
malcolm? victorious. alobar roark? embarrassed.
lol i almost hit the cancel button after typing the comment but couldn’t resist the cheap joke 🙂
They had it coming. Dissing Fred like that without being here day in and dayout was weak. Some folks sell shoes, Fred sell’s dreams or buys a piece ofthem.
I’m surprised you would expect Fred to be unbiased about one of his portfolio companies. Of course Fred talks his book here. Who wouldn’t, given a soapbox his size? Granted, if all Fred did was talk his book, his soapbox would start to shrink, but judging from his traffic, he’s managing that balance pretty well.
Imagine a wife not publicly trumpeting her husband’s fabulousness. And he of her as well. They’re on the same team, after all. It’s an important part of their job.And what a buzz-kill if they don’t. A missed opportunity to keep the magic alive.In fact if they don’t it’s a signal to watch. The beginning of the end.I think that goes for venture investors, too.(BTW….in case you’re wondering…my husband’s *smokin’ hot*. LOL)
Thanks dave. I think a lot about this. Same with all the other socialmedia platforms I use. The value going out has to be larger than the valuecoming back
“you have followers and credibility”Exactly.
Any blogger who cares about his reputation won’t blindly hawk things for self interest. I come here knowing that I’ll read about things Fred is passionate about, and it’s not a stretch to think that he’s passionate about companies he’s investing in.(ps. feel free to post more about disqus)
Disqus sort of lives here.
Daniel, y’all are smoking hotties out of San Fran. Happy now?
where does it say that i am unbiased?i have never ever said thatthere is no such thing as unbiased publishingbut at least with blogs you know where the biases areand mine are completely and totally related to our firm and our porfolio
I always found covestor very interesting, what’s missing there to have more traction?
distribution, getting in front of more investors
Guessing you sampled 5-6 Covestor managers at an average of $5000.00? That’s an total Covestor investment of maybe $30,000.00 – given that you put the minimum with all of them. Over time, you’ve gotten rid of most of the other managers. So you’ve given Robert somewhere in the neighborhood of $25,000.00 or more if the other managers had higher minimums.So you’ve given a small fraction of 1% of your entire net worth for Robert to manage – your favorite money manager. That’s a fairly tepid endorsement.The average investor, given the same percentages, wouldn’t qualify for Robert’s minimum.Why should anyone step into Covestor with more of their net worth than you have?
Edit: changed my mind
Nope. I put a lot more than that in. I started with a lot in cash
And what do you think my net worth is? How would you know?When you make assumptions ….
Hi, Fred. So, last year I started managing my own stocks in my IRA fund, which is held at a bank. Two things. I’ve seen my choices return about 22.3% since I started, but the unfortunate thing is that the bank is steadily increasing how much it charges for trades I make.Is Covestor the kind of place where I could manage my own IRA? Do you have any recommendations on other platforms that enable people to manage their assets?Thanks.
notry interactive brokers
I think Covestor is may become an excellent platform for those who want to get exposure and become real money managers, but still a terrible way for retail investors to invest.Exposure – Think about it. If you really want to get a job running a mutual or hedge fund, you can’t just show up to Goldman Sachs and show them your retail brokerage account statements. The track record isn’t audited, there isn’t a defined investment plan, and you are a stranger. Covestor could break down a lot of these barriers, creating a warm lead and letting professionals follow you in real time until trust is established. At that point you can get a shot at managing some real money (via seed deal or employment in a fund) and making a living.Retail Investing – Covestor makes the retail investing problem worse, not better. Why? Because retail investors are their own worst enemies. I would elaborate further on the reasons, but many in this thread have already pointed out a great many. A platform that offers unlimited accessibility and transferability between managers (“With Covestor there are no hidden fees — no entry fees, exit fees, load fees or penalties”) further exacerbates the dilemma.I’ve worked for the past few years in the alternative investment world and am now pursuing my MBA. A lot of friends have asked me for investment advice, stock tips, etc. I always tell them the same thing: For the same reason you wouldn’t want Whitney Houston doing your taxes or your mom being your dentist (unless she is one), you do not want yourself to manage your own money. You just don’t have expertise or time to do so. Get a competent financial advisor who will assess your tolerance for financial risk, what kind of financial planning you require, and find the appropriate investments. Financial advisors can also invest your money in a tax efficient manner (think long term gains vs. short term income) that usually far outweighs any minor performance differences in investment options.P.S. I may be critical about Covestor as a solution for retail investors, but investing in Covestor would be an excellent choice. For the same reason people can’t help themselves about buying lottery tickets, they won’t be able to help them selves by avoiding making their own investment decisions.
