The Deipnosophist

Where the science of investing becomes an art of living

My Photo
Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

16 April 2013

Living and Learning with Investment Advice

Living and Learning with Investment Advice

We are born as innocents. We are polluted by advice.
- Henry David Thoreau

TipRanks was not started as a labor of love.  It was actually a labor of frustration.

Back in the day, CEO Uri Gruenbaum was a software engineer from Tel Aviv, Israel managing large scale national technology projects. He also was a part-time investor. He didn’t have a lot of skin in the game, but enough to hurt when the stock market didn’t go his way.  He was a typical investor.  And, like most investors, he sometimes relied on the recommendations of financial experts.  The unfortunate thing was many of the recommendations he followed were flat-out bad, which truth angered Uri - even though he was fully aware of the universal truth, caveat emptor (buyer beware).

Uri wondered whether it was just him.  Did he, perhaps, have a singular knack for picking and following the advice of under-performing financial analysts? But how do you go about figuring out whether an analyst even knows what he is doing? They don’t publish a weekly poll of the top 25 financial analysts, like they do for college sports in the U.S.

“I just felt there was a glaring need in the marketplace for a mechanism to help guys like me,” said Gruenbaum.  “What’s out there that can inform and educate the individual investor regarding financial advice when deciding to buy, sell, or hold a stock.”

So Uri decided to do what any smart man with an MBA would do.  He started measuring.

He decided to take a close look at one of the analysts that he followed regularly (someone who had just rated a stock as a "strong buy") and, for starters, he Googled him.  He then calculated the analyst's performance by mimicking all his past recommendations (buying when he rated “buy” and selling when he rated “sell”).  A tedious task, sure, but the results were shocking -- and not in a favorable way.  After more research, Uri noted that almost every time this analyst posted a rating the stock behaved accordingly during that one day, with trading volume way over its daily average; meaning Uri was far from the sole investor who followed this particular analyst's recommendations.  Clearly there was a problem.

So Uri, along with co-founder Gilad Gat, a fellow software engineer (and current CTO of TipRanks), and renowned Cornell University Finance Professor Roni Michaely (who now sits on the TipRanks board), set out to develop the very first mechanism that helps protect “the regular guy” from under-performing financial experts worldwide.

TipRanks developed its proprietary Financial Accountability Engine™ and NLP (natural language processing) algorithms to scan and interpret relevant financial text from the entire Internet.  It ultimately produces names to follow and recommendations to track.  As an individual investor, you no longer watch the game in the dark -- you now know the players' stats.  For the first time, the element of accountability is a reality for professionals who provide financial advice.

TipRanks provides answers to the most basic questions regarding anyone providing financial opinions," Gruenbaum said.  “Who are they?  Are they reliable and accurate?  What is their track record?  Are there better opinions out there?  And, the most important question - should I listen to this particular person?”

TipRanks now virtually “follows” more than 5000 individual analysts’ recommendations.  (And growing rapidly.)  Then, and with zero bias, it reports results based on performance and ranks accordingly.  All this information can be found within a simple co-browser downloaded for free.

With the TipRanks co-browser installed, it’s now possible to see the measured performance of anyone who provides financial advice by simply clicking on his or her name.  Investors also can search for a particular stock and see what top performing analysts say about it.  It also provides real time recommendations on a particular stock made by the top-ranked analysts.

“Financial analyst stock advice can often be biased with their own interests at heart,” says Professor Michaely. “TipRanks is a disruptive technology that will force analysts to be more accountable for the advice they publish, knowing that their success rate will be made available to the public.”

What have the people who developed TipRanks learned so far?  Based on the tens of thousands of publicly posted stock recommendations tracked since January 2009, the majority of them under-performed the market.  The good news is some analysts are better than others.  With TipRanks, you can see who they are, how and why that is, with precision and clarity.

The TipRanks service is free for now.  It will continue to engage with users in order to improve the service and add features.  In the future, the company's founders hope to be in a position to charge for premium features.  The alpha version (found at currently supports professional sell-side analysts. But soon, the company says it will support financial bloggers and technical analysts as well.

Invest wisely.

who's online