Strateer Blog

After 3 month in private beta (thanks to all the testers), we are finally releasing Alerts4all today for public use!

Alerts4all is the first product that we are launching which brings Wall Street technology to Main Street. With Alerts4all investors benefit from real time stock market alerts that can be easily setup in minutes to automatically monitor the stock market and protect investors’ portfolios.

Individual investors often miss the right time to buy or to sell because they are too busy to actively monitor the stock market. This leads to frustration and bad investment performance. Alerts4all was created to solve this problem and help individual investors to find the right time to buy and sell. In today’s economic climate individual investors keep being hit in the current markets, and ultimately will need better tools and methods to get on their feet again.

Have a look for yourself at http://www.alerts4all.com.

To us Alerts4all so far helped us to prove a couple of things:

Technology Stack
Alerts4all runs on the technology stack that will eventually power Strateer.com. We wired different open source frameworks together and successfully embedded our CEP library (complex event processing) into it. Alerts4all runs on Amazon Web Services end-to-end. All in all the platform has been running like a charm - no crashing, no inconsistent behavior. Quite boring. Our operation guy spends no more than 1-2 h a week on it. Congrats to our development team for build such a stable platform.

Real-time market data and historic market data
We are right now processing real time data streams from AMEX, NYSE and NASDAQ. We had to overcome some hiccups but by now we feel this topic is well under control. Currently we throttle the market data to one price update per symbol per second. Our current infrastructure can process up to 1,000 messages per second - with tons of options left to scale. At the same time we had to solve the problem of building our own in-house historic stock price data base (10 years for all traded symbols) as well as an intraday 1-minute bar database. Both databases and the real time data streams are stable and will be part of the core infrastructure for Strateer.com

Cost of Development
The development costs for Alerts4all were quite reasonable, given that this is a full-grown real-time data processing enterprise application. We outsourced most of the development to China and Belarus. Only UI design and core technology was built here in New York. The core technology parts (CEP, J2EE architecture, component design) were developed by Matthieu, our CTO, and another very smart French guy. UI was developed with an external local agency. This cost efficient structure will help us as we move on to build our next product iteration. Given the difficult funding space, it is crucial to keep costs low.

Go-to Market
This has just started, so no real conclusion yet. All we can say so far is, that our private Beta worked out very well. We got some financial blogger to test our product, give us feedback and help us expand our private beta via their blogs.

We are quite proud about Alerts4all - but this is only the beginning. We will add some more very exciting functionality to Alerts4all in the next months. More important: We are working full steam on our next product scheduled for launch in Q2 next year. Stay tuned…

We are expanding our private beta of Alerts4all. Get your account at Silicon Alley Insider, Clusterstocks or the Amazon Web Services Blog.

Roger Ehrenberg wrote a great post about ’short-termism’ (see here).

Similar to the ‘weight-loss’ self help books that Roger refers to, there is no easy and fast way to get rich by investing in the stock market. All books, all newsletter or websites that suggest they have the right method to get rich fast exploit an inherent impatience and greed that is probably the biggest factor for investment failure for individual  investors. It is striking, that today the launch of triple-leverage ETFs has been announced. Apparently current volatility is not enough. Given that the double-leveraged ETFs are more popular than their non-leveraged cousins I am sure there will be plenty of demand for the new ‘Basement Bomb-Building Kits‘.

Instead of chasing the dream of getting rich fast and getting ripped of in the processes of trying, investors will have to learn to be realistic.

Individual investors need a good system (Diversification, Risk Management, Profit taking), the right investment horizon and discipline to follow it through. Unfortunately as most individual investors are busy, they do not have the time to follow such a system manually. So they ‘outsource’ this job to mutual funds or index certificates. Unfortunately those strategies have not served the individual investor well in the last couple of years.

The vision of Strateer is to empower the individual investor with better, easy-to-use institution grade tools. This will help the individual investor to become a better investor and generate better returns.

