Are there measures in place to prevent from such easy abuse?
[0] http://en.wikipedia.org/wiki/Pump_and_dump - This could be perpetrated on an entirely different scale with people seeking out the "guidance" of a few big players
Both Covester/Ka-Ching wanted to disrupt the mutual fund model where any smart guy sitting in a basement can become a portfolio manager.
The theory is not so far fetched because Michael Burry ( http://en.m.wikipedia.org/wiki/Michael_Burry ) was discovered by Wall Street after talking about on Yahoo Message boards.
BUT...
KaChing pivoted to a modern day financial advisor focused on making Index investments (like DFA) & Covestor sold to IB.
This leads me to believe that the market to build a big VC backed size business may not be there.
Many sites have gotten it wrong my doing auto buy. We built Instavest for ourselves. I don't want to give someone else a pile of my hard earned money and let them make investments without my approval. Additionally, I want the option to find investment "gems". That is, one off opportunities that I resonate with for any number of reasons. By sifting through a list of curated investments and choosing whether or not to buy in, I preserve my right to manage my money and do what I think is right for my risk / reward profile. M
We've been very careful to stay within the confines of SEC and FINRA law.
We have a number of safeguards in place to protect our customers, including but not limited to: 1. Customers can only trade on NYSE or NASDAQ only - no OTC / Pink Sheets; 2. There is a minimum 14 day hold (this is enforced by Instavest, not our brokerage partner) 3. An investor must disclose if the asset they are purchasing is held on another platform 4. Moderation and review prior to an investment being shared with the community 5. Lead investors have to "put their money where their mouth is" before an investment is shared
Trading in NYSE and NASDAQ securities that highly liquid and have a high average daily trading volume makes it very difficult for any sort of market manipulation, including the pump and dump scheme you referenced.
workaround: get your spouse/in laws/friends to hold the assets for you
>4. Moderation and review prior to an investment being shared with the community
Can you elaborate how this would work?
>5. Lead investors have to "put their money where their mouth is" before an investment is shared
How would this work if an investor has $500 invested in a company, but his followers have a total of $500,000 invested?
4. Let's say you're an investment leader. You buy Tesla and you submit a writeup. The trade gets executed. The write up is reviewed internally by member of the Instavest team and is cross checked for financial discrepancies against SEC filings. Of course, each person prior to using the platform and when posting an investment is disclosing that he or she is not privy to material non public information, etc.
5. You can put $500 in a stock. There is no minimum investment size. I will say that the absolute dollar amount demonstrates some level of conviction to our members. We currently are not capping the level of co-investment but could do so in the near future.
Is this really scalable?
To what scale? If they've got ~100,000 active lead investors, each executing one trade a week, that's 1,000 reviewers reading 100 plans a week. If it takes 15-30 minutes to read and validate each one (I'm assuming a cursory check here), then we're talking ~35 hours a week.
If each lead investor's trade can trigger 25 follow-on trades, that's $8.75M in trading fees, per week. Obviously, those are nice, blue sky numbers, but I think it's clear that in their best case, the biggest problem will be hiring enough qualified reviewers, and a thousand employees is a reasonable hiring target IMO.
But those fees go to the brokerage (Tradier?), not them, right?