The Government is regulating the “Little Guys” into a lower financial class.  By Little Guys I mean individual investors with less than $1mm in assets.  By lower financial class I mean these Little Guys can’t invest in a multitude of financial services products that are available to the Rich Guys. 

The meltdown of the financial markets and ensuing finger pointing are exacerbating the problem.  The Government wishes to add even more regulations to protect the People from the demons in the Financial Industry and from themselves.  The limitations on how and where the Little Guys can invest have been put in place to protect these would-be drunken sailors from financial oblivion.  The regulations prevent or prohibit the Little Guys from investing in Alternative investments and performance-based investment funds.  Of course, they can go out and borrow 5X their potential take home income for the next 20 years to buy a house.  The Government believes that that’s good for America, especially the Little Guys.  But it’s bad for the Little Guys to lose money playing on the Rich Guys turf.  Is that because they’re not smart enough?  Or is it because they can’t afford to lose money?  Or is it because it’s the easiest way to prevent those that are less intelligent, more naive or pathological?  I think the issue is that the Regulators find it easier to use a broad brush of regulation to protect the People rather than apply narrower and more intelligent brushes.  That means that while the top 1% of the population have access to myriad financial products and opportunities, the other 99% does not. 

The term “alternative” has been soiled by the financial meltdown.  The smart guys on Wall Street hoodwinked the not so smart guys that were supposed to watch them.  These very same Regulators that were asleep at the financial switch are responsible for making sure the Little Guy doesn’t get conned by the financial hucksters on Wall Street.  So no performance-based managers or hedge funds, no private placements, no access to endowment-like funds.  If you are going to blow your life savings, do it on “Conventional” investments like buying stock in Fannie Mae, or AIG or GM.  Yes, buy a house with a big mortgage and buy stock in GM and AIG.   

If all of these Alternative investments were evil, why would rich people invest in them?  Why wouldn’t the government prohibit rich people from losing their fortunes in these financial product?  The answer is because it’s easier to regulate the 99% by prohibiting them from investment opportunities because the Government doesn’t want to take the risk that someone loses their house or goes bankrupt because they went “all-in” with an alternative investment.  Of course, they can bet their house on conventional stocks or go to the local casino and lose their shirts with less than $1mm in assets. 

Is it possible that regulations that protect the Little Guy actually keep the little guy down?  Little Guys can’t do what the rich guys do.  Not because they don’t have the intelligence or assets, but because the government won’t let them.  They are being protected against themselves.  Why can’t a high school professor or electrician or fireman with $75,000 in savings invest some portion in alternative investments?  They could be quite sophisticated and savvy when it comes to investing their money.  They could possess the restraint and discipline to not bet the farm a speculative investments.  I know lots of people with assets under $1mm with good investment sense.  They have the presence of mind to limit their investments, diversify, and even protect themselves against volatility and financial risk.  Couldn’t they be trusted to only invest what they can afford to lose?  Shouldn’t they be given a chance to invest in financial products that have made the Rich Guys loads of money?  Yes, they have also lost the Rich Guys loads of money over the last year.  Much of what was lost was tied to lunacy in the mortgage and debt markets.  Institutional Investors lost their minds and overleveraged against bad assets.  The result was pandemonium.  Guess what, the Little Guy was hurt just as much on a percentage basis in terms of asset value because their 401Ks, and Mutual funds were heavy into Fannie Mae, GM, etc and their home equity is gone.  Guys like Barney Frank encouraged the Little Guys to concentrate 75% of their net worth in their heavily morgaged houses. 

Why is it safe for the Little Guy to taste the forbidden investmnent fruit now?  Well for one thing, the shit has already hit the fan, and while it may still be flying around, it’s built in to the market now.  That’s another way of saying that this might be a good time to get into the market.  Including the Rich Guys’ market. 

