In addition to fighting midsize cities over twentieth-century bond deals, Goldman Sachs has a mildly profitable investment business. Goldman invests in lots of things, all the time — some successful, some not so much. And now, Lloyd & Co. think they have another winner: Motif Investing, a stock-picking start-up for which the bank just led a $25 million fund-raising round.
I can't fathom, for the life of me, what sent Goldman in Motif's direction (besides Arthur Levitt, the Wall Street matchmaker who was reportedly "very, very important" in twisting Goldman's arm). As Ben Walsh ably pointed out a few weeks ago, the site is bait for muppet investors who think they can beat the market by creating themed groups of stocks called "motifs," which they can then share with their friends on Facebook and Twitter, or, if they're enterprising, sell to other investors.
PandoDaily's Michael Carney says that Motif, unlike most financial tech start-ups, "targets the everyman." I read that more cynically than he does. Motif's business model charges ordinary investors a flat fee of $9.95 (which ends up being quite high, percentage-wise, for most people putting in only a few thousand dollars) to invest in themed baskets of stocks like "Companies with lots of Facebook likes" or "Housing recovery," then re-charging them whenever a motif gets adjusted. If picking stocks is "like trying to get dressed in the dark," as Carney says, then picking stocks with Motif is going to be like having someone dress you in the dark, then sticking you with a per-item bill.
It's common knowledge that most retail investors should stick with buying index funds and mutual funds, rather than investing in stocks. And the people who should be in the stock-picking business already have far more sophisticated investment strategies than arranging themed baskets and sharing them on Twitter. But Motif is geared toward the stock-picking newbie. The company is hoping that by making the motif-creating process as fun and easy for average Joes and Janes as making a playlist in Spotify, they can turn a hefty profit, and — I'm speculating here — eventually sell the company to an eTrade or a TD Ameritrade.
Motif may be right. Worse ideas have succeeded. And strategically, Goldman may have been smart to invest in them. But make no mistake: This is a start-up that is going to part fools with their money. And I'm a little surprised that Goldman is willing to put its imprimatur on that kind of endeavor.