I’ve written before about expert communities like Vestopia and Covestor (as well as here) and their impact on investment decisions. By creating an open community and applying performance and other measurements to the community, spectators and participants in the community can learn from so-called experts within the community. Experts win with some type of rewards system and piggy-backers win given their access to these experts. The Gerson Lehrman Group has been doing this for years in the hedge fund community providing investment analysts with access to top thought-leaders and on-the-ground participants in certain markets.
The NY Times has an interesting article out today entitled “If you have a problem, ask everyone“. The article focuses on a firm called Innocentive, a spin-out from drug manufacturer Eli Lilly. According to the article, the firm says that it “had solved 250 challenges, for prizes typically in the $10,000 to $25,000 range.”
By offering monetary prizes to a diverse network of experts in their fields, solutions are coming in from unexpected places. One researcher found that “the further the problem was from the solver’s expertise, the more likely they were to solve it,” often by applying specialized knowledge or instruments developed for another purpose.
This is not so different from ex-Microsoft’s Nathan Myhrvold’s Intellectual Ventures, which maintains a superstar network of people tops in their fields and sits them together for massive brainstorming sessions. The fim then patents a lot of the cross-pollinated ideas that emanate from the group and invests/sells/builds out the ideas if they are good. Read Gladwell’s article in the New Yorker on how it works.
This idea is making its way slowly to the investment community. It’s just a matter of time before more widespread adoption. There is one caveat — a PhD in Molecular Biology doesn’t lose his edge in the same way that investors who outperform the mean typcially do. It will be interesting to see how these communities deal with hot-hands who ultimately cool off.