Why do I care?  Because I don’t think it’s fair that people with less than $1mm in assets are prohibited from investing in financial products that can make them money and protect their assets.  Of course I don’t want financial “bad guys” and con men to be able to take advantage of average citizens.  If they do, and get caught, they go to the “big house”.  We have regulations (laws) against people being defrauded, stolen from, and abused.  What I do want to see is a democratizing of the investment space.  I want to see new transparency and openness.  I want to see people gain access to a broad array of investment opportunities that can help them to build their fortunes.  I want to see Little Guys tap into the best performance-based managers.  I want to see little guys have a chance to invest in private companies with the potential for huge, life-changing returns.  In short, I want the other 99% to have access to the same investment opportunities that the 1% enjoy- even if they don’t always bring joy.  How can alternative investments become accessible to everyone?  There are three options: a) deregulation, b) re-regulation, c) more regulation and d) intelligent regulation.  I prefer “d”.  What I propose as intelligent regulation will be the subject of the next blog post. 

About a year ago Spark invested in a start-up called Covestor that we hoped would give people an alternative means of managing their money. If you look at the data, the Institutional Money Managers haven’t done a great job beating the basic indexes. This means that people are paying fees for active management and not doing any better than if they passively invested in the market indexes themselves. There are Money managers that have beaten the market but they come and go and few justify their existence based on their returns. In the last year or so, the Investment Management Industry has been in turmoil to say the least. This would seem to be a perfect time to introduce a new way to manage your money. Enter Covestor. The company offers an alternative to the institutional money management machine. Covestor.com has been around as a social investment site until now. On Covestor, investment results are transparent. An individual investor can establish a track record and share investment results with the Community. The company’s recently released upgrade transforms the company from a Social Investment Community site to a web-based Investment Management firm. Covestor Investment Management (CVIM) is the platform that allows you to manage your money. As a subscriber, you can invest real money into a Multi Managed Account (MMA), the world’s first of its kind. You can then choose from a variety of investment models that equate to your investment goals and appetite. The models are in the form of individual investors with certain investment styles and characteristics. You can choose from a selection of Investment Strategies or Model that match your investment needs. To become a CVIM client, one must establish an account with Covestor/CVIM and put some money in the MMA. The money actually stays in the clients brokerage account but is directed by Covestor. When a client follow a Model, the money placed behind that Model automatically replicates the investments made by the Model. Clients can decide how much to put behind the Model and can increase or decrease the amount at any time. Clients can also follow multiple Models thereby creating a portfolio of Models. The Models available to follow are screened by Covestor and the choices depend on the risk profile and investment approach sought i.e. aggressive growth vs. value-oriented. CVIM ensures that its clients can only subscribe to models that fit their risk profile and permits fine-grained control, such as excluding trades in the stock of the company they work for. As Models trade, CVIM evaluates these trades and replicates the trades in the client’s account based on the rules established for the MMA account. As CVIM adds more managers to the platform, the choice of Investment Models increases and clients can change based on the actual performance of those Models. The result is a way for you to find and follow investment strategies outside the traditional institutional money management firms. I think of CVIM as an American Idol of investment managers. You can vote for the managers you like based on their performance. Due to regulations, I am not able to talk about the performance of Covestor’s Investment Models or CVIM program. However, you can see for yourself by going to Go to http://www.cv.im.

Unfortunately, we regularly encounter hate in our lives.  Hate is just depression turned inside-out.  The best way to kill hate is to disarm it.  To that end, here are some responses to people that elicit hateful behavior or utter hateful comments.  I call these DBH (Don’t Be Hatin’) responses.  These statements are designed to disarm the individual manifesting the hate. 

