Chapter 19

Investigating Internet and Software Resources

In This Chapter

Choosing investing software

Recognizing Internet pitfalls and opportunities

Finding the best investing websites

Thousands of investing software packages, blogs, and websites claim to enable you to more easily make profitable investments. As with most other advertising claims, the reality of using your computer for investing and other tasks often falls short of the promises and the hype.

In this chapter, I show you ways that your computer may help you with your investing challenges and chores. Throughout this discussion, however, remember the following important caveats:

• Some highly successful investors don’t use their computers, or they use them infrequently, to deal with their investments. (Warren Buffett comes to mind.)
• You may subject yourself to information overload and spend a fair amount of money without seeing many benefits if you don’t choose wisely.
• You can’t believe everything you read, especially in the online world, where expertise, filters, and editors are often absent. (Of course, as I discuss elsewhere in this book, filters and editors don’t guarantee that you’ll find quality investment advice and information when you read financial publications.)

Evaluating Investment Software

Good investment software should be user-friendly and provide quality information for making sound decisions. Software that helps you make personal investment decisions also needs to provide, if applicable, well-founded advice.

The software that’s best for you depends on what you’re trying to accomplish as well as your level of investment knowledge and computer savvy. Software can help you with a variety of investment tasks, from tracking your investments to researching, planning, and placing trades through your computer (a topic that I discuss in Chapter 9). The following sections help you find the best software for your needs.

Taking a look at investment tracking software

Software that can help you with investment tracking falls into one of two main groups:

• Personal finance software that also includes investment-tracking capabilities
• Software that focuses exclusively on investment tracking

The broader personal finance packages, such as Quicken, are more user-friendly and probably more familiar if you already use these packages’ other features (such as a bill-paying feature).

In the following sections, I outline what I see as the advantages and disadvantages of using tracking software based on your needs, and I offer a few alternative approaches to tracking your investments.

Reviewing the benefits

Investment tracking software offers a number of positive features that may appeal to you:

• Organization: One of the best benefits of these packages is that using them can help you get organized. If you enter your investments into the program, the software can help you make sure you don’t lose track of your holdings. The fact that investors lose billions of dollars annually to escheatment — a situation in which financial institutions turn money over to the state because the owner loses track of his investment (often because the investor moved or passed away) — is testimony to the disarray of some investors’ tracking systems.
• At-a-glance access: In addition to organizing all your investment information in one place, investment software allows you to track the original purchase price, current market values, and rates of return on your investments. If you have accounts at numerous investment firms, using software can reduce some of the complications involved in tracking your investing kingdom.
• Overall return data: Investment software can be useful for helping you keep track of your returns. Monitoring all those numbers yourself isn’t always easy. People usually know their CD and bond yields, but ask most people investing in individual stocks and bonds what the total return was on their entire portfolio, and, at best, you get a guess. It’s the rare person who can quote you total returns or tell you whether her returns are on pace to reach her future financial goals. If an investor does know her investments’ returns, she probably doesn’t know whether that return is good or bad. For example, she may feel good having made 22 percent on her portfolio of stocks over the past year, but she shouldn’t if an index of comparable stocks was up 35 percent over the same period.

  Investment tracking software can be more useful for stock traders. In my experience, stock traders, the people who would most benefit from using these programs, often don’t track their overall returns. If they did, they could calculate the benefit (or lack thereof) of all their trading. (I’ve never worked with a stock picker who completed this exercise with me and had return numbers that beat the market indexes over the long term.)

Surveying the drawbacks

My review of investment tracking packages suggests that you need to be prepared to make a substantial time commitment to find out how to use these programs and that you know that other, less high-tech alternatives may be more efficient and enlightening. Also know that a good portion of program users tire of entering all the required data and then feel guilty for falling behind.

