Open Source Investing

Open Source Investing

By Dave Haeffner

My aim (hah, get it?!) is that each of you leave here with either one useful idea, OR, one piece of schwag.

If you end up leaving with both, then I consider this a phenomenal success.

If you end up with neither, then I have failed.

To help give context, I’d like to share a bit about myself and my career, which has been a fairly windy road for such a short amount of time

6.5

4

6

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It’s been 6.5 years since I graduated from undergrad

I’ve worked for 4 different companies

Held 6 different roles

And have changed careers once

I’ve spent over half my career at The Motley Fool, and have held 3 different roles while there

I worked in IT Operations and now in Software Development and learned about investing along the way.

But before I get too much into that, I’d like to share my view on technology

I believe it is a purposeful enabler

It can help people realize and achieve their potential if applied correctly

Which is the fundamental impetus of this lecture: Open Source Investing

Definition for open source investing on the Web:

• The enablement of smarter and faster financial investment decisions and actions for individuals and groups through the availability of data, connectivity, and tools

So what?

Why should Investing matter to the individual?

Image 2 people: Alice and John

Alice begins investing at a young age, socking $5,000 into a financial vehicle which returns an annual average of 9% (e.g. the stock market)

After 10 years, Alice decides to stop saving

At the same time, John decides to start investing ($5,000 a year in the same manner)

Assuming Alice left what she invested untouched, John will not catch up, not even after 20 years

“The most powerful force in the universe is compound interest.”

To be an investor, to take advantage of compound interest, it used to be pretty difficult

Things were different back in the days of Gordon Gecko

• To invest, you had to know enough to be a shareholder and slog through annual reports

• This implies that you knew the inside baseball and how to place trades (or be like Warren Buffett and hang out in the basement of Standard and Poor’s basement and sift through their research)

• Had to call and/or fax trades into a broker which went to a trading desk which then went to the trading floor

• Incentives of the broker were (and are) aligned to volume of trades; not in best interest of the customer

Brokers always struck me as more like used car salesman

Is there a better way?

How do you think things have changed since then?

Data has become ubiquitous. You just have to want to open your eyes.

With it, businesses emerged, leveraging free and premium data and creating content. Offering advice. Even creating investing methodologies around it.

http://www.fool.com/how-to-invest/thirteen-steps/index.aspx

Some of these businesses emerged and helped forge a sense of community

Like minded people for the first time could come together and talk about investing

It’s a lot like coffee shops. Collaborative spaces where diverse minds come together to share their ideas and new ones come about as a results

There are also DIY broker services at peoples’ fingertips.

So now you have well informed, collaborative individuals, able to place trades no longer by telephone, but by smart phone.

Be your own broker

By having a community of individual investors, an interesting evolution occurred; community intelligence

Back in ‘97 Kasparov was defeated by a computer: Deep Blue

This computer was not just a single entity, it was programmed by many people to accomplish this feat. So in essence, Kasparov was defeated by a community of diverse skill sets working together for a common goal

It’s this concept that led Motley Fool co-founder David Gardner to come up with the idea of “CAPS”

Another trend in the industry is that technology has taken place of a lot of human interactions bringing about things like high-volume trading

By leveraging quantitative analysts (“quants”), sexy algorithms, raw computing power, and some investment capital, some firms are able to generate consistent market beating returns

But we’re starting to see the next evolution of high volume trading start to occur with qualitative data being used; leveraging subjective community intelligence

An example of this would be sentiment analysis of social networks

http://twittersentiment.appspot.com/

To put a nice bow on all of these points, I’d like to close out with these points

• Compound interest is your friend; be like Alice, not John• Don’t sweat it if you aren’t there yet, you can start tomorrow• There’s more information available than you can possibly fathom, dig in• The technological landscape is continually evolving. It’s only a matter of time until Sky

Net becomes real• As technology continues to evolve, be sure to keep ask the important questions “So

what?”, “What problem is this solving”, “Why is it important?”

Dave HaeffnerPurposeful Technologist

The Motley Fool

[email protected]@TourDeDave