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Is Covestor Bad for Investors
I recently got an invitation to join Covestor. If you haven’t heard, Covestor is a new website that allows you to track your portfolio of investments. You can allow others to see what investment choices you’ve made, and Covestor tracks your performance against other Covestor participants. Covestor also has widgets you can use to publish your portfolio on a blog. I do think I’ll give it a try, but I wonder if Covestor will be bad for some investors. Here’s why.
At any time, there will be market-timers who have eye-popping returns from their investments. These folks will undoubtedly be followed by the masses on Covestor, and many will try to duplicate the short-term investment strategy. The long-term investors, whom I believe will have the best long-term results, will never stand out. The buy-and-hold crowd (of which I am one) is just plain boring. Who cares about a long-term return of 10% or so, look at this guy over here who’s up 70% for the year–What a stock-picker he is!
So what do you think–Is Covestor bad for investors?
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You are right. Investing should be boring. Buffett doesn’t stand out very often on his one year returns, but boy did look like a genius when the dot-coms came crashing down a few years back.
I’m on Covestor.com and a long term investor myself. My interest is in learning more about asset allocation and what others are doing to build low-cost well-diversified portfolios. At least on Covestor, you know that one’s opinions are based on their actions - there’s far less opportunity for deceit than on message boards. And as for chasing performance, that’s a bad idea no matter where you get the inspiration.
Hi - I’m Rikki Tahta the CEO of Covestor. This is a very good post because it does highlight a macro problem that Covestor sets out to address. That in the abscence of transparency, real money and multi-measurement - the attention will get sucked by the outliers
So what are we doing to address that:
1) add full transparency and let everyone see where the results come from, the risk as well as the retun - and how long they’ve outperformed benchmarks
2) Multi-faceted rankings. Investment is not a single axis competition. I am interested in who performs well with low trading volumes, diversifed or tight portfolios, sectors or geographies - when we launch rankings we will have over 50 tables
3) It has to be real money. If someone can consistently make real returns with real money and has the risk profile I’m comfortable with - then I certainly interested.
Ultimately no returns on Covestor are ever going to be as good as the best posted on fantasy sites such as socialpicks or CAPS - because, without real money, there is no dis-incentive for high risk ‘attention getting’ bets.
I personally am a buy-and-hold investor and one of the reasons I founded this business with my partners is not because I wanted to find risky traders - but because I was appalled at the cost of private wealth managers and the lack of transparency and choice I had in choosing who to take allocation guidance from.
So give me some boring options please - for 75% of my money that will go for my retirement and my kid’s education - I want boring sensible planning. I just don’t want to pay 3% to have it managed by a brand name bank.
hi, hi, hi! Beautiful site.
I have to agree with Rikki, and I don’t believe that Covestor will be ‘bad’ for investors. I do understand the concern the blogger mentions. But from my experience with Covestor - I truly do not believe it will be ‘bad’ for investors. However, I do believe it will be ‘interesting’.
First of all, I agreed wholeheartedly with this statement:
“Ultimately no returns on Covestor are ever going to be as good as the best posted on fantasy sites such as socialpicks or CAPS - because, without real money, there is no dis-incentive for high risk ‘attention getting’ bets.”
Without real money on the line? An opinion doesn’t mean jack-squat. The name of the game is risk, and reward. Covestor not only shows the rewards people make, but the risk they’ve taken on. That’s key. Because everyone’s risk tolerance is completely different.
Something else I’m coming to find that agrees with Rikki’s statement? I’m not really concerned with others spectacular returns. I don’t like that style of trading or investing. Look at Tim Sykes. Tim has phenomenal results. But that style of trading just isn’t for me. The markets are, what they are, because we all approach the business differently, and look to make money in different ways; we’re comfortable with different methods.
Covestor simply allows you to find individuals who truly are ‘putting it on the line’, and may have a similar approach.
The free-flow of information is truly revolutionizing the markets however. It will be very interesting to see how this all pans out in 10 years time.
In addition, the tools are fantastic. On each and every blog post I now put up? The ‘certified investor’ widget is on my post.