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Tuesday, September 18, 2012

The Return of the Winklevii

Posted By on Tue, Sep 18, 2012 at 10:45 AM


People tend to look down upon the Winklevoss twins for all sorts of reasons: Mainly, because they're greedy, overprivileged, entitled weenies who kept pursuing Mark Zuckerberg in court even after accepting a gigantic settlement for their tenuous claim that they were in large part responsible for Facebook.

But, and this is probably grossly unfair but is nevertheless true: A big reason they cause people to shudder, and get so much media attention, is that they're grownup twins who are seemingly never apart. And combined with everything else we know about them, that's really creepy. The only thing creepier would be if they dressed alike. Oh, wait, they often do! Yikes.

Anyway, here they are, together again, this time investing in a social network called SumZero that's designed for, as the Wall Street Journal put it, "the investing community." The twins have put up $1 million, or $500,000 apiece if we presume they have separate bank accounts.

The Journal's John Jannarone interviewed the pair this week, along with their pal from Harvard, Divya Narendra, over lunch in Manhattan. "One brother would often finish the other's thoughts as they each dined on chargrilled lamb burgers," Jannarone wrote. Narendra and others apparently founded SumZero in 2008. Have you ever heard of it? Neither have I. And the reason we're hearing about it now has nothing to do with the company itself, or the paltry sum the Winklevii have invested, and everything to do with the fact that they are involved.

The notion of a "social network" for investors is a ridiculous one, of course. Investing isn't something that can be crowdsourced. Investors try to beat the crowd. That's the whole idea. There is a reason that websites devoted to people "interacting" about stock purchases have always been filled with bullshit, up to and including the sleaziest pump 'n' dump stock scams. Naive investors think they're going to get some hot tips on such sites, but if you have a hot stock tip, why on earth would you want to share it with crowds of random strangers?

As for SumZero, Jannarone writes: "The appeal for members is the chance to read ideas from other investors, but also to spread the word about investments they already have." Which means people talk up stocks they own in order to pump up their value, and then sell. Which puts the site's severe restrictions on who can join in an interesting context: it is limited to "buy side" investors only. That is, investment banks that issue stock to the public aren't allowed, and only professionals from mutual funds, hedge funds, and private equity firms are given access (supposedly, three quarters of people who request memberships are turned down). The thing is, though, that once you decide to sell, you're on the sell side.

Membership is free to people who regularly submit "trading ideas," but SumZero also offers "limited access" for $129 a month.

Not that there's necessarily nothing of value. Members can share research reports, for example, which might be useful. It seems unlikely, though, that those reports will be any better than the ones written by buy-side researchers that they generally keep in-house for obvious reasons.

One of the Winklevii (it doesn't matter which) told the Journal that, despite the fact they they have spent so much of their post-collegiate careers suing Facebook, "We always saw ourselves in careers as entrepreneurs or angels. My favorite toy as a kid was Legos. I loved building things, and that's what we're doing with SumZero."

Dan Mitchell has written for Fortune, the New York Times, Slate, Wired, National Public Radio, the Chicago Tribune, and many others.

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Dan Mitchell


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