I’ve just begun writing about the New Rules but part of the thesis is that expert communities can and will play a bigger role in investment decisions and idea generations for savvy investors going forward.  We’ve only just begun, as has MarketGuru, a new site focused on providing New Rules-type functionality for a community of experts.  I had a chance recently to chat with the founder and CEO of MG, Gili Beiman.

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Can you tell us a bit about yourself?

Gili Beiman, Founder and CEO: I was the founder of the largest groups site in Israel, Tapuz, which we sold a few years back.  lived in the States for 3 years.  Like any good American, I opened an etrade account and 2 things stood out as problems in the whole data acquiring process, meaning trusted data and content that I could invest on:

1. too much information: There is a ton of information out there.   But if you don’t have a ranking system on all the content, I can’t really tell what to think – if I see a guy who’s writing a great blog on Apple, I have no idea whether he’s been right or wrong in his analysis.   There was no rational order or hierarchy in this information.
2. generic information: I find it interesting to know that the biggest source of financial content is via subscription newsletters, which is a $6.5 billion industry.  What an anomaly to think that all this content is generic, meaning newsletters are making recommendations to people they don’t know.  Your picks may be great but they can also be really risky — certainly not suitable for a retired school teacher.

So, where does MarketGuru come in?

GB: MarketGuru solves this issue.  Most Americans hold blue chip stocks in their investment portfolios and they know that risk and reward go hand in hand.  My target for MarketGuru is a dentist living in Wyoming – he can’t use social investment sites.  While more content has been generated, he still doesn’t know how to act on what he reads.

MarketGuru is a community of investors picking stocks and managing portfolios online.  In our beta launch, we allow users to subscribe to receive portfolio updates of other users, called ‘gurus’.  Ranking amongst the community is determined first by the number of followers subscribing to a particular portfolio and then by performance.  We call ourselves the world’s first financial community where members are ranked by peers, not just by performance.

It’s a very competitive system.  Not only do you need to have good returns, you have to continually defend your strategy by convincing the community of its merits.

Are gurus judged only on a diversified portfolio?

GB:If more than 35% of a user’s holdings are in conglomerates and the users has at least 3 holdings in the sector, you can be considered a conglomerates guru.  Sector ranking helps other people find you.

I feel that you can’t change investor philosophy.  Technologist have a high percentage of technology holdings in their portfolios.  We’re not looking to change that.  People like to bring in their own philosophies into investing.  I’m looking to cater to this philosophy.  MarketGuru is the human algorithm which gives a holistic approach to investing.  You become a guru when I like the way you think.  When I like the way you write.

So, is there a monetary incentive built into the community yet?

GB: Up until now, it’s been free.  Once I’ve chosen a guru or gurus, you can follow my historical performance and even drill down on my trading history.  What users really want to know, though, is what you’re going to do.  Your next move.  That will be a premium service.  Let’s say for $30 you can hire up to 3 gurus at a time.  You’ll get instant alerts when the guru trades.  50% of that fee would go to MarketGuru and the rest split out.  This whole platform, for it to work, is about partnerships.  It’s a partnership between MarketGuru and our gurus.

When you can create a financial relationship that can be measured with real numbers, that’s the value proposition.  SeekingAlpha takes you part of the way.  I can read your thoughts but I don’t ever get to meet you.  I’m looking to give the layman 3 best friends who have his best interests at heart.

Again, the algorithm is human. The dentist from Wyoming already has a portfolio. He’s going to look for people who own things similar to what he owns.  If I own MSFT and AAPL, I’m not interested in people who own small caps.

Can you explain how MarketGuru can address sector exposure?

GB: Via MarketGuru, you can go out to the community and find pharma, energy, and tech gurus who are tops in their sectors.  I want 3 gurus to help me research those sectors.  If you are going to play blackjack, you need to know the math.  These are people who can help with the math.

A user who does well with his portfolio but doesn’t convince the crowd ends up being a follower.  ‘Karma’ is something we do but don’t get paid for and something we’ll also be adding to the community.  It doesn’t make you a guru but it’s the intangible quality that says we like the effort and thought you’re putting into your portfolio,    We will give you some points when people like your writing but we need to separate this ‘karma’ out from guru ranking.

Who are your targets for the community?

GB: We’re targeting broggers, a new cross between broker and blogger.  You need good results and good writing.

I think there are three circles of investors:

1. Family brokers: people who handle their own portfolios already.  For these users, the value proposition is that you’ll do better with MarketGuru than without.  The size of these portfolios are on average $200k to $300k.  There are approximately  20 million families in the U.S. who fit this profile.
2. Managed portfolio: These are people who have an advisor managing their assets.  They turn to MarketGuru to test what their broker is doing against others.
3. Novice investors: This is definitely the biggest and largest crowd but I don’t think MarketGuru addresses these people yet.

Again, our community is extremely competitive.  You need to continually convince me that you are a guru and continue to provide ‘follower care’, a new form of customer service that gurus need to provide to continue working with their followers.  That said, In the U.S., if you don’t have a $2m portfolio, no one calls you.

So, we see MarketGuru providing a vital source of idea generation.  We help find and connect you with a guru who you trust.  We now we have year to date stats (YTD) and soon we’ll have year over year.

What are you doing to differentiate from other sites?

GB: Next step is to build more quality into our community.  We’ll be launching a widget that bloggers can put on their sites as a stamp of approval.  We’re developing tools for bloggers to post directly to MarketGuru.  But our first priority is to bring in a higher level of professionalism to the community.

Thanks, Gili.

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