there are plenty of RFAs on Covestor
Fred,I noticed this. My point was that most of the value of a financial advisor comes from providing advice tailored to the individual investor’s situation. Most self-directed investment plans end in tears because of basic errors – lack of planning and poor assessment of risk tolerance.
This story has me thinking a lot about how the Internet enables smart people to have multiple careers, and perform at a high level all the while.And giving them a platform to have reach and monetization that are more than just hobbies.In the web world, when I network, it’s so usual for people to hand you two business cards.Particularly as you get older. You keep learning every day. And we have a primal need to keep learning. And all that knowledge is cumulative.So things that used to take a lot of time and mistakes take up a lot less time once you have 15yrs of experience at it. When the sh*t hits the fan you don’t freak out so much, because you’ve seen it. But you’re learning less and it gets boring.You stay stimulated by creating new challenges.It’s just so cool how the web enables, enriches and accelerates our ability to be our multiple selves — which get ever more multiple, as we age.The baby boom is aging and we’re going to see more of this as that tidal wave hits us. Lots of new venture opportunities to emerge.So after we crack this women’s venture thing, that’s the next place I’d be very keen on looking.
@TerezaYou and I really need to talk. I almost always agree with your sentiments onthings. And I would really like to get you to blog about things likeeducation at our site if you have a chance to think in that direction. Weare at http://www.edreformer.comWould be good to get your ideas on what we have going on there.
Love to, Doug. Email me at tnemessanyi at gmail dot com and we’ll plan.Indeed I’m passionate about education too. As a parent I observe and think about it every day.Are you familiar with http://www.childrensschool.org? Some very interesting use of digital/mobile recordkeeping of students’ progress (they’ve won national awards in it). Tremendous rigor around providing kids high-quality feedback. I’m a big fan of the value of good feedback and I’ve not seen anything better.I also really like their foundations in basic computation. Because of the recordkeeping they can rotate teachers around constantly and keep the teacher/student ratios up. From a process design perspective, that’s brilliant.
“It’s just so cool how the web enables, enriches and accelerates our ability to be our multiple selves — which get ever more multiple, as we age.”Rich comment in all but this sentence really struck me. I think about this a lot and am mesmerized by the possibilities. One goal in particular is to get my kids set up with some sort of web business that they can run as teenagers and beyond if they’d like. Maybe that will be my version of being a VC. I’d have four portfolio companies for starters. ;)With the potential provided by the web, many would never be forced to truly ever retire — or at least to stop generating income and producing value in the marketplace.
Donna, would like to talk to you about this, as tongue-in-cheek as itsounds. Seems like an interesting story angle to track down parents whobelieve some part of education involves realworld fooling around withbusinesses and models to see how kids can learn to generate revenue andvalue time, money, enterprise and social interaction.Doug
I don’t think it’s crazy at all!Home is the new family farm.Look at how Fred’s home is a petri dish for new stuff.
Tell me about it. Now that I think about it. Home taught me to be worldly.
Doug — my thoughts on this are totally in the idea stage — but if I can lend value to the discussion would love to — I think this is VERY important. As much as possible I like to model work for my kids — I’ve taken the older ones on business trips when feasible and I try to explain business concepts to them. I think we miss so much that existed in a more agrarian society in terms of raising our kids and exposing them to how we earn our livelihood. The marketplace and economy spawned by the internet is potentially a way to reclaim some of this.dwhite AT bwasearch DOT com
Many, many immigrant kids are fully entrenched in the family business. So I would look there, too.It’s part of family responsibility. And, what do you know, they learn so much along the way!Maybe there’s a blog post: what to learn from immigrants?The immigrant experience is essentially entrepreneurial because it’s very tough for a new immigrant to get a job at a blue-chip company. Their kids upbringing is a lesson in making something out of nothing.BTW my two best girlfriends from Wharton are wildly successful….no immigrants, but both grew up playing large roles in their (small) family businesses from about age 10….one local retail, one in religious publishing of all things….the mechanics of business are completely in their DNA.
