Covestor launched last year as an investor platform that tracked real portfolios and actual trades, allowing individual investors and investment advisers to build a documented track record. Recently, Covestor opened up its platforms - until then, you could only view others' portfolios by entering your own trades. Now, anyone can sign up and get investment ideas from others.
I recently had the chance to catch up with Covestor co-founder Simon Veingard.
Content Matters: Tell me a little bit about Covestor
Simon Veingard: Covestor.com aims to de-institutionalize money management. We provide a real-trade sharing service that offers self-directed investors the opportunity to compete with, and be rewarded like professionals. By sharing the work they already do for themselves Covestor enables them to build their reputations, and eventually earn fees based on proof of their investment record.
We are the only service to share what real people are really investing in, not stock picks, commentary or fantasy investing, and is the only service that will allow member’s to benefit financially for the hard work they are already doing.
CM: Where did the idea for Covestor come from?
SV: One of my co-founders has a cousin who lives in Venezuela and works for a local oil company. His hobby is to invest his own money in stocks and shares in his spare time, covering about 20 local oil stocks, and he is pretty good at it. Whenever he would tell us what he is doing we would all love to copy him but actually we would love to be able to give him $50,000 and say to him ‘whenever you do something with your own money, do it with ours and we will happily compensate you for it’.
Given the increasingly level playing field between so called ‘professionals’ and private investors – the same access to information, markets and transaction costs – we therefore wanted to enable people to invest alongside brilliant individuals rather than in expensive funds.
CM: My first boss told me that the secret to financial success was to find a money manager you believe in and invest with them. At the time (in 1985), half our company pension fund was invested in Berkshire Hathaway stock and we did quite well. How does Covestor help people find the next Warren Buffett?
SV: You’re absolutely right – investing is all about great people who’s investment strategy you buy into. So with the levelling of the playing field, why shouldn’t individuals compete with professionals for fees. If you take a look at the Covestor Rankings you’ll see the investment talent on Covestor already doing the hard work for themselves and delivering great results.
CM: For some, the idea of sharing their investment results could be scary. What have you seen as the driving reasons why someone might share their results openly?
SV: Our members have told us that they share their investment activity on Covestor mostly for the following reasons:
- to build a verified track record and develop a reputation which provides real credibility both on Covestor and elsewhere on the web
- to keep better track of their portfolio as Covestor provides professional grade tools to measure performance that they can’t get with their broker.
- to enforce investment discipline as their trading activity is being followed by others.
- to eventually earn fees.
CM: Tell me about the community aspects of Covestor.
SV: Fundamentally, investing is a social activity – people like to share ideas and interact. Covestor has a number of community features to facilitate this interaction and build relationships and credibility of our members, including:
- allowing members to coat-tail like minded investors – members can track others trading activity and receive notifications of their trades live.
- direct access to investors – not possible with professional fund managers – investors provide rationales for their positions and interaction is encouraged with blog and ‘ask me a question’ features.
- ability for investors to export their investment credibility anywhere else on the web with Covestor Widgets enabling them to prove they’re really doing what say they are.
CM: You can never time the market, but it’s not been the greatest year to launch an investment-related application. How is the credit crunch and bear market impacting your growth?
SV: Volatility is the best time for Covestor. In both bull and bear markets investors want to know what how they should best manage their investments and ultimately with lots of big funds losing money, it’s a good time to be looking for better alternatives and Covestor is a great place to find great people who are consistently performing. And accessing all this talent is free.
CM: When you first launched, in order to monitor others, you had to share results from your own trades. Last month, you opened the system up so that anyone could track others, whether or not they shared their own trades. Was that always the plan or did something steer you to do that? What’s been the response/reaction?
SV: You are absolutely right, when we launched we intentionally set an incredibly high hurdle for membership in order to recruit smart and serious investors who were prepared to share their real trading activity publicly on the site.
When we had generated sufficient liquidity with thousands of self directed investors building verified track records our plan was to open up Covestor membership to enable others to sign up and benefit from this expertise and allow the investors to build a greater following.
Since opening up and allowing anyone to join we’ve had a fantastic response, surpassing our expectations. Our members’ investment performance speaks volumes and so it’s perhaps unsurprising they have attracted a following from so many new members.
CM: I’ve seen that a handful of professional investors have been using Covestor as part of a social media marketing strategy. Long-term, do you want Covestor to become the platform for professionals to demonstrate their track records? Do you think that it’s important to differentiate professionals from amateurs on Covestor?
We are completely agnostic to the background of our members. We’d actively invite professionals to join but we think self-directed investors are the real heroes out there doing all the hard work for themselves and we are providing them the platform to showcase their investment prowess and ultimately compete with the professionals for fees.
CM: In professional asset management markets, many individuals will initially launch multiple portfolios, then close those that underperform, leaving a track record only for the top performers. Are there aspects of Covestor that limit the ability for someone to erase the tracks of bad results?
SV: Yes, we do not allow users to tamper with their investment record and there is no selective reporting. All trading activity is verified.
CM: What’s coming next for Covestor?
SV: We are building an asset management business that happens to recruit its investment talent via the web rather than head hunters. We will shortly be launching the capability for members to continue to share their trades for free or to earn fees.
If they choose to get paid anyone following them will have to follow their investments with money, i.e. to fund a managed broker account which will track the trades of the lead investor. The lead investor will be compensated for the information they are sharing and Covestor will take a management fee.
To learn more, visit Covestor and set up a free account.
