Biz Dev in NYC by Rob Tsai

Reading Fred Wilson’s discussion about the social investing field motivated me to test out Cake Financial (I’m opening a Covestor profile as well):

A big theme at TechCrunch 40 was social/web financial services. Mint and Cake launched there and Mint came away with the top prize.

The twist that Cake brings to the social investing field is that they use real transactions to build your profile by accessing your online trading accounts. Again, they are not the first to do this. A company out of the UK, called Covestor, has been doing the same thing for the past six months and has built a large network of traders who are sharing real trades with each other.

Robin Raskin at Yahoo! Tech has a good review of the service:

At this very moment I’m playing voyeur by following some hotshot investors as they move up and down the market…Better yet, I can study the strategy of other investors and use their performance as my lesson. And I gotta tell you that watching real people win and lose real money from real investments is much more instructive than reading any of the investment blogs and web sites.

In addition to allowing you to be a market peeping Tom, Cake Financial consolidates your investments by linking directly to your various portfolios from the major brokerage houses…  Of course the security question loomed large in my mind. The site states that it provides you with a screen name and doesn’t divulge any member’s net worth or personal information. As with any social network, you are free to identify yourself to whomever you trust. By design, no one can come in to the site and try any shenanigans like fixing the market by pretending to buy and sell, since only real transactions conducted via the various brokers show up in the site’s data.

I recently set up a profile at Cake, under my username Zenrob.   It’s pretty cool- as the service will download your transaction history from your broker, and then show you all the other members of the network who hold the same stocks.  You can then check out their trades to find investment ideas.   The site is differentiated from other financial social networking sites like Stockpickr, Marketocracy, Motley Fool CAPs, because all the portfolios are based on real trades downloaded from the online brokerages of the members.

In some ways, there’s no avoiding "survivor bias," where performance results are skewed by the fact that only surviving investors make it into the mix (check out Nassim Nicholas Talib’s book Fooled By Randomness for a great discussion on biases like this).  Also, there is the notion of adverse (or positive selection).  You would imagine that investors that have multiple trading accounts might only want to load up the data of their best performing accounts to put the best possible spin on their outcomes.

Here’s a screenshot of my profile:

Though I’m up 43% year to date and 65% for a 1-year return, there are no statistics reported on alpha, beta or volatility.  So, I may have taken absurd risks to generate those returns (i.e. lever up to the hilt on junk credits that I was lucky to sell just before the crash). 

Finally - this snapshot happens to hide the biggest decision (mistake) I’ve made over the last year, which is my asset allocation decision to hold a very large proportion in cash (about 40%)at fairly low short term rates.  Probably a combination of both fear in the market’s frothiness and being too busy to come up with a plan to put the money to work. 

Given the Fed’s recent loosening, the stock market’s ascent to all-time highs (as if the subprime blowup never happened or has been solved by banks taking one-time charges to their balance sheets), the US dollar’s plunge against almost every currency, inflationary pressures in oil and other commodity prices - I guess, yes, I am nervous.

So my investment theses in this environment are to be defensive (food and pharma spending still occur in recessions), look for dividends (utilities), find inflation hedges (oil, commodities, gold), and invest overseas (Brazil and Korea are my favorite based on growth and valuations).  I’m also looking to get smart on options trading this year.   Any advice?

My current holdings ranked by highest to lowest value held:

Companhia Vale Ads (RIO) - Brazilian iron ore mining

Sadia (SDA) -  Brazilian processed food, poultry, pork

Sourthern Copper (PCU) -  Peruvian copper mining

Cpfl Energia (CPL) -  Brazilian utility

John Deere (DE) - Agricultural equipment manufacturer

Ishares Comex Gold (IAU) - ETF pegged to price of gold

Kookmin Bank (KB) - Korean bank

Brasil Telecom (BRP) - Wireline and wireless telco in Brazil

Woori Finance (WF) - Korean bank

Amgen (AMGN) -  Biotech/ Pharma

Nordson (NDSN) - Adhesive dispensing systems

Devon Energy (DVN) - Oil and gas

Caterpillar (CAT) - Construction and mining equipment manufacturer

Laboratory Corp (LH) - Clinical lab and testing services

Chesapeake Energy (CHK) - Natural gas