Are you curious about social trading? You should be
I was in asset management for a while, helping choose stocks for emerging markets at a big investment group. At that time, I started following blogs of successful traders and extremely wealthy hedge fund managers. It was great to learn from more experienced individuals.
But now the Internet allows anyone to connect with individual in more advanced way: You can follow and copy trades of top investors. Traditional asset managers and mutual funds that charge quite high fees might become obsolete in the future due to social trading.
In Vienna, I met with the founders of the European social trading leader wikifolio as well as the platform’s top trader, Ricard Dobetsberger. He’s a molecular biologist whose portfolio earned 170% in the past 2.5 years, while the index benchmark DAX performed at 36 percent.
Interview with Andreas Kern, CEO and founder of wikifolio
Pavel Curda: What is wikifolio.com? What problem are you solving?
Andreas Kern: Wikifolio.com is Europe’s leading online platform for trading strategies by private traders and professional asset managers. We launched in Germany in 2012, followed by Austria in early 2013 and Switzerland in March. Radical transparency, a fair fee model, and the follower principle set the standard in social trading from this time onwards.
Investors can profit from the experience of successful traders who publish their trading strategies on the social trading platform as wikifolios, and build up a track record for themselves at wikifolio.com. Interested users and potential investors can see all trading ideas, real-market data, indices and every wikifolio trade at all times and in real-time without registering and entirely free of charge.
In 2014, we have at least doubled all relevant figures and we want to continue like that. More than 10,000 trading strategies called ‘wikifolios’ were already published and 3.8 million trades in wikifolios triggered a trade volume in excess of 6.7 billion euros.
What motivates the best traders to show their portfolios?
Traders can display their trading talent and progress when publishing their strategies on wikifolio.com and build up a track record for themselves. One wikifolio-trader “TraderLady” Doris Beer summarizes the successful model of wikifolio.com as follows. “Traders and investors on wikifolio.com have the same target: I will only earn money if my wikifolio brings a return of which investors actually profit.” Even asset managers realized the advantages of our model – almost 20% of Germany’s professional asset managers are displaying their strategies as wikifolios. To get a glimpse of what we call “Top-wikifolios” please take a look at the top-wikifolio-ranking.
Why is your service in German only? Who are other key players in social trading?
We started with wikifolio.com in the German-speaking markets, which together form the biggest market for retail investment in Europe. As a startup, it is vital to focus your efforts, especially in the early stages. That is why we have focused on the so-called DACH-region so far.
Also, as there are financial products involved, a market entry into new countries has a higher degree of complexity because of country-specific regulation for financial products as well as independent financial authorities. Currently, we are looking into new markets, among them the Netherlands, which we see as [an] attractive market and where we have received strong interest from various parties.
We are a platform for transparent, actively managed investment strategies and therefore differ from other social trading companies that are mainly based on the principle of copy-trading. Other players in the area of social trading and (partly automated) copy trading would be for example eToro, Covestor, ayondo, ZuluTrade, and Collective 2.
What other services are trying to disrupt investing? Motif? Others?
Motif Investing seems to successfully offer transparent passive strategies and by that is probably attracting target groups that have recently started to invest or are learning how to invest. Also most of Motif’s customers probably did not have a brokerage account before, as they open one with Motif when they want to invest in “motifs”.
Wikifolio.com, in contrast, offers investors to invest using their existing brokerage account with the bank or broker of their choice. On the other side of the FinTech spectrum, there are the meanwhile relatively big Robo-advisors such as Betterment and Wealthfront. They are reaching U.S. retail investors who are looking to invest long-term with retirement saving in their mind and who are not seeking an alpha (e.g. an excess return over the market return). By that, they are primarily challenging asset managers or independent financial planners, especially those who have a similar offering (e.g. primarily ETF- or fund-based). Wikifolio [is a bit different], offering asset managers a tool to publish their strategies, acquire customers and be part of the accelerating trend of the digitalization of asset management.
How will people invest in 5-10 years from now? What are the trends in the U.S.?
It is difficult to predict the future, especially in the world of finance where regulations, changes in tax laws and the actions of financial authorities can change whole financial ecosystems. We are, however, currently experiencing the following three trends among retail investors in the U.S. and Europe, which are likely to continue and increase.
First, people want transparency and clarity. They want to know and to understand what they are investing in; They want to know the cost of their investments.; They want financial services (and the language used by them) to be easy to understand; They want to be made clearly aware which risks they have to expect with financial services or products, and; They want to be able to quickly understand if specific offerings fit their preferences.
Second, people want to feel that they are getting a fair offering, especially with regards to fees.
People are less and less willing to pay upfront fees (such as front-end loads) or high management fees for underperforming mutual funds. That is also one reason we currently are seeing a rise of low-cost Exchange-Traded-Funds globally.
Third, people want digital access and convenience with all of their financial services and service providers. They expect banks and the customer-facing world of finance to keep with technological trends. They also want to be able to get information and insights 24/7 and be able to make their financial decisions when they have the time, regardless of a bank’s opening hours.
They want to have their portfolio at their fingertips at anytime. For some it means that they are looking for self-service solutions. For others that means that they expect financial professionals they are working with (such as asset managers) to offer a digital presence and communicate with them digitally. Specifically for the U.S., where self-selected pension-investing is rather the norm, for example with employer-sponsored 401(K) programs, we will probably see that those offerings that fulfill the above three demands from retail investors and offer a compatibility with the government-supported pension schemes (and tax-efficiency) will significantly grow.
Interview with Wikifolio’s top trader, Richard Dobetsberger
Pavel Curda: What are your returns?
Richard Dobetsberger: Since the start of my UMBRELLA portfolio in April 2013 till now, it had a performance of approximately +170 percent. The DAX had a performance of about +36 percent.
What is your trading strategy?
My strategy is divided in four parts. At first one can see the news flow, second the fundamental data, third my assumed innovational potential of the company, and last but not least, the chart (Bollinger, RSL, MACD,…). But my motto here is: “I only invest in companies I like!” I am not a short-term trader. I feel like an investor, just searching for the best time to enter the stock.
What is your story? How did you start?
I am a molecular biologist and studied political science in combination. Currently, I am studying at an MBA Program with a specialization in finance.
I love to develop and to learn. At first I worked as a construction worker for a construction company in Austria. After my first university degree as a molecular biologist, I changed to work as a clinical research associate and afterwards, as a medical scientific liaison for big global pharmaceutical companies, in the scientific departments.
I love to connect disciplines, which at first glance, does not seem to be connected. I started with my own depot at my bank 2001. Once my bank advisor provided me with the information of a new kind of investment, wikifolio, I started to trade there three years ago. For me it started as a game and developed to be a desire. I always think about the next investment and to find the next big story.