In my opinion, immigration is the ultimate entrepreneurial act.
Be careful with that- my brother’s life goal is not that, not even close. You can’t force someone to become something that they are not. If you can’t stimulate that desire, don’t try.It’s like feeding kids food. There will be occasionally a really picky eater. Suck it up, it’s more difficult than you think to break someone out of it when they are young
Sorry, I can’t tell by your response if you were taken aback by what I saidor if you agree with me. I’m only suggesting that there must be parents outthere who think that real world application of intelligence in businessideas is essential to growing up. I was, after all, prompted to start my ownlawn-mowing business when I was younger.
Mixture. I agree about exposure and modeling, but I don’t agree about being pushy.
I see. It wasn’t my intention to push the “pushy” element in that. In fact, I don’t even think I suggested it as anything but a recommendation.Douglas Crets
A parent shouldn’t force. But you expose, and make paths available. Give ’em good habits, good education.The skills they learn should be applicable in many ways. The may be lead attributes, may be supporting. But still useful.
Hey thanks!In our family, what my kids believe is, “Daddies go to the office, Mommies build new web services”!
I LIKE that!
Yes! OMG! I loved the web at an early age because I found that I could learn so much and try new things and be more things. It was so useful growing up, I didn’t have to be any one type of steretype from any one place, and it made my life so much more enriched to know there was a great wide world out there.The web is so beneficial. I’ll hate it if the Google ruins it
In middle or high school we may struggle to be a jock and a band geek at the same time.The adult equivalent is that you might be a PhD in psychology and a high-end consultant, plus a mom or three, plus a sing cabaret jazz in Brooklyn clubs with professionals by night. I know so many people who are these amazing packages.Access and efficiencies brought by the web help us unleash our renaissance-ness.
You’re a closet Gleek?
Closet? Nah. Full frontal. 🙂
1.5% cost ratio is exorbitant when compared with index funds from Vanguard etc. And he has been mostly underperforming the S&P500. Sorry, but I just don’t see why this is a good investment.
i don’t like to “buy the market”there were plenty of managers who made money in the last big tumble when the market was down big
I’ve been curious about covestor for some time, might have to give it a whirl.An added bonus is I’d get to tell people “I invest alongside Fred Wilson” 🙂
Having spent 10 years as an equity research analyst – and 10 years in the hedge fund world – I may be more qualified than most on this topic (at least from an experience standpoint).Wall Street certainly does not have a monopoly on good stock picking – and the shorter the time frame you look at – the greater the chance that someone on Covestor is going to outperform the market – or alternative managers available to you on Schwab’s or Fidelity’s platform.Long term, however, I find it hard to believe that there are many that will seriously outperform – given the massive resources devoted to managing money – I won’t say that it will never happen, but the odds of you picking the right person on co-investor is probably slightly less likely than you picking the right mutual fund manager.I’ve done 8 VC deals, and my guess is that I have a better track record than most VC’s out there.Does that make me a VC? Probably not.I’ve never worked within a portfolio structure. I’ve never had to compete for capital. I’ve never had to raise capital. I’ve never had to sit on 8 boards at once. There are a lot of things a professional VC does that I haven’t done (then again, I’ve done the VC gig from a seat at a hedge fund – so I did have a day job)The key to portfolio management – which is completely different than stock picking – is the risk management abilities of the manager. The best stock pickers don’t always make the best portfolio managers – unless your timing is perfect.The great thing about Covestor is that Fred has found a manager who meets with his risk criteria and is similarly attuned in the way he invests. Since Fred has a day job – finding someone like this is great – because it allows you to outsource the function to someone whom you generally agree with. I can do that in the mutual fund industry – because I know many of the managers – and I certainly know the players in the hedge fund world – but that’s not a luxury most people have.Having read through most of the many comments here today, I would agree with the following: if you have a distinctive investment philosophy with attendant risk parameters and find someone investing similarly – there’s nothing wrong with investing alongside them. That said, index funds are cheaper and easier for the very vast majority of people out there – and there really is no substitute for doing your own homework and diligence
great comment as usual harry
Terrific points. Stock picking is just one small part of my strategy, albeit an important aspect. More important as you say is the risk management. For me, that involves knowing when to limit losses, when to take gains, and when to shift back and forth into and out of cash and equities. This is certainly a work in progress and Covestor gives me the opportunity to develop this strategy in the open with all of you coming along for the ride.
