Wisest of the crowds

Yesterday the NYT’s David Leonhardt wrote an interesting piece covering new research from Christopher Malloy of London Business School, Andrea Frazzini from University of Chicago, and Lauren Cohen of Yale. Entitled “The Small World of Investing: Board Connections and Mutual Fund Returns,” the research basically finds that mutual fund managers are more likely to buy stocks and take larger positions in companies that are in their academic network. Further, these money managers perform substantially better than funds that dont buy stocks in their network.

The data:

Yowza! Over 8% per annum difference! These guys beat themselves up for small fractions of a single percentage point return.

The authors conclude thats its either insider trading, ease of information gathering by being in the network, and better manager selection by investors due to network relationships. Intuitively all seem correct but the split is, of course, the rub. (I blog about this some more here.)

So I find this really interesting because it assigns dollars to the value of networking. We all know its important but who would of though that the difference was so large? Sure some of this data includes illegal activity but I think we now have a solid benchmark of networkings value. How does 70% more money sound to you? Its easy to see why social networking sites have been all the rage and why it is imperitive that all you old-schoolers who think your physical network is all you need, need to think again - especially if you are selling lofts to hipsters and not mansions to grand ma. Come on, get connected and get rich!

Trulia took a big step into socializing camp by creating a Q&A platform with the help of Pat Kitano. Very sharp looking implementation that now solidly takes Trulia from exclusively broker centric to also being agent centric. The list of reviews worth reading follows: Pat Kitano, StartupSquad, TechCrunch, Joel Burslem, Greg Swann.

Trulia’s implementation is clean and certainly ups the feature ante but is basically catch-up with others including Zillow and My-Currency. User generated content is interesting and valuable but is this going to turn into some sort of vertical social networking war where winner takes all? The audience of home shoppers currently is much older and much more tech phobic than what you might see at typical social networks so what the hell are we all doing? Is this web2.0 hipsters flexing, an investment in future behavior by home buyers & sellers, or part of some master plan to disintermediate the existing ecosystems? All three isnt a bad guess.

For a while I have been wondering which direction Trulia would point their ship - towards the incumbents or away?. It feels to me like listings are a commodity waiting to happen and so the question for listings aggregators, like Trulia, is what next? Going social gets them on plan to taking Zillow head-on without alienating their existing constituents. Zillow has ignored the brokers while Trulia has made them their buddies. Each has their natural advantages and disadvantages but Trulia’s is a safer and more optionable route. Only if you raise a bunch of money can you take the path Zillow is taking. The payoff for Zillow, however, is much bigger with the risk because the consumers are the customers and Zillow does this very well. The real estate industry will never go back and the question I have as an entrepreneur is which strategy will win? One that eats its way through the ecosystem (Trulia) or one that completely goes around it (Zillow)?View blog reactions

Joel Burslem continues to demonstrate his deep knowledge of tech by discussing how the real estate industry can leverage social networking sites like Facebook to broaden their network of clients and market their listings. In an article entitled Marketing Real Estate on Facebook, Burslem outlines five basic ways an agent can use social networks. Naturally, we agree with Joel. My-Currency is a vertical social network, a term I first read many moons ago at the blog Social Degree. The difference between My-Currency and Facebook is the difference between Walmart and Whole Foods. Walmart has everything but Whole Foods has only the best.

My-Currency is trying to be more relevant to users by focusing on, and aggregating, content specific to housing consumers. We give you all the tools you need to get inside housing problems. For a professional, it should prove a resource that demonstrates to your current clients authority while hooking and incubating future clients. For consumers, its an opportunity to share information and get professional advice - free. The site has all the basic building blocks in place. The open question is whether a vertical network will better serve consumers and professionals than a horizontal network. We obviously think so. That is not to say Facebook and their like are not of value. They are - use them! In fact, we will look to integrate with them and other parts of the internet ecosystem. Its just that we think focus, focus, focus will create better relevancy and better engagement with those interested in housing.

So when you want to purchase Tide Detergent go to Walmart. When you need a 25 year old bottle of Academia Barilla Balsamic Vinegar from Modena, Italy, go to Whole Foods. Do you, as an agent, want to be lost in aisles of Walmart like poorly selling lines of Tide detergent?

