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Jim Cramer Doesn't Want To Poke YouWhy social networks can't mix with investors—unless they're not social.

By Chadwick MatlinPosted Monday, May 19, 2008, at 3:02 PM ET

Jim Cramer Like everything else on the Internet, investing on the Web is turning social. A far cry from the early days of disorganized off-message message boards, investment Web sites are now taking cues from social networks, hoping to harness the multitude of users to offer the best data and advice to investors. The trouble is that these sites confront the same problem that faces twentysomethings in other realms: While networking may be the key to getting ahead, few actually know how to do it right.

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More or less, the sites employ one of two strategies—they try to emulate either Facebook's heavily socialized approach or Digg's wisdom-of-the-crowds model. Using Facebook's framework helps strangers connect with one another and get one-on-one advice from people they otherwise never would have met. The Digg route, meanwhile, is a more macro approach, telling you what others are buying to better inform your own decisions. Based on the sites that are already out there, the Digg model is far superior; marrying an investment network to Facebook never quite fits. Here's why.

Start with BullPoo—the most ingeniously named site and the one with the highest hopes for one-on-one mentoring. Registering with BullPoo is simple enough, as is setting up a profile to start networking. But that profile barely has any social information. You fill out your "investor type" ("self-directed," "delegator," or "validator"), investing experience, investment interests, and an optional "About Me" box that many leave tellingly blank.

From there, you're given $1 million of play money to build a portfolio. This is a common—but not universal—characteristic on many of these sites. (By contrast, Cake Financial, Covestor, ThinkorSwim, TradeKing, and Zecco all integrate social networking into real-money trades.) The fake-money sites set up a gold-filled sandbox for you to buy the thousands of shares of Google that you've always wanted but could never afford. The stocks in your portfolio thus become the equivalent of your favorite books, movies, and TV shows on Facebook.

The process of finding a "friend" on BullPoo and some of the other Facebook-style sites is handled deftly. BullPoo offers an "affinity score" that tells you how similar another user's profile and portfolio is to your own. It's a wise and necessary innovation, and it helps alert users that they have enough in common to start up a conversation.

That's especially important in social networks like these, which are like Newcomers' Club mixers—nobody knows anybody, and everybody is wondering whether to stick around long enough for the free food. Facebook-style sites need to get their users to trust one another if they hope to create a real community. That's tough when your users are wary of getting swindled, but without trust, one-on-one networking is close to useless.

BullPoo's co-founder, Simon Lee, told me that the goal of the site is to help people make personal connections with other investors so that they can turn around and make better decisions … on their own. That contradiction spotlights the limitation of social networks for traders: Ultimately, the buck stops with the person bankrolling the portfolio. The Facebook model doesn't jibe with investors' mentalities, even on the Web. Investors are on the Internet to become better investors, not to list their favorite CEOs, brag about their $1,000 day on a friend's wall, or leave a status message about how the Bear Stearns merger ruined their day. (A bloody portfolio page is proof enough.) The frivolity that Facebook so expertly captures doesn't work when you're handling millions of dollars—even if you're using a fantasy bankroll.