Customs Street Advisors is a full service investor relations firm based in Lagos, Nigeria.

Walled Gardens vs. Gated Communities vs. Open Architecture

This week on Street Talking in NEXT, I discuss the broadening range of choices available to investors for accessing stock market-related information on the Internet and how it will benefit those sites that incorporate community features over those that limit their offering to only numbers, mechanical analysis reports and charts.

In ‘A Future of On-Line Finance: From Brokers to Blogs to Yahoo,’ Mark Clare, founder of Valuecruncher.com, an interactive website for stock valuation, presents a scenario matrix of trends in online equity research and investment advice along the free-to-paid and individual-to-collaborative axes. Clare explains how the Internet has destroyed stock broking firms’ exclusivity over the triple-link investor supply chain of information, stock analysis and trade execution.

Sites like Google Finance and Yahoo Finance have upended the first link, while others like SeekingAlpha, StockTwits and Wikinvest have invalidated the second. In the third hook, sites such as AlphaClone, Covestor, Collective2 and KaChing are challenging the bread-and-butter income of brokers.

I have given more than casual thought to similar disruptive sites in Nigeria. In reality, excluding the third link, trading execution, a few sites like InvestorDelight.com, ProShareNg.com and StockMarketNigeria.com are challenging the status quo. But how far these sites will go in connecting the value proposition dots to users is open to conjecture.

Anyway, the victors in the battle between these upstarts and the Resources sections on established dealing firms’ websites will not be determined based on content alone, for instance, interactive financial statements, rich stock charts, downloadable analyst research, etc.

In my opinion, the winners will be those that leverage the metadata generated by communities that coalesce around their sites. In other words, the real differentiator will be discursives layered over numbers and mechanical analysis. Call it the ascent of Investment Information 2.0 if you like, but I doubt that sites which focus on content to the exclusion of metadata will triumph over those that merge the two.

Like a lot of readers, I receive market information from different stock broking firms in my inbox most days of the week. For example, Meristem Research, under its very able head, Saidi Bashir, sends me daily prices and the market wrap-up each day.

Last week, the firm sent an email to the effect that ‘in line with its business strategy and emerging realities,’ beginning March 31, it would restrict access to its research portal to clients and paid subscribers. As a consolation, some material would still be available free of charge.

Frankly, while I doff my hat to the industrious team at Meristem, the fact is that access to quality information on equities has moved beyond the barbed wire perimeter of stock broking firms’ research departments.

In a related development, BroadStreetLagos.com, a pay-to-access stock market portal, has announced a radical shift in its business model which allowed two weeks of free access to new users of the site. At expiration, they either paid for continued access or had their accounts terminated. On Monday, Obi Ugochukwu, the managing director, sent emails to blocked account owners that their expired accounts would be reactivated in line with the portal’s latest two-tier structure: regular, which is free (with unlimited access to some site features) and premium (with paid access to all site features). Again, content is only half the battle. The absence of context around the numbers on the site remains a heavy yoke.

Since most trading-signal focused research quickly passes its sell-by date, research departments have nothing to lose by making them available on their sites after their own clients have seized the opportunities. By fostering communities around their sites to discuss trading ideas, company performance and prospects as well as the wider market, these firms can attract a substantial client base that will be encouraged to pass their trading instructions through them.

I have bypassed the conflict of interest debate over research subsidization since the purpose described is not to seek investment banking business from companies.

What of the challenger sites which do not enjoy the preliminary popularity of established firms with a broad client base? There are two issues they need to deal with. The first challenge will be to foster a community around their domains, and the second will be to attract a circle of what Mark Clare calls ‘rock stars,’ members who have built an enviable track record of accurate market calls, to their sites’ budding communities as contributors, moderators or ‘unofficial’ investment advisers.

In this regard, StockMarketNigeria.com is far ahead its peers, although its forum structure, instead of a multi-user blogging platform, may be limiting its full potential.

ProShareNg.com has built a solid reputation for engaging analysis but may be hampered by the tight control it maintains over posts on its site. Adopting a SeekingAlpha model by open invitations to credible investment professionals and analysts to write articles will give it further boost and encourage community growth. A good number of these knowledgeable folks already moonlight under aliases on StockMarketNigeria.com.

InvestorDelight.com needs to add community features to its site. It is counter-productive to provide tools and information to visitors only for them to go to other sites to discuss them for want of same on the original site.

Whoever the winners are, the losers are already marked. They are the companies which disdain their suffrage and abdicate their mandate to these third-party sites by failing to build information rich websites. They were not worthy of inclusion in the title. I call their category ‘abandoned properties’ or if you prefer, ‘ghost towns’.

The original article may be read here on the NEXT website.

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