How do retail investors invest? This is the process.

Several of us circled around the water cooler a couple years ago at Yahoo! Finance talking about gold (of course), SanDisk (memory for your camera), and the latest biotech stock under $5 that just popped +17%!

Of course, I was being laughed at for my newly learned background in 1oz gold Maple Leafs versus 1oz Eagles at the time.  I didn’t know much about SanDisk ($SNDK), but the woman I was with did.   She invested in and out of $SNDK over time using an interesting strategy. I had never looked at $SNDK in such a detailed way, but decided I should think different.  The biotech company (can’t remember the name) was another part of the discussion.  My peer was researching yet another at the time, and I jotted down the new ticker on my iPhone.  “Could he get another one right?” I thought.  I hoped.

I found the three of us Discovering new investing ideas via this in-person water cooler social interaction.  Via 1,000s of retail investor user interviews over the past 5 years, I’ve learned a lot about the retail investor.  Turns out the “water cooler” is a common way investors Discover investment ideas.

Discovering what to invest in, is one step in the Retail Investor’s investing process.  Through my product and customer research it is clear that all Retail Investors follow the same methodology when it comes to investing.  Here are the steps we follow:


The only difference between you, me, and any of our fellow soccer parents is in the pace that we move through these four steps, and some of the tools we use.  Some of us take minutes, others weeks, and some a month.  One other difference is that some of us chose to outsource it all, but this is shifting over time due to 2008.

Let’s take a look at the process in a little more detail:


Discovery of an investment happens not only around the water cooler or a weekend soccer game with friends, but in places such as The WSJ delivered on your driveway or iPad, CNBC via cable, Forbes magazine via mailbox, an article headline on Yahoo! Finance, your favorite screener tool, etc.  This is where you get your ideas on what to invest in.


After Discovering, you move on to Researching.  You exit that water cooler conversation, head back to your desk, check the $SNDK stock price, and browse the line of links on the left side of the page on Yahoo! Finance.   All of those links are there for this part of the process – Research.  They give you the best available Research information in one place – historical prices, company profile, market pulse, analyst estimates, yada yada yada.  Other sites have research as well of course, but Yahoo! Finance is often referred to as the reference”library” when talking to it’s users.  Main point here is that it is designed this way it is because they know you Research, and want to make it easy.


Following your 30 seconds, 1d, 1wk, or month of researching $SNDK, you move to Monitoring.   Monitoring is the process we follow to watch the price of a stock.  We watch to a point when we “feel” it is a good time to invest.  For this process we use the main quote page on our favorite financial media site (Yahoo! Finance, Google Finance, CNN Money, etc.) or that Finance App on the home screen of our iPhone (very disruptive to traditional finance media sites btw).

Across the four steps, Monitoring is the step you and I do the most.  I estimate we spend 70-80% of our time checking price and news during the investment process.  We spend 10-15% on Discovery, and we spend 10-15% on Research.

This time breakdown should make you think as you develop finance apps and target users with ads.  For example, if you are a Research or “tool” company, you are in a niche.  Your business will not be big, because the problem you are solving is not big enough for an investor.   If you are a Monitoring-like service you will need to displace one of the big media sites mentioned in this post.

For advertisers, this breakdown presents great insight into where you should put ads, and what type of creative should run where.

For writers or publishers out there who has figured out that by writing all your content about $AAPL you get seen more because $AAPL is an immensely popular quote/ticker page, also keep in mind you are competing against other who are thinking just like you. Hint: Your content (and ability to build a brand) has a much longer half-life/long-tail if you cover unfamiliar, less active tickers.

Take Action

Monitoring leads to Taking Action.  This is where we all navigate to our online broker at work (yes, majority of us do this at work), and invest – or sell.   The brokers are building a presence in Monitoring, and they are trying to attract us there via their new ads that started running last year.  These new ads show price information, price for tickers you have viewed and more.  Best example I can think of is Scottrade.

To close this out, at StockTwits we’ve designed a solution for investors in the Discover and Monitoring part of the investing life-cycle.  As an example, our Trending Tickers stream is used by the industry as a benchmark around what is trending in the marketplace.  Hourly you Discover new ideas.   Our service is also heavily Monitoring focused.  Investors, traders, and institutions check in to see the latest news being shared by the community.  For our public company customers, we secure relationships with major media sites to enable these public companies to put more content on the ticker/quote pages where your investors are visiting.

Pay attention to this cycle (Discover, Research, Monitor, Take Action), and know what part of the process your product, service or message is targeting — otherwise you are throwing spaghetti against the wall, and that wall may not be a market that will sustain a business you think you are building.


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