Wikivest Business Plan

Last Sunday, 8/27/2006 I met with Zhao Zhen to discuss my first draft about our plan in wikivest. We came up with the following ideas.

We divide our concentrations into five parts: (1) News, (2) Theory and Practice, (3) Analyst Reports, (4) Securities-centric integration, and (5) Analysts-centric integration.

(1) News Section

In the News section, our model is similar to that of Digg in which users bring in their favorite news and make his own comments. Other may continue to comment on this news item or other news items. To me there are three kinds of news presentation forms. In the traditional media, editors-in-chief are the main controls over which news items are important and which news items are not important. This is the classical expert-controlled system. In Google, the news articles are ranked by their own technology PageRank, in which the linkage between each web-sites are the main reason to rank the news articles. In Digg, the news articles are completely ranked by the news-consumers. In Digg, the news ranker is the editors-in-chief. They are also the PageRank experts. At the same time, they are the news consumers.

We first thought about letting the users to define the news categories, such as business news, technology news, or world news. All three media types (WSJ, Google, Digg) have similar news categories. If we let the users define the news categories, then we give the complete editing power to the users. However, Zhen had reservations about the users may generate an overly diverse news categories so that there is no stable categories.

Since each news are related to either specific securities or industries, we will ask the users to determine the ranking of the securities or industries by three marks (buy, sell, or hold) just as the stock analysts give stock rankings.

(2) Theory and Praction Section

We have not yet find a great model for this section. We currently may consider Guru Focus as our preliminary model for this section. We will try to list major theoretical and practical giants in value investing, growth investing, bond investing, commodities experts, and technical investing. Charlie Tian started Guru Focus a few year ago. His focus is on the value investing. He selected about 30 value investing gurus to study. He monitors the gurus activities - stocks bought, sold. He has also developed a few indexes to track gurus collective performance. His purpose was to create a better portfolio of value stocks by studying the gurus carefully.

My vision is that there are many people who have interests like Charlie. Some may have interests in value investing. Some may have interests in growth investing. Overall, the collective intelligence can be developed if all these interested minds are working together just as they have done in wikipedia.

(3) Analyst Reports

There are many analyst reports available for investments. There are stock reports, bond reports, industry reports, mutual fund reports, and strategical asset allocation reports. Basically there are two types of reports. One of them is the reports dealing with individual security such as a report about IBM. Another kind is the fund reports. The fund reports are dealing with specific funds or fund classes. Of course there are quarterly reports and annual reports submitted by publicly listed companies and investment companies. In general, we categories them in five categories.

(a) Quarterly and Annual Report of individual companies or individual funds submitted to SEC. Most of the reports can be found in the SEC.gov web site. I believe these reports have the most complete information about a company or a fund. Most other reports are partially or wholly based on these reports.

(b) Analyst Reports prepared by brokerage firms like Goldman Sachs or Lehman Brothers. There are many such kind of reports available. These reports are some times called sell-side reports because their main purposes are to promote the companies they do research so that they can generate interests from the investment community. So the same reports such as the reports on IBM can be found from several brokerage houses. Most of the reports are available to limited clients so that they are not widely available to individual investors. However, there are enough people who can have access to these reports so that some of them may bring in their discussion to our web site.

(c) Rating Agency Reports. There are many rating agencies who specialize in one of several sectors of investments. S&P is one of the largest which has coverage ranging from bonds to stocks and to mutual funds. Moody has wide coverage on bonds. Lipper and Morningstar have great coverage on mutual funds. Valueline has good coverage on stocks.

(d) Industry Reprots are generated mostly by consulting companies such as Gartner, Pricewaterhouse, and Mckensey. They usually cover industry trends and directions. These reports have wide influences on emerging technologies and emerging trends in doing business.

(e) Integreated reports to be generate by wikivest. All the reports in the above four categories are usually generated by few experts who have studied the companies for a long time. In other words, these reports are one-man shows. We are trying to create reports co-developed by many minds. Many different opinions should be reflected in this new kind of reports. Another point is that the traditional reports are usually updated on a quarterly basis. Our reports can be updated as soon as new information becomes available.

(4) Integration of Collective Intelligence and Computer generated results.

Armed with updated news, theory & practice, analyst reports, most of the securities can be evaluated by the participating users of our web site. In each sub-class of all the investment vehicles, ranking and judgments are summarized to generated a list of good investment potential. This wisdom of the crowds should be fused together with our original plan of computer-generated optimal portfolio. A new kind of portfolio should be born. This new kind of optimal portfolio should have anchored in history and the future. The computer-generated optimal portfolio is based on historical data while the wisdom of the crowds should represent the future trends of investments. However, we do not have a clear picture on how to combine the two optimal portfolios together.

We use existing systems of sub-classification. The entire investment universe is divided into equity, fixed income, and alternative investments.

Equity is further divided by capitalization, growth and value matrix. This is called as style box. Equity is also divided by industry sectors such as Consumer Discretionary, Consumer Staple, Energy, Materials, Technolgy, Financial, Healthcare, Utilities, and industrial.

For the style box, we can add a time line. So the style box become style cube. There is one Exchange-Trade fund organized along the time line. FPX (First Trust IPOX index fund) is the first in such a kind. This fund invest in IPO companies within 1000 days of trading (approximately 4-years). We can further divided the equity with 10,000 days (approximately 40 years). Then the style cube can be invested in 27 ways instead of 9 ways in today.

(5) Star Analysts or Investment Gurus.

One of our purposes in wikivest is to promote new star analysts and investment gurus. By participating the news, theory & practice, and analyst reports sections, each analysts in our websites will be evaluated based on their past performances so that their rankings are judged by all netizens. One thing we discussed was related to the methods to promote start analysts and investment gurus. Should we use hard facts or soft facts? Hard facts mean collections of data on each individual. Soft facts are the evaluations passed on to each individual by other netizens. We have a preference on soft facts now.