If you want to see what your investment returns have been over the years, be aware that entering historic data from your account statements (if you can find them) is a time-consuming process, regardless of which package you use. To calculate your returns, you generally have to enter each new investment that you make as well as all your reinvestments of dividends, interest, and capital gains distributions (such as those made on mutual funds). Ugh! See the following section to discover some alternatives to using these time-consuming products.

Checking out some alternatives

If you’re not into data entry, you have some alternative routes to consider. The following list shows you what to do if you want

• To organize: Keeping a current copy of each of your investment statements in a binder or file folder can accomplish the same result as organizing all your holdings.
• At-a-glance access: Investment software can track all the facts and figures for all your investments — purchase price, market value, rates of return, and so on. But you can accomplish the same things by consolidating your investments at one investment company. (See my discussion of discount brokers in Chapter 9.)
• To know your overall return data: You can easily estimate the return of your overall portfolio using the old-fashioned paper-and-pencil method. Simply weight the return of each investment by the portion of your portfolio that’s invested in it. For example, with a simple portfolio equally divided between two investments that returned 10 percent and 20 percent, respectively, your overall portfolio return would be 15 percent left({10, imes, 0.50, +, 20, imes, 0.50 = 15} ight). If you’re not adding to or taking money from a portfolio, you can simply compare the portfolio’s value at year end to the prior year end.

People who make investments at various times throughout the year and want to know what their actual returns were during the year can use software to get answers. However, unless you’re a frequent trader trying to measure the success of your trading, knowing the exact returns based on the precise dates on which you fed money into investments has limited value. This fact is especially true if you’re a regular, dollar-cost-averaging investor (see Chapter 3). In this situation, instead of opting for a software program, know that an increasing number of investment companies provide personal return data via their websites and/or on account statements.

And if you’re a buy-and-hold mutual fund and exchange-traded fund investor, a path that I find great value in, tracking software gives you limited benefits because of the time required to enter your data. Funds and many other published resources tell you what a fund’s total return was for the past year, so you don’t need to enter every dividend and capital gain distribution.

Considering investment research software

Investment research software packages usually separate investment beginners (and others who don’t want to spend a lot of their time managing their money) from those who enjoy wallowing in data and conducting primary research. If you already have a plan in mind and just want to get on with investing, then go to it! But even if you don’t want to conduct more specific research, some of the packages that I discuss in this section can also help you conduct online investment transactions and track an investment’s performance.

When working with research software, you may have the problems of sifting through too much data and differentiating the best from the mediocre and downright awful. And unless cost is no object, you need to make sure you don’t spend too much of your loot simply accessing the information.

Before you plunge in to the data jungle and try to become the next Peter Lynch or Warren Buffett by picking individual stocks, be honest about your reasons for wanting to research. Some investors fool themselves into believing that their research will help them beat the markets. However, few investors, even so-called professionals, ever succeed at that goal. Witness the fact that over long time periods (ten-plus years), mutual funds that invest in a fixed-market index, such as the Standard & Poor’s 500, outperform about three-quarters of their actively managed peers thanks to the index fund’s lower operating expenses (see Chapter 8 for more information on fund investing options).

The best software for researching individual securities

If you like to invest in individual securities, the Value Line Investment Analyzer helps you research individual stocks using the data that the Value Line Investment Survey provides (as I discuss in Chapter 6). This software package lets you sift through Value Line’s data efficiently. You can also use it to track your stock portfolio.

A three-month introductory offer for Value Line’s software costs $75, and an annual subscription costs $598 for monthly updates. The software is available from Value Line at 800-535-9648 or by visiting its website at www.valueline.com.

Morningstar, which is better known for its mutual fund information, has followed in Value Line’s footsteps in providing lots of data on individual stocks and analyst reports. Morningstar.com’s Premium Membership costs $199 per year. You can reach Morningstar at 866-486-9750 or visit its website at www.morningstar.com.