However, in a recent discussion the question was raised, whether the individual investor should invest in individual stocks at all. The best strategy for an individual investor is supposedly a well diversified portfolio with a long term investment horizon and with few trades. But that is not what individual investors do. Recent economic literature actually identified that contrary to the normative prescriptions retail investors hold concentrated portfolios with only a handful of stocks and they trade actively those stocks.

So why do individual investors buy individual stocks (there are 34M retail brokerage accounts in the US)? Are individual investors stupid? Why do individual investors deviate from what standard portfolio theory prescribes?

First of all it is important to us that individual investors trade individual stocks. However we believe that you can only build a long term business on  providing value to your customer and not by benefiting from the fact that there are stupid people in this world.  Therefore, given that we agree that the standard portfolio theory has merit, it is important that those investors who do invest in individual stocks are not stupid.

Some famous professional investors state that the individual investor can be successful in the market: Peter Lynch said “The amateur investor has numerous build-in advantages that if exploited should lead to a better performance than the markets.” Warren Buffet said “The average investor with only average intelligence can consistently outperform the market”. Hopefully these two gentlemen did not say that to sell more of their books.

An interesting article by Korniotis/Kumar analyzes the cognitive abilities of individual investors that invest in individual stock. Economic literature so far indicated that investors do not build a diversified portfolio either because of informational advantages or due to psychological biases (familiarity of the stock suggesting information advantage, over-confidence, wrong risk assessment).  In other words, they either know something or they are victim to misjudgments. In their article the authors group the investors by cognitive abilities and show that the group that is smarter is consistently outperforming the other group. This is quite intuitive: There are smart investors and dumb investors. The first group is able to generate market or above market returns, the other group consistently under performs.

The important take away for us is: Not every investor that buys individual stocks is stupid (intuitive, no?). In fact there are smart investors, that know how they should invest (broad portfolio allocation, value investing, long-term systematic). The only problem is, that they have no way to implement what they know they should do. They cannot manually analyze a broad portfolio because they do not have the time, mutual funds are not the solution (expensive and under performing the markets on average) and index certificates are no sure thing in side way moving markets (which we believe is what we will see over the next decade).

This is where Strateer offers help: We will provide the tools that allow investors to build the right system for them. Such systems might be broadly diversified or just based on a hand full of stocks. The system might be value orientated, momentum orientated or a combination of both. The system might have a short term horizon and trade actively or it might just trade a couple of times a year. But they will be a better alternative to manual and time consuming excel spread sheets, expensive and underperforming mutual funds and buy-and-hold index certificate investments.

It has become a bit quiet on this blog during the last month. Reading our last blog entry one could have thought that the meltdown took us down as well.

Quite the opposite. We are working on multiple fronts at the same time. We are preparing the public launch of our first product, Alerts4all. At the same time we are continuously in the process of raising money and working on our next product to be launched next year. Working quietly, making progress and keep trucking is the best way for us especially when the world seems to be coming to an end around us. I am not talking so much about the stock market where people have been calling out ‘bottoms’ during the last 3 weeks, but more about the credit freeze hitting the consumer and corporations - the real economy. The markets acted surprised on the latest earning disappointments. The effects on the real economy is very difficult to foresee but we brace for more ’surprises’.

Luckily our burn is minimal, potential competitors are distracted by survival mode and therefore our field is left open for innovation. Of course it would have been even better if all our cash requirements had been fulfilled by now, but you cannot have everything.

We faced a lot of negative sentiment in the last few weeks and it would be crazy not be concerned. But we feel that we are in a good position to either hibernate and build quietly our service or in case we get the funding at terms that make sense to us, use the current recession to invest into employees at reasonable prices.

I guess given the current implosions on Wall Street there is no way we cannot comment and try to make sense of what is happening and what it means to us.

Strateer is committed to democratize institution grade trading technology and bring automatic trading tools to the individual investor.  Now as the financial institutions are struggling to survive in this market, what does this mean for us? What does it mean for the service that we are planning to offer?

