EquitySplash.com, a new startup, has announced that it is "Taking on Wall Street” by bringing the highly successful crowd-sourcing model to stock investing. Although they are still in beta and not offering open registration, they claim that they have developed a platform that allows people to collaboratively invest.
Their process starts when people deposit money into the fund. Then, people can invest the amount of money they initially deposited into stocks of their choosing. When the trades are closed, profits and losses are distributed to all members of the fund. They claim that this lets people benefit from the successful trades of others while spreading out their risk of loss over the large equity pool of the members.
Since they are still in beta, we don’t have any performance results and probably can’t expect to see any for a while, but the big question is, does the wisdom of the crowd pick better stocks than a mutual fund manager? Mutual funds historically don’t beat the S&P 500, but can EquitySplash do any better? Critics will be doubtful, but it’s certainly a creative alternative to Wall Street that will be attractive to the growing number of people disenfranchised with the investment fund industry.
How will the SEC react? I’m sure that EquitySplash has done their legal due diligence, but it seems that their plan violates investment adviser regulations. And with the sheer volume of red tape that surrounds investing, it seems likely that even if EquitySplash is successful, it won’t be long until the SEC comes knocking at their door.
But the final test comes down to people. Would you trust your money to be invested by the crowd?
--First Published on Technorati
Disclosure: No Positions