Marketocracy: Cashing in on Collective Predictions
Steve Petersen interviews Ken Kam and Mark Taguchi, co-founders of Marketocracy, via telephone and e-mail on May 31, 2007.
Like any other investors, Ken Kam and Mark Taguchi like to invest well.
They met at Stanford as MBA students in the 1980s and parted ways. Kam successfully launched a medical products company, while Taguchi went into the technology field. In 1993, they came back together to launch Firsthand Funds and, in 1999, cashed out after amassing assets worth more than $1 billion.
Firsthand helped them realize how hard it is to invest well, since there are so many industries and sectors that require specialized expertise to understand.
“Most people in Wall Street haven’t worked in an industry other than Wall Street,” Kam says. Marketocracy, he continues, hopes to offer a better alternative by using crowdsourcing and meritocracy to find people “who have talent but don’t fit the profile” of an investor who requires a degree from the right business school.
In fact, Kam himself didn't even fit the Wall Street profile or obtain an entry-level analyst job, despite his Stanford MBA. But that's why he started Marketocracy, which allows anyone to establish a portfolio with fake money in order to apply their knowledge and develop a track record of success over about five years before their decisions affect the Marketocracy Masters 100 Fund (MOFQX) that any American citizen can buy.
Steve Petersen: Analyzing financial markets is a stressful and demanding job, and professionals with highly specialized expertise and access to pertinent information make high salaries. Further, many in the financial industry tout their access to massive amounts of live economic data that services such as Bloomberg, Reuters and Thomson provide. Why does Marketocracy feel that normal folks who lack access to such information can excel beyond or at least compete with the professionals?
Ken Kam and Mark Taguchi: Information is free, but discernment about what is useful information is uncommon and good judgment of what action to take is rare.
Access to “live economic data” from services is accessible to lots of people, and these data are becoming essentially free. Earnings calls and their transcripts are available free to anyone; financial reports and economic data are online. The real value is how to interpret that information and what actions to take. It takes discernment to determine what information is useful and judgment to decide what actions to take – these are rare skills. Firsthand experience in an industry can often help give discernment, but most so-called professionals rarely have firsthand experience in the industries and companies they invest in.
Marketocracy looks for those investors that have those rare skills – the best investors. Marketocracy’s “information advantage” is knowing what the best investors find useful and knowing what actions the best investors are taking.