Pease feel free to add DBHs of your own.  I will create a “Top 10 List” after receiving your additions.  I hope this exercise proves helpful to you as you encounter hateful situations.  If not, then please don’t hate on me.  I’m still mourning the recent loss of celebrities that I’ve never met and whom didn’t give a rusty rats tail about me.  Here you go:

Suggested Responses to Haters and Hateful Behavior

• you otta lay off dat hater-ade.
• why you you drivin’ me down route hatie- hate?
• step off with dat hate.com shizzle.
• why you gotta enter the hatrix like dat?
• must have been som’n you hate.
• that’s so 2000 and hate
• stop actin’ like you from hatie.
• get out from b’hind da hate ball.
• stop drivin’ dat hate-teen wheeler.
• why you gotta be singin’ “Hate Days a Week” on me?
• you gonna go blind if you kee master-hatin’ on me.
• man you stuck in the haties.
• dude don’t hate me ‘cause you ain’t me.
• why you gotta play me like john and kate plus hate?

Stay loved my friends,

td

Real-time is hot right now.  Real-time messaging, Real-time social networking, Real-time search.  These are powerful movements based on the value of what is happening right now.  But, what is more valuable that knowing what is happening now? That’s easy- knowing what WILL happen. Imagine having insight into what will happen tomorrow or next year.  I will argue all day long that nothing is more valuable than being able to predict the future.

Imagine a search engine that helps you to predict what will happen.  I call this an Inference Engine (rather than a Search Engine.)  Of course it’s futuristic and even science-fictional to think we can write software that predicts the future. That said, can we write software that can scan and analyze real-time information, patterns and trends and in so doing can provide insight into what will happen? I think so. To some extent it being done in financial markets. Algorithms and black boxes scour the web and data feeds for an inkling into what’s happening and how it will affect the future results. Data mining platforms strive to crunch massive amounts of information quickly to provide insight into consumer behavior and trends in purchasing. Given the vast amount of real-time and historical information available on the web, isn’t it possible that some events can be inferred? The Hollywood Stock Exchange has done a reasonable job for years of predicting box office results based on a virtual market for movies. This form of prediction is largely based on “crowd-sourcing”.

While Google is the 800 lb Gorilla in search, the service doesn’t do a good job of predictive search. I consider Google good for searching things that have happened. The current state of the art and most promising innovation in search is real-time search. I consider Twitter Search and OneRiot good for real-time information queries.   Rather than indexing the web and returning relevant search results, real-time search brings results as a stream of information based on the search terms. I believe Real-time search is the current next thing. It is available now and the wave is building. (See my previous post below about the value of real-time search.)

As for an Inference Engine, I have found nothing. There are a few companies out there claiming to deliver predictive information based on the mining of mounds of data. However, there is no consumer search service that even comes close to delivering predictive search. By bouncing around Twitter, OneRiot and Google I am able to gather information that can help make predictions.  However, I have to do most of the work. I would much rather type in a phrase of series of key words and see a prediction pertaining to my search language.  I can see a widget or app using Twitter to feed an Inference Engine based on trends.  OneRiot can enable searches based on real-time data that includes the velocity of trends, themes and sharing.  Taken a step further, OneRiot could potentially help predict events into the future.  The question is how far and how accurate. 

The challenge with building an Inference Engine is finding, analyzing and presenting predictions based on onforseen future events.  Clearly, searches must be bounded and the results must be limited to situations where the chance of success is greatest.  For example, asking what lottery number to pick is not reasonable because it is purely chance and no information available (legal that is) would help imporve your odds.  A bounded query would have to be based on information available on the web including real-time information.  The Inference Engine could include crowd-sourcing, chaos theory and  quantum physics. I don’t really care as long as it works.  Examples of a inference queries could be- “number one movie next week”, “stock market direction tomorrow” , or “home mortgage rates in one month”.   Each of these predictions would be based on information that is available on the Web up to the second the query is launched.  The search could also be persistent in that it could be updated continually based on new information.  Given that these predictions would be effected by events in the future, the persistent nature of the search would be powerful. 

My purpose in writing this post is hoping that it leads to funding an Inference Engine company. I don’t normally signal my investment intentions but in this case I am making an exception. I believe there are people working on this unstructured search problem and want to cast a broad net. So if you are aware of any company or individual working on search technology to predict the future, please pass it along. Thanks.

td