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Determining your real tolerance to risk, investing better – with Aaron Klein

Risk is such a hard thing to define for investors. Simple questionnaires advisors use don’t capture our real risk. Get risk wrong and the portfolio is wrong — sometimes with disastrous results.

Today’s guest on Tradestreaming Radio aims to change all that. Aaron Klein’s firm, Riskalyze has developed its own unique way of making a risk assessment that really captures what he calls, an investor’s risk fingerprint.

Instead of relying upon simple, pat, theoretical questions, Riskalyze really tries to determine how investors make decisions under uncertainty.

With a proper risk assessment in hand, the opportunities are endless for Riskalyze to develop a truly personalized portfolio.

Listen to the FULL episode

Determining your real tolerance to risk, investing better – with Aaron Klein by tradestreaming

About Aaron Klein

founder of RiskalyzeAaron has an extensive background in technology and startups. He’s devoted to personalizing the investing process.

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Announcer: You’re listening to Tradestreaming Radio with your host, Zack Miller. Expand your mind. Become a better investor with tools, tips and technology from the smartest investors on the planet.

Zack: Welcome to Tradestreaming Radio. I’m your host, Zack Miller and this is the place where smart investors come to learn from experts. We look at tools, tips and technologies to help you make better, smarter investment decisions. That’s what Tradestreaming is all about. You can find my archives of the show on tradestreaming.com. You can also find this program on iTunes so please check it out. Please sign up for my free e-mail at tradestreaming.com. We’ll keep you posted of all new events, any type of information that we think is valuable comes your way. We promise not to spam you. We promise not to overload you.

Today’s expert is going to talk about risk. Now, something I found very interesting is that how little we’ve actually come, in terms of online financing, describing risk. There’s some wizards out there. Some of the brokers have some things. There’s typical questionnaires that professional financial advisors, investment advisors ask their clients to be able to size up their risk. But, ultimately, it’s like one of those things that risk is one of those things that you know when you experience it. You can’t necessarily describe it. I feel like we kind of lack the language to be able to describe it.

Today’s entrepreneur, today’s expert is Aaron Klein. He’s the founder of a company called “Riskalyze” that began its development, it’s a start-up, developing a risk fingerprint, basically, it takes you through a series of 10 or 12 questions to be able to size up your exact tolerance to risk. Now, it’s one thing to be able to say, “Hey, I’m risk-adverse,” or, “I like taking risk.” It’s another thing to be able to be prompted with the real life situation. Would you rather make this bet where you have a upside of X and a downside of Y? What would you do?

When we’re put into a situation like that it makes risk less about description and more about, “Hey, what would you really do with it?” and I think that’s really interesting. From there, you’d be able to define all kinds of personalized portfolios based upon our risk profile. Personalization is one of the themes I’ve been talking about on tradestreaming.com. Riskalyze is all about that. Aaron Klein is a very interesting, very smart guy. I hope that you enjoy the conversation I have with him today.

Check back with us. We’re coming at you weekly. Again, check back at tradestreaming.com for any new events as well. You can find archives of the program as well as transcripts, by the way, on tradestreaming.com. So if you get there you can actually read some of these interviews and not just listen to them via audio. Hope you guys are doing great. Hope you have a great week.

Aaron: Yeah, you know I have spent most of my time working in technology, building technology products. I’m enough of a coder to be dangerous but I’m not a hard-core, top-quality. I’m really more of the product guy and trying to fix what we build on the web with the market and what the market needs. I’ve been involved in a couple tech start-ups. I’ve always been sort of an investor. I’ve always had a brokerage account, done some trading.

I always had this problem of not really being able to figure out- -you sort of assess all the ideas out there for investing and you listen to all the commentary and you watch people talk on television and then you’ve really got to assess what fits me. What is right for me? What is right for my goals and what kind of risks am I willing to take? That always sort of bugged me a little bit. I just figured I was missing something.

Anyway, I actually ended up working in the financial services world for one of those big companies. They recruited me to come in and give them the skill set of building technology products. I spent a number of years there.

Zack: Focused on risk issues?

Aaron: No, focused more on tools for constructing options trades. It was definitely more of an esoteric, market-focused on very high- end options traders and stuff like that.

Zack: Okay.

