Typically, regular Joes and Janes pay Ivy League-educated portfolio managers to pick stocks for them. But Internet mutual fund manager
has switched those roles.
Today, the upstart Culver City, Calif.-based firm is expected to announce "Hot Hands," a program that has been quietly under way for almost a month and offers visitors to its
Web site $50 for their best stock ideas. Each day, five amateur portfolios with the best three-month performance records get the cash award.
Think of it as the pilot of a plane leaving the cabin to ask your advice on the best cruising altitude.
StockJungle.com launched the program, along with the Web site and four mutual funds, on Nov. 18. One of the funds,
, calls for its professional managers to select stocks strictly from among those suggested by amateurs.
Paying the public to pick stocks for its mutual fund is one way StockJungle.com can draw attention to its site and sell shares in its Community Intelligence,
Pure Play Internet
(large-cap growth) funds. All of these funds have less than $1 million in assets.
Any U.S. citizen who is 18 years or older and has an email address can play analyst for the Community Intelligence fund, building a hypothetical portfolio of one to 10 stocks. The only rules are that each stock must have at least a $100 million market cap and investors can't short stocks within 30 days of their initial public offering.
The firm also offers a no-fee
index fund that could cost it well more than $1 million annually in expenses if it hits its $1 billion closing target.
StockJungle.com was founded last year by Michael Witz, 28, while he was a financial analyst at New York-based
Financial Resource Group
. The site boasts he "didn't have a lick of experience in the mutual fund industry" when he started the company.
Lots of sites have stock-picking contests, but it's hard to find one that forks over cold cash on a daily basis, much less incorporates the best ideas into a mutual fund portfolio.
Witz is vague about how the winners are selected to keep people from "gaming" the system. In general, winners are selected based on their portfolios' performance over about three months relative to the market and to the rest of the amateur stock pickers, he says. (Even if you dump a stock, it factors into your performance for three months.) Investors also can rate others' picks, but prizes are won strictly for performance, not popularity.
There are no limits on how many times amateur "analysts" can win the daily prize. Landing in the top five each market day for a year could net someone more than $12,000. The program could cost StockJungle.com -- not fund shareholders -- as much as $90,000 annually. Witz says the firm will try to cover the costs by selling ads for its community stock-picking section.
A test of the program quietly started three months before the Nov. 18 launch date, and winners have been named daily.
"We've found a lot of stellar stock pickers," says Witz.
So far the biggest winner is someone whose user name is "jon_carter." His Nov. 8 pick, Internet marketer
, is up more than 100% as of Tuesday's close. Carter has won $300 from his own picks and another $50 when his pal "Berkel" cracked the top five twice. (If you win the daily award, the person who referred you to the site gets $25.)
"Sounds like a neat gimmick, but people tend to like stocks that are going up. That makes for a high-momentum strategy," says James Grefenstette, portfolio manager of $775.9 million
Federated Growth Strategies and $74.4 million
Federated Large Cap Growth.
Not all managers scoff, though. Don Luskin, manager of the $12 million
, regularly talks stocks with investors on the fund's
Web site. In October, he found one of the fund's winners, New York venture capital firm
Harris & Harris Group
, thanks to a visitor's suggestion. "If you open your mind, you can find some good ideas," he says of the pick.
"A community-run fund is an unproven thing that money managers will scoff at, but time will tell if it will work," says Witz.
There are not many details on how picks from people like jon_carter and Berkel make it into the Community Intelligence fund. According to the site, portfolio managers Michael Petrino and Gordon Gustafson sift the picks using quantitative analysis and a look at a stock's recent news and liquidity.
As you might expect, the fund's portfolio is tech-heavy, with an Internet exposure and big positions. Its top three holdings, as of Tuesday's close, were
(10.3%), Net telephony firm
(6%), and networker
Interestingly, in the brief time the funds have been around, the Community Intelligence fund (up 4.8%) is beating the S&P 500 index fund (down 0.8%).
Pros beware, the regular Joes and Janes are hot on your trail.