It’s impressive how Covestor works, and how some people go to school to learn about finance and investing, even have their MBA. Here you’ve explained someone who is optical surgeon, and they are outperforming a return on investment for people like yourself who have their MBA. You’d think it would be the other way around. Great story!
What does that tell you about credentials like diplomas? To me thatsuggests, they are only as good as the people who earn them. And if that’sthe case, it really shouldn’t matter if you went to Harvard. But I thinkthat’s just me. There’s a whole lot of other people who really reallybelieve in that Harvard degree.
I keep trying to explain this to some friends, it’s really hard when we are all young…degrees are really dazzling
In my opinion, Covestor’s 50% take of the fees is too high.
Fred,Thank you so much for your kind comment. I remain an amateur investor, not a professional money manager but I suppose that is the spirit of Covestor, isn’t it?I shall continue to work to earn your trust and continued confidence. It is a very difficult market for professionals and for an amateur like myself it is beyond comprehension. But having a plan makes it all a bit easier knowing what you are going to do before it happens and then executing on that strategy.Your friend,Bob Freedland
I have to say, I don’t have the money to invest right now. You have a superb writing style that really teaches a ton. It’s also one of the few I’ve seen on the interwebs that is extraordinarily polite and informative to the reader. I just really enjoy reading your blog for the writing, and I want to know where you developed your style…
interwebs – nicely done shana
Shana,Thank you for your kind words. I do not know if indeed my writing or even my content is “superb” as you say, but if it is ‘passable’, I shall be satisfied. I try very hard to teach as this is the best way to learn anything. As we say in medicine, ‘see one, do one, teach one.’ Whenever I discuss some aspect of a stock, I enjoy utilizing the internet for information to explain the term I am using, such as ‘current ratio’, PEG, free cash flow, mid cap stock, etc. Like a good footnote, I want each entry to teach as well as explain my own thinking.I am glad you noticed this and hope you come and visit often!
just keep sticking to your strategy. i believe in it.
I am continually amazed at the breadth of topics covered here at AVC. Some you probably didn’t intend when initially writing the post thanks to the comment bloggers and other commenters.Often think of Dr. Seuss’ “Oh, The Places You’ll Go!” Instead, it’s “Oh, The Things You’ll Learn!”Especially love the faculty here at AVC University. Thanks all!
Same here Donna, great information about various strategies of investment. Between index funds, fund managers, and market neutral or hedged investment there’s a WIDE range of choices.
Bob we applaud you!Your balance and humility are utterly refreshing.It’s also probably a reason why you don’t make rash decisions.Clearly you have a steady hand!
Thank you Tereza. My hand was shaking a bit today with the market correcting sharply!
haha, that’s not something i like to hear a surgeon say!
An excellent “Move Your Money” candidate.
It is a very tough proposition to beat the S&P. I keep on working at it every day.
this statement needs both more and less love.
Reading the comments, Fred, it seems you may have found a future topic for mba mondays — diversification of capital! I guess it’s a useful skill for entrepreneurs (and VCs) once they start to generate returns on their efforts and investments and look to diversify out of being attached to just one company. I know as a moderately successful entrepreneur myself I’ve found it a bewildering world — if you’re lucky enough to be in the $20M+ club, you probably just hire a full time wealth manager from goldman, but if you’re more in the $2-10M range and if you’re an a-type, controlling, research-oriented individual it seems there’s a real dearth of useful guidance out there!