Aaron: They were trying to learn the skill set of shifting technology products. So I came in, not as an expert, but as an expert in how to shift technology products. But with a real passion and interest in investing, and then as I looked at that and learned even more about that industry being inside of it, it just became clear to me that there really was a big hole in this world of self-directed investing. We’ve got tons of commentary and tons of ideas out there. We’ve got lots of different things to invest in. There’s like 10,000 stocks, ETFs and mutual funds. We’ve got lots of places that we can go to execute our investments.

I say that our eTrades and Charles Schwabs and Ameritrades have already delivered like, fantastically better execution than the old line stock brokers. We’re going to get better fills and we’re going to get faster execution. We’re going to pay much lower commissions but the challenge lies in the middle. There is no personalization later in the self-directed investing world. There’s no personalization later that really helps me figure out which of all these investment ideas fits me.

That sort of sparked the idea to create Riskalyze and what really sparked it was when this guy came along who had invented this quartz technology that’s at the heart of our company right now and said, “Hey, I want you to take this and turn it into a company.” I, believe it or not, actually sort of turned him down cold, at first, because I looked at it and I was having a hard time being sure that it would work. And I really wasn’t quite sure where the business model was behind it. It took me a little bit of time but I eventually got to the point of saying, “I think this is going to be really big because there’s a foundational layer that’s just missing in the self-directed investing world.”

Zack: It’s so interesting that you say that because it’s actually something that I talk a lot about and write about on Tradestreaming is our ability, even in the professional realm, to describe risk and to personalize risk. Most financial advisors, investment advisors come in and do a very cursory, very rudimentary check-up on what people’s risk tolerance is . . .

Aaron: Absolutely.

Zack: . . . what their time frames are. They’re certainly not performing personalized level tools.

Aaron: Well, it’s not quantitative.

Zack: Exactly.

Aaron: It’s very subjective. A lot of people they look at how our technology works. It basically takes you through a process of making about 12 risk/reward decisions and some of those risk/reward decisions seem like they’re a little bit out there. Like, “If you had a certain loss of this much, would you go out and take this risk?”

A lot of people are just like, “I don’t either of those choices.” You’re teaching the algorithm how you make risk/reward decisions and what we found is, those 12 questions can give us a quantitative mathematical function that represents your risk tolerance in a far more powerful way than if we built a questionnaire that has 150 questions on it about your job security and your time horizon for your retirement and when your kids are going to go to college and when you’re going to retire and all of these type of things. It’s like we can’t possibly come up with a questionnaire that covers every variable that might exist in your head.

We certainly, even if we could, we certainly couldn’t figure out how to link those different questions and decide which ones are actually more important than the other. So that’s really the core of the risk-fingerprint science that we’ve got at the core of this product is that risk tolerance is something that is really about how you make decisions with your money, with an amount of money that is meaningful to you.

When we can capture that and turn it into this quantitative mathematical function, you can nail somebody’s risk tolerance. I think we’ve proven that, unlike a lot of these tools that we see these investment advisors asking questions where they say, “Are you conservative? Are you aggressive?” and maybe they’ve got three stocks in between, I think we’ve proven that there’s about a million shades of gray between conservative and aggressive and it really matters.

Zack: What I love about making it quantitative is that I think what investors struggle with is also the self-awareness, right? I’m a professional advisor as well on the side and I’ll come in and start asking questions and people will say, “Well, I’m a conservative investor. I don’t really want to lose money,” yet they’re totally in equities. That doesn’t make sense. Those two things don’t go together.

Aaron: Right.

Zack: So when you force them to make these decisions, part of this risk- fingerprint, it takes all the wording, all the language out of it and says, “Well, here. You’re faced with these two issues, what do you do?” There’s no really fudging that.

Aaron: Absolutely. Our tool is completely based on the principles of modern portfolio theory. We’re not trying to reinvent the wheel there, but what we’re doing is we’re actually placing the user quantitatively on the efficient frontier so that we can use [inaudible 09:42] to calculate a portfolio that actually fits them.

