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Collective Intelligence

Pros and Cons of Crowdsourced Sites

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Add to the growing list of crowdsourcing blogs that are quickly democratizing the investment advice business. “We’re trying to create a forum that allows the average Joe to express an opinion on the financial markets,” says Rick Singer, the site’s co-founder. Visitors are invited to submit articles for publication on stocks, bonds, options, commodities, currencies, business honchos, corporate scandals — even television personalities.

Stories can mention individual stocks, but Singer doesn’t view the site as a forum for hot tips: “This is not a tout platform where people can pump and dump some stock that no one’s ever heard of.” StockLip has been active since September 2009, though over its first three months only articles penned by Singer, co-editor Rob Bertsch and Clifford Bolton, a former investment banker, appear in the blog’s archives.
Broadly speaking, crowdsourcing describes the process of substituting relatively small groups of in-house professionals with a potentially unlimited number of outsider sources. Jeff Howe, a Neiman Fellow at Harvard University and author of Crowdsourcing: Why the Power of the Crowd Is Driving the Future of Business, says crowdsourcing is used more in creative arts such as journalism, stock photography, advertising and graphic design. But it has become increasingly popular among investors seeking information that doesn’t carry a Wall Street brand.
But amateur idea-sharing sites might offer advice that’s no more valuable than you’d get at a party or from a co-worker. “You don’t know the person giving the advice or how accurate the information is,” Singer says. “On the other hand, Main Street sometimes might know more than Wall Street about what’s going on.”
No matter what, the absence of audited long-term track records showing results of recommendations from crowdsourced investment blogs raises a yellow flag. “If you hear about a topic or strategy or company on a crowdsourcing site, don’t invest or trade off that information,” Singer says. “Make it a starting point for more research.”
Howe says diversity of information is essential. In his view, crowdsourcing sites that focus on a single methodology for picking stocks — for example, growth or value, short- or long-term, domestic or international — defeat the rationale for expanding the roster of informational sources beyond traditional channels.
“What you want are a bunch of different approaches to a problem,” the author says. “To the extent that collective intelligence theory exists, it would say that being exposed to a single viewpoint is far less useful. In fact, it would be pointless.” Howe’s research suggests, he says, that “having a diversely intelligent and talented group of people with the right knowledge will get you much further than having a bunch of geniuses who all apply the same heuristics to a problem.”

Thomas D. Saler is a free-lance financial journalist based in Madison, Wis.

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