There should be full disclosure that Union Square has a stake in this company.
there islast line in the second paragraphit loud and clear
I don’t mean to be rude, but I think it’s really dangerous to endorse this kind of investing. First, in full disclosure, I discussed this article with a “professional” recently because I wanted his opinion, and he certainly had some vested interest in disputing this type of investing. Still…One must be incredibly suspicious of survivorship bias. If you throw a few thousand amateur investors onto a website, one of them is going to show astronomical returns. That doesn’t mean you will be able to capture those returns if you shift your strategy to match his. How likely is this amateur to repeat his performance?Historical performance is not predictive of future performance. See Nassim Nicholas Taleb’s Black Swan.But I disagreed with my professional financier friend in that I don’t invest my money in equities, period. Mark Cuban has a decent rant (“The Stock Market is for Suckers”) about my reasoning here: http://blogmaverick.com/200…If I want to put my money to good use enriching myself, I’ll do it one of 3 ways:1 – Investing in businesses that I have some sort of actual directional impact on; Fred here does more than “his homework” on companies he’s investing in as a VC. He can actually help make these businesses succeed. Ditto for investors like Mark Cuban or Warren Buffet. Day traders are just passive investors.2 – Investing in my government; bonds may not be literally risk free, but if that investment blows up, it’s not like money is going to be the biggest of my problems. I’ll probably need to learn how to hunt for food and defend myself from post-apocalyptic gangs :)3 – Investing in myself; spending my money to increase my personal ability to make more money later (i.e. education, networking, starting-and-failing at a business).Look, don’t take these points as the advice of a professional. I got through a decent amount of economics, but I’m no financial expert. I’m just smart enough to know I’m not smart enough.But then, neither is anyone else. That’s the point.
Others have hinted at this, but investing more in Robert when he is up so much is probably the worst thing you could do as an investor. All things being equal, he will revert to the mean, so buying high is not a good strategy; you should sell and find someone that you think is skilled, but happens to be underperforming due to bad luck.I’m glad there are Roberts out there but investors often are gains chasers who get easily burned in the long-run.Disclosure: I work for kaChing, a competitor of Covestor. The same advice applies for investors in kaChing managers naturally.
Absolutely good advice if you believe that all investment returns are due to random events and like an experiment where heads have been called on a coin flip three times in a row it is time for “tails.”However, if performance involves any portion of intelligent analysis and decision making, then an above-average chance that good performance will follow good performance and under-performance will persist.My own performance has been merely above average in my opinion, and I hope to continue to be above average as much as possible. Even that is as you would be first to observe, a big challenge.
You’re making a common mistake. All outcomes of random events are independent. The outcome of flipping a coin is always 50/50 no matter how many times heads comes up. It’s never “time for tails” in random events.
Disclosure first: I’m one of the Covestor Model Managers.Of course, it all comes down to risk adjusted performance. Covestor will only be succesful if at least some of its members can consistently outperform the markets. Some thoughts:I believe that most individuals actually UNDERPERFORM. I’ve been interacting a lot with fellow self-driven investors in the last years, some of them even asked me to coach them and teach them trading. It was unbelievable for me to see the discrepancy between confidence in the own skills and actual abilities. There are thousands of individuals out there who want to be the next Gordon Gecko and who already act like that (“The market will go up next month, I can feel it”). When I asked these people “So what is your edge?” “Where is your statistical research about your methods?” “How do you manage risk?”, 90% of them either couldn’t give me an answer, or didnt know what I’m talking about or maybe said “Cramer recommended the stock yesterday”. Most investors have no concept and Covestor and kaChing with thousands of members have shown that. So I’m not surprised that 90% are underperforming.However, I also believe that there are a few who have a clue about this game.Theoretically, individual investors have advantages over big money managing firms: small position sizes means they don’t leave footprints and can move faster. Another point is that individuals can do things mutual funds don’t to by default, e.g. shorting.To back up my thesis: one piece of research is the 2009 paper of Che, Norlie, Priesley “Performance Persistence of Individual Investors”, which indicates that Individuals that have done well (poorly) over the past two to five years continue to outperform (underperform) significantly on average for as long as the next three years. http://papers.ssrn.com/sol3/papers.cfm?abstract…Coestor is a big live experiment to validate if these guys were right. I think they were.
me too Michael