What we’ve found, that self-awareness that you’re talking about is so darn cool because I’ve had a lot of skeptical people sit down and click through it and go, “I just have a hard time believing that answering 12 questions like this could actually nail me,” and it does and it comes back with a portfolio that really fits not just their risk tolerance, but also their beliefs about the future because that’s another piece of the puzzle that we let the user control. The portfolio that comes back really fits that and it really sort of blows users away. That’s been an exciting part of what we’ve been able to see.

Zack: So you just described two parts. The first part is this risk- fingerprint, which really is a way of reckoning an inventory of a person’s risk tolerance, their risk profile.

Aaron: Sure.

Zack: Then you have to go into the market and say, well, what securities, what type of portfolio fits that? Are you looking at ETF-type portfolios? Are you looking at individual stocks? What kind of feedback are you giving to people?

Aaron: We view it as everybody has a portfolio equation and the portfolio equation, it adds up to an optimal portfolio that fits them and we see three ingredients in the portfolio equation. The first issue is risk tolerance, like we just talked about. The second is sort of your belief about what the market’s going to do in the future and that can do some level of informing us about what we should predict based on the past and I can go into that in more detail in just a second. The third piece of the equation is the investment ideas that you want the algorithm to consider because as we all know, past performance is not at all an indicator of any future success by any guaranteed measure.

We can learn from it. We can sort of use it as a default, but at the same time, we’ve got to have a filter and say, “It doesn’t matter, for example, if we’re sitting in 2006, it doesn’t matter that real estate looks really good right now.” If we feel inside of ourselves that we’re reading Fortune magazine saying that there’s a real estate bubble and we feel like real estate is not a good place to be investing, then we’re not going to add a real estate ETF for the algorithm to consider. We’re going to say, “I don’t think that’s a good investment, so I’m going to pull that out and I don’t want the algorithm to consider that for me.”

So that’s sort of our three pieces of the portfolio equation. The investment ideas that you want the algorithm to consider, that you would consider, to the best of your knowledge, to be a good investment for the future, the risk tolerance as calculated by your risk-fingerprint, and then this idea of your prediction of what the economy will do. Now, I will say that most users aren’t going to sit with our default setting which we call historical returns and we’ve gone back and just averaged the markets over about 40 years of data that we had access to. It just predicts that the markets are going to go up an average of 5.4% every 6 months and that, again, is just going back to our data feed provider, the amount of data that they gave to us, that’s what it averaged out to.

What we do in the cloud, in the background, is actually pretty interesting, I think. When you select any other kind of economic prediction, and we have a few presets, you can be optimistic and set it to this amount or you can be pessimistic and it’ll set it to this amount or you can be sideways or whatever, but you can also just type in your own prediction. You can say, “I really think that over the next six months, the markets are going to drop 3%.” You can type in whatever you want and what the algorithm will do in the background is it will go and pull all the points in history, all of the six-month time segments in our recent market data history, I think it goes back about four years and it goes back to all the time periods that roughly match that prediction, within a margin of error.

It will then take all of the securities that you’ve loaded into the algorithm and it will get an average, the returns and the volatilities for all those securities across those specific time periods and that’s what it will use to construct the return prediction and the volatility prediction for each security that you put into the algorithm. So it’s any ETF, any mutual fund, any stock, and so the cool thing is, like if you go onto Riskalyze and throw in, say, the Dow 30 stocks, you’re going to get an allocation, a typical, moderately risk-adverse person will probably get an allocation with about nine stocks.

If you were to go more risk-adverse, the allocation would probably go to about 11 stocks. Then if you were to make your prediction to be that the markets were going to drop 1.5-2%, the fascinating thing is, it’s going to put the vast majority of your money in cash but then it’s going to say, “Here’s some stocks on your list that you gave us that have actually down fairly well in down markets.” So, as a result, it’ll surface three or four more stocks.

Again, if the allocations are smaller it might comprise that you’re putting only 20-30% of your money into the markets where, before, you were putting all of your money into the markets with the choice you were giving it. It’s going to come back and say, “Here are some stocks that actually did well during this economic scenario that you’re talking about so it surfaces what could be a good investment in a down market.” I think that’s pretty powerful and very interesting for people is that they want to invest on the basis of their belief over the next six months.

