Insights from Openfolio Community Data

This month, we looked at investors’ performance by age group. The average Openfolio investor returned ~6-9% this year. Younger investors? Less than half that. Even more striking? They took more risk and volatility only to arrive at lower returns. As Oscar the Grouch said, it’s not easy being green.

Why? Firstly, young people make more speculative investments. Specifically they invest in more single stocks instead of funds or ETFs. Meanwhile older investors buy more funds. By stock picking, young investors might be buying what they like. Aometimes a good pick might beat the market, but on average they don’t. For every Apple (AAPL up 42% this year), there is a Twitter (TWTR down 30% this year)

Beyond just stocks, young people are also hotter on risky assets such as Bitcoin. Meanwhile, older investors largely stay away from such speculation.

The important takeaway? It's generally accepted that younger investors, who have more time to let their money ride out the market waves, have a higher tolerance for risk than their older counterparts. But in the short term, this higher risk does mean having to accept the possible outcome of having more varied returns. So just because these risks haven’t paid off this year, doesn’t mean they might not later. An even better silver lining? Our data shows that investors’ DO get better with age.

This month we looked at companies on Openfolio in order to determine their relative popularity. Popularity means what percentage of Openfolio members own a stock. For example, Facebook (FB) with relative popularity at ~12% means that ~12% of members, or about 1 out of 8 people on Openfolio, own at least a share of FB stock.

Companies typically follow a loose positive correlation, i.e. the bigger they are the more popular they are as an investment (generally). These companies will tow the line on the Big/Popular scale. Where it gets interesting is when we look at divergent selections, as in 1) Really big companies that aren't popular and 2) Relatively tiny companies that are super popular. What emerges? Tesla Motors (TSLA) vs. Exxon Mobil (XOM), AKA Clean Electric Cars vs. Big Oil.

Tesla, the electric auto maker, is 10 times smaller than Exxon, the oil and gas corporation. But, Tesla is 5 times more popular as a investment, or over 50x more popular when adjusted for size!

Why? The young love TSLA

As you may have guessed, younger investors own TSLA while older (but far fewer) investors own XOM.

So what happened with all these younger investors that own Tesla? In hindsight they did really well this year. Keep in mind that is in hindsight.

But is there upside to being unpopular?

Maybe. Stocks with high retail ownership tend to be more volatile. Popular companies – just like celebrities – need to deal with the fickle nature of public opinion. Just look at the big swings in TSLA in the chart above, it can lose or gain up to 10% in a day. Also, an unpopular company doesn't imply a bad investment. Warren Buffett and Benjamin Graham have said that an unpopular but good company (i.e. steady future cash flows) can be a great value purchase. In fact, 3.5% of Berkshire Hathaway’s portfolio is in Exxon https://openfolio.com/manager/berkshirehathaway/#user_holdings

Climate change matters to retail investors

And this may have a big impact on the performance of a company’s stock. This popularity data implies that in the ongoing discussion on climate change, investors do vote with their wallets. It also implies that popular interest in green energy (and related technologies) remains at all time highs. Gallup data below also corroborates that younger generations are more concerned about climate change.

Source: http://www.gallup.com/poll/167879/not-global-warming-serious-threat.aspx

Following the Harvard - Yale football game this weekend, we decided to analyze our network to look at the investment performance of alumni from both schools. 

It turns out that while Harvard won the game, Yalies are beating their rival with their investment returns.

Why?

Openfolio and Coinbase bring something that Bitcoin investing needs: transparency. We’ve added Coinbase integration on the App and on the web, so you can see and share your portfolio of cash, stocks, mutual funds, ETFs and now BITCOIN.

Portfolio sharing is always done in percentage terms, and information transfers are performed with bank-level security. 

Openfolio's Explore feature lets you compare your portfolio's performance to groups of people by profession. The biggest surprise? People working in finance were one of the worst performing groups this year. In stark contrast, people in tech performed much better, almost 60% better in relative terms. Check out this graphic:

We actually looked at this data back in September. Back then it was tech: 14.1%, advertising: 14.0% and finance: 10.1%. This tells us that the performance gap is not dependent on market conditions, although everyone is doing worse from the drop in the market in October. Basically, Tech nerds are still beating finance pros.

But why?

Reason #1: Finance Professionals Invest LESS

By keeping a higher % of their portfolios in cash, finance pros are keeping money out of the market and missing out on gains. In a year when the S&P is up almost 15%, if 15% of your portfolio not invested, that is 2.25% of lost returns. Obviously the reverse is also true: If you are more conservative you will also lose less in a downmarket. 