The best software for researching funds

For mutual funds and exchange-traded funds (ETFs), Morningstar offers subscription services for mutual fund and ETF investors. Value Line publishes a number of software packages, similar in price to the Value Line Investment Survey. These packages are geared toward more sophisticated investors who understand mutual funds and ETFs and how to select them. For details, pick up a copy of the latest edition of my book Mutual Funds For Dummies (Wiley).

Investigating Internet Resources

Because people interested in managing their money surf the Internet today more than ever, thousands of websites have sprung up to meet the demand. Although the low barriers to entry in the online world make it easy for scammers and incompetents to flog their wares and flawed advice, this medium can offer some helpful resources if you know where to look and how to discern the good from the not-so-good.

The Securities and Exchange Commission (SEC) shutters numerous online scams, such as the one that bilked investors out of millions of dollars by promising to double investors’ money in four months in a fictitious security they called “prime bank.”

Although you may be smart enough to avoid offers that promise pie in the sky, you’re far more likely to fall for unsound financial advice, which is abundant online. You can find plenty of self-serving advertorial content and bad advice online, so you should be wary and cautious. The next section offers tips for evaluating Internet resources.

Assessing online resources

Fraud and bad financial advice existed long before the Internet came around. The SEC describes online scams as “new medium, same message.” But don’t worry. The tips in the following sections can help you find the nuggets of helpful online advice and avoid the land mines.

Being aware of agendas

Get an idea of who’s behind a site before you trust its information. Some sites go to extraordinary lengths — including providing lots of information and advice and attempting to conceal the identity of the company that runs the site — to disguise their agendas. Therefore, don’t turn to the web for advice or opinions, because the advice and opinions you find usually aren’t objective. Similarly, approach online financial calculators with skepticism; most are simplistic and biased.

Many websites and blogs have icons (or About tabs) that you can click on to see some background regarding the site’s sponsor and to find out whether the site solicits potential advertisers. With a simple click, you can quickly see that a site purporting to be a reference service of the best small-company stocks in which to invest may be nothing more than an online Yellow Pages of companies that paid the site an advertising fee. Look for sites that exercise quality control in what they post and that use sensible screening criteria for outside information or companies they list.

Just because every Tom, Dick, and Jane can easily and at a relatively low cost set up an Internet site or blog doesn’t mean that their sites and advice are worthy of your time. Not surprisingly, the financial companies with reputations for integrity offline are the ones that offer some of the best integrity online. For example, as I discuss later in this chapter, the leading and most investor-friendly investment companies often have the best education-oriented websites.

Soliciting grassroots customer feedback

The Internet can be a useful place to do consumer research. The more enlightening message board conversations that I encounter usually start with someone asking what others thought about particular financial service firms, such as brokerage firms. If you’re investigating a certain financial service, the Internet can be an efficient way to get feedback from other people who have experience dealing with that firm.

In order to find a dozen people offline who have done business with a given firm, you’d probably have to speak with hundreds of people. Online, finding customers is a snap. Those who feel wronged by a particular firm are more than willing to share their gripes through sites such as www.planetfeedback.com. As in the offline world, though, don’t believe everything you hear, and watch out for employees of a given firm who post flattering comments about their firms and dis the competition.

Verifying online advice and information by fact checking

Enhance the value of the online information you gather by verifying it elsewhere. You can do some fact-checking both online and offline. For example, if you’re contemplating the purchase of some stock based on financial data that you read on an investing site, first check out those numbers at the library or at one of the websites I recommend later in this chapter.

Lots of Internet investment advice (and most of the scams) focuses on smaller companies and investment startups; unfortunately, these are often the most difficult businesses to locate information about. The SEC requires companies that are raising less than $1 million to file a Form D, so you should check to see whether a small company that’s soliciting you has filed one.

To inquire whether a company has filed Form D, call the SEC’s Office of Investor Education and Advocacy at 202-551-8090, or send an e-mail to [email protected]. Also check with your state securities regulator. For contact information for state regulators, call the North American Securities Administrators Association at 202-737-0900, or visit its website at www.nasaa.org.