Again, I think most users are probably going to leave it, they’re more of long-term investors, they’re going to say, “I’m good with historical returns,” but a lot of users too are going to say, “I think the future’s going to be less than 5.4% every six months. I think it’s going to be 3% so how does that look?” I think that’s an interesting way of how to model your portfolio.

Zack: That is very interesting and it also makes a lot of sense that people are sort of using the defaults because, I mean, are people really savvy enough to say, “I have these economic predictions. I sort of have a view of the future”?

Aaron: That’s a great question.

Zack: There’s such a universe of different scenarios that they can choose from. I feel like people just say, “I have no idea.” They sort of change direction with the wind.

Aaron: Well, and you hit the nail on the head with sort of where we’re going with the product and we’re going to get here very rapidly. Over the next few weeks, we’ll be finally rolling out some of this stuff that I’ve been able to play with in the labs that has just been really, really cool. Ultimately, we talked about the three ingredients in your person portfolio equation. There’s your risk tolerance, your risk-fingerprint and then there’s your belief about the future and there’s your list of stocks or ETFs or mutual funds that you think might be good candidates to invest in.

Well, I think that a lot of users are going to want to outsource, frankly, those last two. Like if I have a really smart person that I follow on the web and they’ve got a particular outlook for the economy over the next six months, I’d like to just follow what their economic prediction is. Then if there’s another smart person on the web that I just love their lists of stocks or I just love their lists of funds and I really follow their thoughts on different trends and different sectors that are going to work well, I’m going to follow them. I’m going to start to outsource what symbols I put into my Riskalyze portfolio. I want to outsource that to them.

I think the achievement level and the place we’re going with our business where investment newsletter publishers, we’re going to work with them to bring their products onto our platform and let them see the choices and the selections that they’ve made in their investment newsletter, into a user’s Riskalyze account automatically because, again, that’s where the real power comes in, the personalization there, because now I can take that and I can apply my fingerprint to it and I can get a portfolio that fits me but it’s based on, I have to do the work of figuring out my own investing ideas. I don’t have to do the work of figuring out my own economic scenario. We see a lot of power in that.

Zack: That’s really cool. So say you bring in this great newsletter, publisher, they’re writing about biotech stocks and you’ve got an 85 year-old investor woman, a widow, who’s got a lot of her portfolio in biotech. What if the signals based on what’s right for her from on the risk perspective and what the stock picks are kind of contradictory? How does the system resolve that? Does that question make sense?

Aaron: I want to make sure that I understand the question, but I’ll take a stab at it and feel free to ask it again a different way if I mess this up. I think in effect what would happen is, first of all, her risk-fingerprint, my guess is, it would probably be risk-adverse, right?

Zack: Yes, yes.

Aaron: Because she can’t afford to take big losses and therefore, she can’t afford to take big risks.

Zack: Right.

Aaron: And so that’s going to constrain the returns and that’s cool. But when she goes through and does her risk fingerprint, it’s going to create what we would call internally, a “gardener fingerprint”. She likes to nurture and grow her investment over time. The other end of the spectrum we call the “astronaut fingerprint”. That person has the risk tolerance to shoot for the stars.

Zack: Okay. Yeah.

Aaron: Based on that, if all she feeds into it is an investment newsletter with biotech stocks, honestly, if there are no stocks in that newsletter that fit her tolerance for risk, it’s going to put here completely into cash and it’s going to say, “None of these investments fit you.”

Zack: Okay.

Aaron: The likelihood is that it’s going to be able to pare down her portfolio a bit and say, “Obviously, we can greatly reduce the total volatility of the portfolio by putting a huge amount of the portfolio into cash and we can take small allocations in a few of these stocks. We can go ahead and put 10% of her portfolio into these stocks but it all depends on the historical volatility of those stocks, how the correlated volatility works between those stocks. Do they all move together? Are there contrarians in there? The models are going to use all of that using modern portfolio theory and be able to surface the portfolio that really fits the amount of risk that she’s willing to take.

And the idea is, what the scientists tell us, is that based on that historical volatility data, you can get yourself to about a 95% probability that a portfolio will stay within a certain [dent 21:38] of risk and reward. We can’t stop black swans. I don’t know of anybody who can but we can get ourselves to a 95% probability that that woman you’re talking about, she invested in that portfolio and it stays within the band of the amount of risk that she’s willing to take in order to get the return that she’d like to get.