1. Better tools help especially in difficult markets
We believe that many individual investors were not following good risk management strategies over the last months and lost a lot of their portfolio value. Honoring a simple stop at the right time would have allowed them to watch the storm unfold from the side line. But more so, looking forward the markets might stay in bear territory for some time and then markets might go sideways for a while. Buy and hold might not be the best strategy for the years to come. Some people will be able to follow trading systems that find the right stock in this market at the right time. Strateer will be the tool to automate these systems and leverage them so other investors can profit from them, too. All in all we believe a difficult market environment is good for our product.

2. Talent exodus on Wall Street
We are right now expanding our team and it seems that now is the perfect time to find financial market engineering talent. Joining a startup does not seem to be so risky anymore, given the safe job at the large investment banks is not that safe after all. With no bonuses expected at the end of the year there is no lock-in that we faced until now when talking to people in the industry. Paired with all the upside of a startup (less specialized work areas - more end-to-end technology responsibility and an equity interest), the current market situation is good for us on the hiring side.

3. The change of the Broker/Dealer industry
Now that is a big one: Technology has been disrupting the broker/dealer space for many years, minimizing the margins of their core business and leaving them in need to push the envelope in those instruments that have been melting down (see as well this post) We believe that our technology paradigm is very disruptive leveling the playing field for large and small institutions as well as individual investors. Providing an algorithmic trading platform as a service, hosted in the cloud, diminishes economies of scale that larger hedge funds and investment banks used to have on the IT side. So the current market situation might be influenced by an ongoing technology trend that lies at the core of what we are doing.

4. Distraction of Angel investors
Well, not everything is good for us. Having a financial crisis and an economy in recession does not have an impact on our current business as it is non-existent. But as we finance our business by raising money from business angels that have an interest in financial markets makes these times challenging. It seems that people are quite busy with what is going on the markets. No dire need to close that deal with that financial services startup. Do I want to increase my exposure to anything that is related to financial markets? So that is not so good for us right now.

With all the coverage of TechCrunch50 and Demo’08 we wonder where that leaves us (we do not participate in either of them). We believe that a big launch event does not matter so much - in fact we plan to launch soft and quiet.

We just opened our private beta for our first product, Alerts4all, to a couple hundred users and will make it generally available later this month. The product is already evolving and improving based on users feedback and we believe the better it gets the more attention it will receive.

Seth Goldin wrote a great post that supports our approach. So we keep our powder dry and use all the money that we raised so far to build a great product and make it as valuable as possible for our customers.

This morning we launched Alerts4all.com into private Beta. Everybody is excited to get feedback and comments from the people we invited and see in general how the platform will hold up. If we get as much constructive feedback as we got from the small group of Alpha testers, Alerts4all should be in great shape for its public launch later this month.

Thanks to everybody in the team that worked hard the last days to get all open issues fixed in time and thanks again to the Alpha Tester.

If one of the reader is interested in getting an invitation to the private Beta, email me at fabian at strateer.com

We always used to say we do not have any competition. There is no service that does what we do and our vision is unique. Andy Swan wrote a post with the same title as this one.

However we used to miss one thing: Other companies that service the same customer segment (with a different service) compete with us for the attention of these customers. So there is always competition, though not necessarily on a product basis.

People keep telling us, that hedge funds are very secretive and would never let anybody come close to their strategies.

Interestingly I heard the same before a couple of years ago when it came to CRM data. Back then the question was, would companies trust a hosted solution (e.g. Salesforce.com) with their most private and business critical sales and business development information. Turns out, that as soon as somebodye provides an easy and reliable solution to a pressing problem (I have experienced myself the pain of operating and customizing a CRM solution  and spending north of $500,000 on it) all other issues become secondary.

We believe the same applies to hedge funds when it comes to operating their technology. So while we are at it to provide a hosted hedge fund solution we will even take it one step further and make it that easy to use, that you don’t even need to be a hedge fund anymore - every investor is a potential customer to us. Howard Lindzon wrote a related post regarding Transparency and Reputation.

Today small businesses have access to hosted enterprise level CRM tools . Soon small investors will have access to hosted institution grade hedge fund tools. But providing tools is only the first step for us. Connecting investors and allowing them to collaborate and benefit from the crowd’s wisdom are the benefits that a hosted solution can offer.