“If you show me yours, I’ll show you mine.” That’s how I describe Cake Financial to people who haven’t heard of it before. The essential idea of Cake is to use modern web technology and standard data formats to share investment history with like-minded people. More simply, Cake is a way to publish your stock portfolio.

Why in heck would you want to tell everybody how you invest your money?!?! Because it will help you be better at investing and make more money. If you are an investor in public companies, you have a choice: Make your own decisions or trust someone else to do it for you. If you make your own decisions, it requires a lot of work to be any better organized than throwing darts at the stock tables. If you trust someone else, you rapidly find out that “experts” often do no better than monkeys (who are throwing darts at the stock tables). So it’s a conundrum, one that actually leads most people not to invest in stocks at all. They might buy into mutual funds, which are large accumulations of stocks (or other investments) where you trust the fund manager to make your decisions for you or just give up and leave the money in a money market fund or CD or whatever represents as little risk as possible, so you can live the rest of your life without worrying about losing your money.

Cake is a system for identifying who actually does know what they are doing – using actual transaction data – and then using their expertise to make your own decisions. For instance, if you find that Joe Blow is really good at creating a risky, high return portfolio of stocks. You could just decided to make the same decisions Joe makes. (Eventually Cake will automate that, so you can let Joe make your decisions for you, which gets really interesting.) And if John Smith is really good at getting steady, long term results without taking chances, you could have half your account traded like Joe Blow and half traded like John Smith. The possibilities become endless; indeed, the brilliant insight of the company is that, if you can get people to share their trading history, you can accumulate an accurate history of how to actually make and lose money, rather than guessing and forecasting.

The team behind Cake believes that this company has the potential to define a new approach to investing in public stocks. We don’t think that we can easily get people who have been investing in stocks for a long time to break old habits, so we’re targetting investors who are younger and newer to the game and who don’t believe that the existing brokerage firms or the advisors they hire are trustworthy. There’s 40 million people in Generations X and Y with about $5 trillion in investable assets; a big percentage of these investors like to do their own research and make their own investment decisions. We plan to become their best investing tool.

There is already competition; a company called Covestor, based in London, announced a very similar service before Cake launched. But they have to use an intermediary, Yodlee, to link to brokerage accounts; that means they can’t get the entire account history, which means they have limited transaction data from which to calculate performance. Cake has its own technology for linking to accounts and getting the source data; we think (obviously) that makes Cake a better service for our customers…

Alsop Louie Partners lead the Series A financing of the company in January and helped the company define the product, which was introduced earlier this month at TechCrunch40. If you’re interested in learning more about the company, registration is now open to the public for what it is calling a public alpha test: There are two steps, registering for the site (which lets you see a little bit of data about what people are doing), and link one or more brokerage accounts to that Cake can get and normalize your trading history (which lets you look at individual’s portfolios and compare performance).

This entry was posted on Tuesday, September 25th, 2007 at 3:31 pm and is filed under Portfolio. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.