Interview with Cake Financial President Steven A. Carpenter

Here's a recent email interview I conducted with Cake Financial President Steven A. Carpenter. My questions are in black while his responses are in red.

Please tell Free Money Finance readers about Cake Financial -- what's the site about?

Cake is a new online financial service that provides users an aggregate view of their historical investment transactions and current holdings and lets them share their real portfolios and real-time trading information with trusted family and friends - and/or the Cake community at large - without ever revealing sensitive personal information like net worth, number of shares, or portfolio sizes. All for free.

Over the past 50 years technology has made trading stocks incredibly affordable and accessible. Only 15 years ago, it would have cost $200 to place a trade with your broker. Now, the Internet lets you make a $15 trade at Schwab.com in your underwear before heading off to work. This innovation has made investing in the markets, which was once the bastion of the rich, now a mainstream activity, and a benefit to everyone.

However, through this technological evolution the context around how we make our investment decisions has not changed. We continue to lack insight into how our portfolios are actually performing against others and we are still forced to spend a great deal of money to obtain a single individual's advice, even though we aren't sure how well our advisor's own investments are faring.

Cake changes all of that by bringing an entirely new level of transparency, communication and collaboration to financial services leveraging the “wisdom of crowds” theory.

What are the various features of Cake?

Cake has built a proprietary and secure infrastructure that allows investors to automatically track all of their brokerage accounts in one place, letting them see up to 10 years of historical activity. We then take this information, recreate members' historical portfolios and provide a dashboard that shows their daily, monthly, year-to-date and average annual risk-adjusted returns. Not even the leading brokerage firms’ websites do that.   

Then, members of Cake can also create a trusted network of friends, family and similar investors against which to compare how they are doing, and can set up activity alerts to let them see what others are watching, buying and selling—updated daily.

Cake also provides a “leaderboard” that provides features such as seeing the investment strategies of the top performers in Cake, including what securities they're buying and selling, and what the most owned and watched positions are, to name a few. 

Who would be interested in the site?

Anyone of the 90MM Americans that invest in the stock market can benefit from joining Cake. Collectively those investors have $15T invested in the stock market and spend around $200B each year in mutual fund management fees, brokerage fees, and portfolio services.  For those who manage their own portfolios, Cake provides access to like-minded investors and the ability to benchmark themselves. For investors who like to do their own work but feel more comfortable communicating with someone else before making an investment decision, Cake enables them to create a network and communicate directly with another Cake member who already owns or just sold a position they are considering.  And for those who pay someone else to manage their money, Cake provides an ideal way to check up on an advisor's work.

Why would they be interested?

Imagine if you knew a person had consistently beat the market by 10% each year for the past 5 years? You’d love to look over her shoulder and she what she’s doing, right?  Cake harnesses the power of individual investors that Josh Coval, a Harvard Business School Finance Professor, found consistently beat the market and so-called investment professionals. 

According to research, almost 90% of mutual funds do not beat the stock market's returns in a typical year, and nearly 70% of investors believe "financial advisors and advisory firms put their own interests ahead of their clients" (Annual Securities Industry Association Investor Survey).  There's no evidence that "experts" are any better than the rest of us at selecting stocks that outperform, and mutual funds touted by various financial magazines don't even perform as well as the average mutual fund.
 
What sort of response have you received so far?

We launched two weeks ago and already the response has been phenomenal.  We are more than doubling our membership each week and our "assets" on the service put us in a leadership position.  Most important, our top performers look like they are proving to be quite successful investors.  An early analysis indicates that our top 10% investors have collectively outperformed every major market index over the past 5 years by a wide margin.  With the same risk profile as the market.

I have met many people on Cake that tell me the service has changed the way they invest.  For example, one member told me he realized using Cake, that owning just a few high-flying stocks made his portfolio more risky than his network and than others with similar investing strategies.  So, he used Cake to find some ETF's and rebalanced.  Since, his returns have been better and his risk level has dropped.

*What plans do you have for the future of Cake?

We will continue to evolve Cake by listening to our members' needs and by being an advocate for individual investors everywhere. The future holds a number of possibilities for Cake in terms of new features and services, some of which we will be adding shortly.  For example, members have been asking us if they could trade in Cake and automatically trade when someone in their network buys or sells.  We are looking at that.  And, we have been asked to create index funds based on certain members' activity, so that they could, say, follow the technology stocks owned and traded by hundreds and thousands of proven investors.  To name just two.

Thank you FMF for the opportunity.  If anyone is interested in Cake, go to www.cakefinancial.com and create an account.  Once you are all set up, find "Steve" and send me a contact request!  Look forward to seeing everyone on Cake.

Comments

[KCLau]

Isn't this something similar to www.covestor.com?

[Sal R]

I guess it is. The mac daddy is Vestopia, http://www.vestopia.com. Their idea is to let individuals like us see what professionals do and mirror it. I signed up for free a while back and love it!