An examination of a typical Standard & Poor’s investment report reveals that it is, in large part, composed not of facts, but of opinion, often from third parties.

Sites like EarningsWhispers.com and WhisperNumber.com engage in the crowdsourcing of investment opinion, for a fee.

An article in the UK Moneyterms blog recently expressed doubts about “crowdsourcing investing” , as follows:

As for investment research, good research requires opinionated non-conformists. The requirement is to spot what the crowd has missed. This is exactly what crowdsourcing cannot deliver. The work itself does not easily lend itself to loose collaboration: analysing a company cannot be divided up into discrete tasks that can be carried out with little communication — a close knit team can work, but that approach cannot easily be crowdsourced.

I would agree with this in that effective collaborative investment research is something not easily achieved.

However, just because something has not yet been done, doesn’t mean that it is impossible.

Invention and progress always must conquer doubt and the status quo.

In the case of collaborative investment research, the tsunami of unanalyzed information that overwhelmed the market in Q4 2008, leaving so-called “experts” uninformed, is the stimulus that calls for new methods.

New tools, new times, new perspectives

Two things have hampered the development of collaborative investment research:

1. A lack of tools: Collaborative editing software (i.e., a “wiki”) has only proven to be an outstanding success with Wikipedia in the last four or five years. Wikis are easy to set up but hard to grow. So far, no wiki dedicated to investment research has proven successful. Capital Market Wiki, the first semantic wiki designed for this purpose, is only in the fourth month of its “proof of concept” phase which is scheduled to last five years.
2. A lack of motivation: Until the Crash of 2008, the US stock market has been driven upwards by the relentless pressure of the share buyback movement. The Efficient Market Hypothesis dominated investment thinking. Fundamental analysis, in the mold of Graham & Dodd, gave way to Modern Portfolio Theory. One should remember that Benjamin Graham’s advice on investment research only began to become popular after the Great Depression, when tape reading went out of fashion.

A new field with new challenges

Collaborative investment research is indeed a new field, yet to be proven. Like any new technique, it goes against the status quo and conventional wisdom. The doubters may prove to be correct. We shall see.

The main challenge is not to devise a system that allows researchers who do not know each other to work effectively together to produce a useful product. Wikipedia has shown that this can be done in the area of general knowledge. Capital Market Wiki has tweaked the Wikipedia system, added a semantic structure and built-in incentives, and has created a tool to do specialized investment research.

The challenge is to attract editors and researchers to an empty wiki in the proof of concept phase. Most people do not want to be be first in anything. Today, Wikipedia attracts a thousand times more editors per month than it did six or seven years ago.

At this stage of development, collaborative investment research is an area for pioneers, especially those who want to help build a better capital market.

For more on this, see:

See: Crowdsourcing investment research: opportunities in OSINT and Free information and the Efficient Market Hypothesis and Crowdsourcing investment research: Capital Market Taxonomy and Innovation in investment research; dealing with free information and Modern technology for institutional investment research

This entry was posted on Tuesday, July 7th, 2009 at 8:55 am and is filed under Equities, Individual Investors, Fund Managers, Technology, Investment Theory. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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