Social investing site kaChing today is rolling out a business model that combines professional investment advice with social networking tools and live trading based on the advice of others. It lets professional investors, such as registered investment advisors, and amateurs post their trades to the site for all visitors to see, as well as related research notes, blogs and tweets (currently kaChing has 400,000 registered users). It analyzes these managers' performance and monitors how closely they stick to their trading strategy. Amateur users who like what they see can open a trading account with Interactive Brokers through kaChing and have kaChing trade for their account the same way a professional does.

Andrew Mathieson, founder and managing member of San Francisco-based Fairview Capital Investment Management, an RIA with $400 million in under management, has signed on to kaChing as a professional. "We manage separate accounts for private clients and we've got a minimum account size of a million dollars," he explains. "We've long struggled with how to adequately serve clients or referrals to our firm that don't meet our account minimum." While some firms faced with this issue start a mutual fund, Fairview chose not to do that out of distaste for mutual fund fees.

The low-profile Fairview is not your typical online trading pioneer. For one thing, it considers itself an investing firm rather than a trading firm. "We're investors rather than traders," says John Rutledge, director of research and a portfolio manager. "We have a comparatively small list of companies we're invested in, around 20-25. When we decide to invest with those, we plan to hold them three to five years, rather than hours, days, weeks or months, which is more common in the professional management community. We do a lot of homework, reading, and financial modeling."

As it does with all professionals who join the site, kaChing has applied its performance analytics across Fairview's past six years of trade records (the firm exported data from its Advent database); Mathieson's numbers qualify him for kaChing's "genius" category, based on performance and ability to stick to strategy.

Congratulated on being labeled a genius, Mathieson modestly offers a quote from Thomas Edison, "Genius is one per cent inspiration and ninety-nine per cent perspiration. Accordingly, a 'genius' is often merely a talented person who has done all of his or her homework." "It will be up to the users of this site to determine whether we're talented people," Mathieson says. "Because we'll be posting some of our internal research to the site, users will also be able to determine whether or not we've done all our homework."

Fairview has never released its research to the outside world before; in a way, kaChing is becoming a marketing and sales arm of the firm. "One of my core tenets in starting Fairview was a belief that if you can consistently do a good job of managing money on a risk-adjusted basis, eventually the world will find you," Mathieson says. "Over the years, I've learned that it's not that simple and that for the most part, we're in an industry where products are sold, not bought. If we really wanted to collect assets, we could enlist the assistance of brokers and financial planners and pay them to steer assets our way. But all of that money we'd be paying them would come out of investment returns. We don't believe that's a good business model. KaChing represents a different model, which is potential investors can look at the site, what we're doing and how we're doing it and if what we're doing fits their criteria, then they can hire us. But we don't have to hire marketing and sales people for this, we just have to continue doing what we're doing, which is investing the funds."

A money manager could feel vulnerable putting every trade on a public website for all to see. What if he or she has a bad month or quarter? "We will have bad months and bad quarters," Mathieson says. "Over a market cycle, at any given point there will be times when we look like geniuses and times when we look like idiots. We hope to attract investors who will read our research and be able to tell the difference between us looking like idiots versus actually being idiots." He also points out that short-term thinking can be detrimental to sound investing. "The fact that the technology exists to allow investors to monitor portfolios on a minute by minute basis doesn't mean that that's a good idea," he says. "My eldest child just went off to college. The fact that I can communicate with her instantaneously all the time via texting doesn't make that a good idea. In our view, the transparency of kaChing will let our research and long-term performance numbers speak for themselves. The Kaching site will bring analytics to that which will allow investors to not only get a sense of performance, but also a good sense of the risk taken."

Patrick Parrish, director of instruction at Poppy Hills Golf Course in Pebble Beach, Calif., was drawn to kaChing initially because it allowed him to practice investing without using actual money — the site gives users $10 million in pretend money when they sign up. "I liked the ability to start with Monopoly money rather than my own money because I got burned a couple of times in 2002 and 2008 trying to invest on my own," says Parrish, who is kaChing CEO Andy Rachleff's golf instructor. "A lot of times when you invest on your own you think, I would have bought this and I might have sold that, this allows you to see how those trades would have done."

Although Parrish did "OK" with the fake money, "I realized it would probably be better for me to follow a genius, see how they trade and follow their philosophy, and see if it made sense to me." About 10 months ago, Parrish put $3,000 into his kaChing account and started following kaChing founder Dan Carroll. "I'm going to watch every week and see how it goes," he says. He plans to put about 10% of his overall investment portfolio into kaChing.

Only one in 10,000 people is good at investing, say Carroll and Rachleff. Staggering as this number is, it rings true when I look at my own so-called portfolio and think of the people I know who've had a dismal year and a half in the stock market.

KaChing, which we wrote about when it launched in December, has positioned itself from the get-go as an investment alternative to mutual funds.

"The mutual fund business is a $10 trillion industry that over the past 10 years has seen no innovation and has not been impacted by the internet," says Rachleff. "The biggest issue is lack of transparency." Mutual fund quarterly reports show only a snapshot of their underlying investment activity, he points out. "There's no way of seeing what happens between quarters," he says. Fees are high and opaque and there are a tremendous number of hidden fees, such as taxes on transactions that could have occurred before an investor even joined, he maintains. KaChing is going after the $3.7 billion household investor category, about $800 billion of which turns over every year, Carroll says.

kaChing still gives those who sign up $10 million to faux-invest. However, it has also paired up with broker/dealer Interactive Brokers, so that customers who wish can set up a live trading account and place actual trades through the site. Users can align themselves with a high-performing investor and have kaChing, through Interactive Brokers, automatically place orders for them that mirror every move the investor they admire makes. Interactive Brokers will aggregate small orders into block trades, which should keep transaction costs low (if 100 people are following an investor, when that person puts 2% of his portfolio in IBM stock, say, then Interactive Brokers can lump the 100 copycat orders into one block trade, rather than placing 100 small orders). KaChing will send alerts to each user when any trade adversely affects his performance or is outside his stated tolerance for risk. There's an account minimum of $3,000 and a ceiling that kaChing sets based on the user's income, investable assets, and investment experience. Customers will be charged a "convenience fee" of about 1% to 2%. kaChing will keep 25% of this and give the other 75% to the followed investors (Interactive Brokers will receive commissions on trades). kaChing will need to attract about $100 million in investable assets to be profitable, but the company says 300,000 users have said they want to mimic-invest so that hurdle theoretically should be easy to clear.

Over the past 10 months, kaChing has been beefing up its technology infrastructure to get ready for the next wave of activity. They've added encryption to the site, they've set up virtual private networks between kaChing and Interactive Brokers, they've worked to enhance their API and user interface, they've tweaked the algorithms they use to analyze investor performance. The site uses open source software with the back-end written in Java and the front-end in Ruby.