People Magazine names Drew Barrymore as its most beautiful woman. What the bleeping $%^%$*!!! Unless People Magazine is looking beyond skin deep (which it should), this is absolutely off! (Drew, we love ya but come-on…)

Okay so this is a perfect example of why Wisdom of the Crowds is SOOOOOO much better than the “expert” paradigm that we are just starting to shake off. People Magazine probably has some complicated relationship with the various parts of the Hollywood ecosystems resulting in this warped beauty contest outcome.

Do I really care that what People Magazine thinks?? NO! This is just an example of why social media will persist - it is inherently democratic and therefore structurally superior in reflecting the current zeitgeist. We the People will decide for ourselves thank you very much.
People Magazine should either re-tune its pop culture antennae or consider changing its name. How does Studio Boss Magazine sound?

See the video at YouTube here

Marcie Geffner of Inman news has a great article (subscription) about the conflicts and misaligned incentives that appraisers face today. I discussed this in an earlier post entitled “inflating appraisals” but essentially I agree with Marcie’s assessment about the state of the industry. Appraisers get pinched from all sides because those people that hire them are incented to get it wrong. A bank lender gets paid on volume. A real estate agent gets paid upon close of a transaction. A seller get more money. A buyer gets a loan, a house, and a sense of fairness (admittedly a false sense of fairness).

That is not to say that all appraisals are suspect or that there is malicious intent at work. But when relationships in the ecosystem are structured such that there will be implicit or explicit pressure on appraisers, the weakest ones will likely fold putting greater pressure on the vast majority who work hard to get it correct. So it is really about shielding the analysis from the commercial motivations of others.
Marcie doesn’t quite get our model correct but that’s ok because it gives me the opportunity to pitch it. Marcie is right to suggest that buyers are probably in the best position to fix the situation by hiring their own appraisers. This is where My-Currency comes in because we identify the experts. If you are an appraiser, how will you ever reach consumers? Through an agent? No, that doesn’t quite solve the incentives issue (”get me the value or I’ll find another appraiser!”). Through a mortgage lender? No, same problem!

My-Currency gives appraisers a way to demonstrate their skills; talk about what you know; answer questions; and make value predictions about houses for sale or zip code indexes (value per square foot or days on market). My-Currency enables appraisers and other housing professionals to show the world what you know and help you connect with these customers. We offer a platform where professionals can build professional currency and hence virtual reputation.

Please let us know what we can do and stay tuned because we have new things to announce that will further our goal of serving housing professionals and consumers.

The discussion of Social Media and whether the term is best continues, fueled by Doc Searls reaction to Brian Solis’s post, which Brian followed-up on a few days later. Doc does a nice job of reminding us of what this is all about:

The human need to increase what we know, and to help each other do the same, is what the Net at its best is all about. Yeah, it’s about other things. But it needs to be respected as an accessory to our humanity. And terms like “social media”, forgive me, don’t do that. (At least not for me.)

Very true! So perhaps the way to think of this, piecing together Doc’s words and combining it with what is core to what is happening, shall we call it “informed social authoring”? Again Doc opines:

I think of it as writing that will hopefully inform readers. Informing is not the same as delivering information. Inform is derived from the verb to form. When you inform me, you form me. You enlarge that which makes me most human: what I know. I am, to some degree, authored by you.

Okay what say you? If your thinking, ‘well, I am new to this so I don’t have a view”. My response is that you have an opportunity to bring your fresh perspective to author me and others. So, what are you waiting for?

Yesterdays New York Times had an article by David Leonhard (quoted above) entitled “Odds are they’ll know the ‘08 winner” that talks about prediction markets impact on the elections, the economy, and a host of other areas. The point is that markets are making things better. Better for business and better for people. It’s doing this because, as N. Gregory Mankiw is quoted saying

“Everybody has information from their own little corner of the universe, and they’d like to know the information from every other corner of the universe. What these markets do is provide a vehicle that reflects all that information.”

What is missing from this article, is nothing more that the fact that predicition markets are part of a broader movement towards using tools to capture distributed information, enable coordination, and enable collaboration. Examples? Wiki’s are markets. It is a location where participants buy and sell words and ideas that best capture knowledge, information, and opinions. Blogs? Same thing really. I write something, someone else reads it and they create a comment. That comment begets other comments internal and external to my blog that inserts all participants into a virtual conversation that has no border. Another example? What about open source development of software. Software developed by anyone and anywhere. Much of My-Currency is built upon open source software.

So My-Currency is just joining a broad movement to empower people and to use tools that don’t presume to know where information resides or who has that information. Markets and social media tools (blogs, wiki’s, answers, etc) enable solutions in a way that is cheaper and better.