Profiting From Web Investing Sites
Marketocracy's top fund managers come from not just the money business but all walks of life. Some members came to the site for fun, while others were hoping it was a way of some day making real cash. The site and others like it show that there are nearly as many ways to put together a winning portfolio as there are people who invest.
Armed with a philosophy degree, Adam Thompson did not expect to get into the money management game. "When you get a Ph.D., you expect either to go into teaching or be unemployed," says Thompson, whose portfolio was highlighted by Marketocracy earlier this year. Now about 30 people have invested $2 million of their own real money based on the "fake" portfolio Thompson created on the investing website seven years ago.
At the time, Thompson had already decided teaching wasn't for him, and he was using his degree to write questions for the law school admissions test. By then he had become fascinated with investing, spending years studying the market before finally having enough spare cash to invest in 1999. So when he stumbled across the Marketocracy website in late 2000, shortly after it started, he immediately joined. "I wanted to try my skills with the opportunity to choose a larger portfolio," Thompson says. "I was vaguely hoping I would be good at it and make a career."
Turns out he wasn't bad. His online portfolio has grown more than 600 percent, or about 33 percent a year, since he started. The investment neophyte learned from early mistakes to refine his thinking over the years. Thompson spends only a few hours screening stocks, relying on intuition to help guide his picks. "When I go to the mall, I look to see what stores are crowded," he says.
He aims to invest about 5 percent in each of 20 stocks, now paying more attention to macroeconomic factors such as high gas prices than in the past. The portfolio's success gave him the confidence he needed to become a registered investment adviser. He hopes to quit his day job within a few months, but for now he manages money for a handful of friends and family as well as a few Marketocracy fans.
Randy McDuff did quit his day job. He joined Marketocracy as a hobby in 2000 after working at a Canadian brokerage firm for 14 years. "I had accumulated enough capital to step away from the day-to-day grind," McDuff says. He still liked the idea of putting together portfolios and devotes himself full time to running two funds on Marketocracy, one large-cap and the other small-cap.
First, McDuff says, he looks at Wall Street research reports and then ignores them. "I have a healthy degree of skepticism" about the reports, which he thinks only evaluate companies with which the firms already have an existing relationship.
Even though he makes little money from the people who have invested in his just-announced mFolio fund, McDuff treats the Marketocracy exercise like a full-time job. He spends weeks researching a company's financial filings looking for clean balance sheets. Then he writes a thesis about the stock based on numerical research as well as his big-picture view of the world. He will reread the thesis after letting it sit for a month, looking for holes in his own thinking before he decides to invest.
That time-intensive method has led to a portfolio that has grown about 440 percent since 2000. "I do it because I enjoy it," McDuff says. "And now that I have time to do the research, I get far better results than if I was working full time."