Sharing guarded portfolio information with virtual strangers for investment tips might sound like asking for trouble. But in a social media era, the concept has quickly grown into a business model that one firm is already exploiting.

New York fintech startup Openfolio is tapping the social network culture by applying its themes to investing -- openness, connectivity and collective intelligence -- and mixing that with a big data thrust.

In less than a year, Openfolio has quickly grown into a community of more than 25,000 investors, all drawn to the idea of seeing what various members are investing in and comparing investments to measure how they are doing.

It's the first serious effort to explore a new avenue for digitally-aided investing and wealth management, observers say, which will only continue to expand and gain acceptance.

"The idea of seeing more detail is really what’s gaining traction here," says Mike Cogburn, senior consultant at industry research firm kasina. "Traditionally, investors compared to indices to benchmark their portfolios. But with the amount of personal information people share on social media, it’s only a natural progression to wonder about specific investments."

That traction even took Openfolio by surprise.

“In the beginning we weren’t sure what we’d find, because it’s a big ask to connect your portfolio and share your investment information," says David Ma, the head of business development at Openfolio, which was founded by two former Wall Street traders, Hart Lambur and Yinon Ravid.

“[But] the basic idea which resonates with people is that more transparency helps you be more informed and understand the decision better before you make it,” Ma says. “The data that we are trying to unearth is extremely valuable.”


As a service, Openfolio doesn't manage any investments, it simply aggregates user information and the content of their investment portfolios without revealing specific dollar amounts.

Openfolio participants -- who can choose to remain private -- can see what various members are investing in and can compare investments across a range of factors such as diversification and concentration of holdings.

The firm leverages its network to educate investors on the trends driving portfolio performance, and discerns a number of patterns based on analysis it conducts of user portfolios.

So how does that work?

A user, for instance, could see she has allocated 12% of her portfolio to Tesla Motors, while the average investor has less than half of that. This data gives her immediate feedback that maybe she is a bit too concentrated in this one stock. If she pulls back to the portfolio level, she can see additional data about her overall concentration and which investments are contributing to that.

“In addition to the concentration/diversification spectrum, Openfolio’s community also shows data on riskiness as measured by volatility, fees paid on funds and other metrics that help people get a sense of what they are like as an investor, and how that ‘profile’ compares to the community,” Ma says.

Its biggest source of data is the everyday investor, Ma notes, but Openfolio also has celebrity portfolios from high-profile investors such as Warren Buffet and the top hedge fund managers in the world that have to publicly file.

Openfolio puts them in the community as the clusters that people can compare their own portfolio do. Users can also see what the average investor looks like, which Ma says serves as a social benchmark and is not as intimidating as comparing yourself to celebrity investors.

“People do want to share their investments with each other – in fact, 40% of our users have done so,” Ma says. “That’s a really good number, and it shows that they understand the benefit of the community.”


There's the undeniable appeal of being able to measure your portfolio against the Joneses, industry observers say.

"Investors usually lack a frame of reference, as performance is often in a silo, and it’s really hard to measure if they’re doing well or not, so this is definitely an added value," says Pierre-Jean Hanard, MIT Sloan Fellow and co-founder of SharePA, an online community that connects investors.

Hanard says the potential for social investing is significant, but it is not yet fully understood by major market participants. "The underlying reason is understanding investor behavior," he says. "The traditional view is, 'I do my homework and I buy individual securities or funds by myself or I delegate the investment decisions to a third party.' Today people are craving social interaction, not just news, status updates and games, but regarding things as important as their own investments.

"Social investing is an emerging space, but the category is growing and there is still room for many more players," Hanard adds. "That said, it’s still new, and it’s still addressing such a small segment of the investment population that is using these services. Robo advisors are growing, so more people are comfortable delegating to a computer the fate of their own portfolio, even if they have some control over it, and social investing provides an additional dimension to that model."

But there are still drawbacks, namely an old one: the risk of herd mentality driving investment decisions. Market panic historically has led to some spectacular drops on Wall Street. What information sharing platforms allows for is to see where crowds are moving, Cogburn says. "Some will follow, some won’t… and some will make mistakes as a result."

There is the value in being exposed to new ideas, and not missing something that the rest of the world might see, Cogburn adds. "The risk, of course, is that seeing too much may give you a little bit of everything. So following everything that you see may turn into chasing your tail."

Ma says Openfolio is aware of the risks of sharing information.

“We think a lot about this every day, and one core design decision we’ve made is that you can’t see people’s performance, only their allocations, which immediately has the effect of making the network less about following someone based on their trading or short-term performance, and more about long-term allocations and decision-making.

“Secondly, our tools are designed to not only let you see comparison metrics, but also to explain what those comparison metrics mean."


Some data generated by Openfolio's community, Ma says, has already allowed it to pass along performance tips to users.

For instance, investors who passed both diversification and volatility tests had a fund/stock ratio of three-to-one, a 75%/25% split. On the other hand, investors who failed both of those metrics averaged 15% funds compared to 85% stocks.

That sort of analysis has the industry interested in seeing how data is collected and used to influence investment thinking, Hanard says.

"Social investing is really about understanding the customer, the investor," he says. "I’m curious about the opportunities offered by this type of platform, in terms of the data that Openfolio can collect and analyze. The investment world very complex -- there are different investor profiles, behaviors, levels of risk tolerance and investment horizons, which are lots of variables. Going forward, you’ll see much more segmentation in terms of the types of offerings in that space.”

kasina's Cogburn says the investment industry has done some experimentation with social media.

"The more innovative asset managers have started to ride this wave a little bit. JP Morgan uses LinkedIn to open up peer comparisons for financial advisors, specific to number of industry connections and their ability to influence others through the channel. They also use peer advisor demographics to show portfolio asset allocations for other advisors, and the most popular JP Morgan funds for advisors like ‘you’. Putnam Investments shows ‘trending’ funds on their website, using rolling 30-day web metrics to highlight the top funds that advisors are looking at on their website."

This month, Openfolio launched its "Tune Up" personal financial management website and app.

Ma says Openfolio’s early success has been fueled by a mix of organic growth via word-of-mouth recommendations and content marketing.

While Ma does not believe that an ad-supported model would be viable, he says that a premium version of Openfolio is an option the company could pursue at some point. More immediately, he says that Openfolio is eager to pursue strategic partnerships.

“One thing that’s really important to us, we’re a service and a community for retail investors -- we don’t manage money, and it’s not in our plans to [do so],” Ma says. “We are complementary to existing financial services firms, both traditional ones like Schwab, Vanguard or Fidelity and newer robo-advisors such as Wealthfront and Betterment.

“Whether it is Robinhood, E*Trade or Acorns, investors can use one of them and use Openfolio -- our mission is to support [various financial advisory and brokerage firms],” he says. “We hope to be extremely complementary to all investment services to make investors more engaged.”

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