Reason #2: Finance Pros Own More Bank Stocks

And tech guys own more tech stocks. The chart above basically flips upside down for tech stocks owned. Tech guys own 31.1% of their portfolios in tech stocks, and finance guys own less at 26.1%. 

These allocations matter because this year the tech sector has outperformed the financial sector. The Nasdaq Composite, a popular tracker for tech, is up 25% year over year, meanwhile the NYSE ARCA financial sector index is up less at 17.7%.

This reasoning, once illustrated, almost seems obvious. But what lessons can we take from this?

Finance pros don’t have all the answers

You don’t have to be a financial expert to manage your investments and retirements, and we shouldn't assume finance professionals make better investing decisions than anybody else. If you do work in finance and want your friends and family to leave you alone about stock advice, you can use this story as a counterexample. 

Your income is not just your paycheck

If you get paid in your company's stock and the stock doesn't do well (and you can’t sell it immediately), it has a real affect on your income that you might not think about. This is just another reason why your job choice impacts you in more ways than just your cash salary. Over time this can really add up.

If you want to know more:

Check out the Explore feature here: https://openfolio.com/browse/industries/

This story was also featured on Business Insider, check it out here: http://www.businessinsider.com/tech-industry-invests-better-than-finance-2014-11

We are very excited to announce that the Openfolio iPhone app is now LIVE in the app store. Get it here: http://ofl.io/iphoneV1

Openfolio lets you compare your investments against others instead of investing in a vacuum. Never invest alone again: http://ofl.io/iphoneV1

Ever wonder why that gadget shipped from China for less than a dollar, but would cost twenty times that to return? The Chinese government, through subsidies to state-owned shipping companies like China Ocean Shipping Company (COSCO), and partnerships between China Post and the US Postal Service, massively reduces the cost of shipping from East to West. The biggest beneficiary of these subsidies are international e-commerce platforms, chiefly Alibaba, whose IPO on the NYSE last month raised $25 Billion, the largest in history. This raises a question - given the rising labor and manufacturing costs in China, would the trade still be as attractive without these subsidies? For more, check out Alibaba on Openfolio:http://ofl.io/1ETHMVp and this article at the Journal of Commerce:http://ofl.io/1o91qYv

"When my first wife lost her credit card, I made no attempt to get it back, because the guy was spending less than she was." Warren Buffett, speaking at Fortune's Most Powerful Women Summit

Mr. Buffett was referring to the late Susan Buffett whom he married in 1952 - a different era. A recent study by Experian, one of the big three credit score companies, suggests a different answer to the question of who's better at managing money. The study found that compared to men, women on average rack up less credit card debt, make a higher percentage of on-time mortgage payments, and have higher credit scores. On Openfolio, the average performance across all users over the past 12 months is 10.2%. For women? 10.1%. Way too close to call. For more, see the full article on Quartz: http://ofl.io/1rjrkmQ

With hundreds of thousands of protesters spanning pro-democracy residents, teachers, students, and Coca-Cola delivery men, Occupy Central has Hong Kong at a standstill. Hong Kong remains the largest financial center under China's control. It is second in the world for equity capital raising and the only international gateway for commerce in Renminbi, China's national currency. While the civil unrest will pass, the real downside for HK is if China decides that catering to democracy isn't worth the trouble, and make Shanghai or Shenzhen its new global financial center, if it hasn't made that decision already. For more, check out the MSCI Hong Kong ETF on Openfolio: http://ofl.io/1ovjQ0b and this article on Quartz: http://ofl.io/1nG5rn3

U.N. Secretary-General Ban Ki Moon, Al Gore, Bill de Blasio, and actors Mark Ruffalo and Leonardo DiCaprio joined the 300,000 strong crowd at the Climate Change rally in NYC this past Sunday. An even stronger sign of the impact of the Climate movement? The Rockefellers announced this week that they are divesting their foundation of investments in oil and other fossil fuels, the very thing that made them rich. Full article on NYTimes: http://ofl.io/1muY6Wu So far, an estimated $50 Billion of assets are pledged to be divested in the broader fossil fuels divestiture movement. Compare that to the ~$2.8 Trillion market cap Oil and Gas sector. More than a drop in the bucket? Time will tell. More on Openfolio: http://ofl.io/1ojdfFW