If something sounds too good to be true, check out and possibly report your concerns to Internet fraud-fighting organization sites. In addition to the SEC’s website, check out the Financial Industry Regulatory Authority website (www.finra.org) and the National Consumers League’s Fraud Information Center (www.fraud.org; 800-876-7060).

Picking the best investment websites

The quality of the investing information that’s on the Internet is gradually improving, and a handful of sites are setting a high standard. The consumer advocacy sites that I recommend earlier in this chapter are a start. And in the following sections, I provide my top picks for those investing sites that are worthy of your online time. (Also, check out my website, www.erictyson.com, for updated analysis of investments, economic news, research, books worth reading, and more.)

CorporateInformation.com

CorporateInformation.com (http://corporateinformation.com) is owned and operated by Wright Investors’ Services, which, in addition to managing money for affluent individuals, publishes comprehensive reports on thousands of companies around the globe. Those who are interested in web-based stock research will also enjoy the many links to other Internet-investing and research sites. This site also provides plenty of current business news.

Morningstar.com

The behemoth of the mutual fund data business, Morningstar.com, has a website (www.morningstar.com) that provides information and tools for mutual fund and stock research. The basic stuff is free, but you have to pay $199 per year to access the analyst reports, stock research reports, and other premium content. In addition to providing more data than you could ever possibly digest on funds and stocks, this site also includes short, insightful articles that are useful to more educated investors.

St. Louis Federal Reserve

For those who enjoy analyzing economic data, the St. Louis Federal Reserve website (www.research.stlouisfed.org) is the place to be. In addition to sometimes heady articles, such as “Pandemic Economics: The 1918 Influenza and Its Modern-Day Implications,” this site provides a treasure trove of current economic data along with graphs. The long-term graphs are particularly useful in providing the often missing long-term perspective in your daily diet of news.

For example, I had to laugh the other day when I saw a headline online that screamed, “Dollar at Record Low.” The article mentioned only the euro, and it never pointed out that the euro only came into existence in 1999!

In fact, when you compare the dollar to a broad basket of other currencies represented by U.S. trading partners, the U.S. dollar is still more than double the value it was a generation ago. You can see this fact for yourself by examining the trade weighted exchange index on the St. Louis Fed site. According to the St. Louis Fed site, the trade weighted exchange index is “A weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners. Broad currency index includes the Euro Area, Canada, Japan, Mexico, China, United Kingdom, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand, Philippines, Australia, Indonesia, India, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela, Chile, and Colombia.”

Sec.gov

All publicly held companies and mutual funds must file annual and quarterly reports and other documents electronically with the U.S. Securities and Exchange Commission. This information is easily accessible for free (paid for by tax dollars) on the SEC website (www.sec.gov).

If you’re researching individual companies, you can find all the corporate reports — annual reports, 10-Ks, and the like — that I discuss in Chapter 6 through this website. Or you can call the individual companies that interest you and ask them to mail you the desired material.

The SEC site isn’t pretty, and searching the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) database can be challenging, especially for the novice investor. But if you’re tenacious, you may find something that’s hard to come by on the web these days: cold, hard facts and no spin.

Vanguard.com

Few sites run by investment companies are worth visiting unless you’re an account holder at the firm and you want to review your accounts or conduct transactions online. Here’s why: Much of the content is self-serving, biased, and advertorial in nature. However, the nation’s second-largest mutual fund company, the Vanguard Group, operates a site (www.vanguard.com) that is the exception.

Of course, at its website, you can find details on Vanguard’s fine family of funds, but you also find some useful educational materials. I’m not surprised — one reason that I’ve long liked the company is that it advocates for investors’ best interests.

And if you’re one of the millions of Vanguard shareholders, you can access your accounts and perform most transactions online. Vanguard’s discount brokerage division, also accessible online, allows you to invest in many other fund companies’ funds (as well as Vanguard’s) through a single account. The company’s website also enables you to link accounts that you may hold through most other financial institutions.