INVESTMENT CLUB
While the rabble sifts through endless posts on online message boards, where do the geeks look for hot stock tips? Tobin Smith's ChangeWave Alliance. "It's the Motley Fool on steroids," says Peter Horst, head of marketing at Net security firm ICSA.net and a ChangeWaver since July 1999.
Smith, VP of Internet development at Phillips International (with which he co-owns ChangeWave), calls his approach "open source investing." Since 1995, he has cultivated a coterie of roughly 1,000 informants who contribute tips in return for Smith's buy/sell/hold recommendations. Smith claims a 513 percent return in 1999 and 1,700 percent over the past five years.
ChangeWave began "as a hobby," Smith says, but now he wants to move beyond word of mouth. Membership, which remains invitation-only (candidates must be sponsored by a current member), costs $120 annually for all Alliance correspondence plus special-topic reports. Buy/sell/hold recommendations and portfolio management are available to nonmembers for $295 a year.
Smith accepts two kinds of tips, both of which are necessary to define a valid opportunity. A "changequake" is a new development, such as the SEC's decision to allow banks and brokerages to send statements via email. A "changewave" is a new product that takes advantage of a new development, such as Tumbleweed's certified email system.
Even after he has vetted the tips and settled on a promising stock, Smith won't recommend a company unless it meets three criteria: Its annual growth rate must be in the top 10 percent within its sector, its sector's growth rate must be in the top 10 percent within its industry, and its industry's growth rate must be in the top 10 percent among high tech industries. Tumbleweed made the cut and paid off handsomely, appreciating from $18 to $75 per share during the six months Smith advised holding it.
Although ChangeWave was developed for picking stocks, Smith believes his method is useful for evaluating any kind of information that's highly fragmented and thinly distributed. "In our case, it's buy, sell, or hold," he says, "but it could be anything. This is a superior decision-making model."
- Michael Kaplan (mkaplan2000@aol.com)
ChangeWave: www.changewave.com.
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