Zack: So you sort of alluded to this, it was going to be my next question. With time, people’s risk-fingerprint changes. What’s the model for Riskalyze to bring people back to the site. Is it the type of thing that you come and you set it up once and you kind of set things in motion? Or do I come back quarterly? Do I come back yearly? How do you envision people sort of interfacing?

Aaron: Yeah, we envision it being something about every 60 days that people would do. Quarterly is okay too. I think yearly is probably too much but the reality is that our risk-fingerprint changes constantly and it’s based on hundreds of variables, many of which you and I can’t even know that exist in somebody else’s head. The reality is our job gets more secure and less secure, we have a medical crisis in our family, our in-laws need to move in with us, there’s just a million reasons . . .

Zack: We need to move in with our in-laws.

Aaron: There’s a million and one reasons why your risk tolerance changes so the idea definitely is that at least every 60 days, we’re touching users and saying, “Hey, your risk-fingerprint is over two months old. Now’s probably a good time to just come back and take your 5 or 10 minutes to just run through that process again.” That’s going to tell you if, perhaps, your portfolio needs to be rebalanced. I think that the other variable, of course, that changes during that time are the markets themselves.

So, if all of the sudden for example, I mean, Bank of America, great example, it was a fantastically great investment for a number of years and then along came 2007 and 2008 and here we are today and that’s one of the worst investments ever. Again, my personal opinion is, and I’m a self-directed investor myself so I’m a little bit biased that way, but my personal opinion is I think everybody should be touching their money and understanding what’s going on with their money and making sure that their investments and their money are aligned with their tolerance for risk every 60 days, six times a year. That’s my personal belief.

I think the problem is that we’ve made that really hard. We haven’t given people tools so that they have any kind of process or rationale for doing that for themselves because if I have an eTrade account and I listen to Cramer and he’s got some great ideas and I sort of plug those ideas into my eTrade watch list and then lo and behold I have 15 stocks in there, I have a really hard time pulling the trigger in the first place because I don’t know which of these are actually sort of right for me or how I should allocate money to each of them. A lot of times what people will do, seriously, is they’ll have $20,000 that they need to invest and they have 10 stock ideas and they’ll go, “Well, screw it, $10,000 for each stock,” because they don’t really have a process or rationale to do it.

Zack: Yeah. Very common.

Aaron: So they go ahead and do that. They buy $2,000 of each stock and then two, three, four, five, six months later, their stocks have all done different things and so the portfolio is not equally divided any more. What is the process and rationale for you to rebalance that portfolio? No matter how badly it was balanced in the first place, what is the process and rationale to keep that imbalance with your [risk tolerance 25:52]. We haven’t given people the tools to sort of figure that out and if we have given them tools, they are sort of one-size-fits-all tools that really still don’t personalize this down to what our risk tolerance is.

So I might be able to get in the ballpark but I’m pretty far away from actually being zeroed in on what fits me. So we’re excited about that. We think it’s about a 60-day cycle for people to come in. We’re not building a product that is about lots of page views or is about lots of time on site. We’re building a product that is all about getting people the ability to come in, touch their money, get in alignment with their tolerance for risk and get out have this be a valuable part of their investing process.

Zack: The issue that you talk about, sort of the ecosystem of these tools, most likely you’re not going to find this from an online broker or from a broker in general because they make their money through transactions. In my mind, I don’t think they’re the source of this type of thing. You’re servicing the first generation of tools to sort of simplify the investing process, like a company like a Betterman’s but, in my mind, they oversimplified everything and it can’t actually be that simple.

You’re talking about a level of personalization that heretofore doesn’t exist. That’s really cool. You alluded to earlier sort of the business model. Most people want to outsource those second and third steps of the investment process, one which is forecasting the future and then sort of the population of the universe of stocks or securities that they would be interested in. You’re talking about now partnering with third party data providers or content providers to fill in that niche?

Aaron: There’s a couple of different places that we look at it that makes sense to us and it’s why the product is free and it’s always going to be free for our users. We don’t really have any kind of premium model, at this point, in mind where there might be a subscription price that you have to pay to use this tool. We want to make this tool free. We want to reduce all the friction for using it and we want to empower individual investors to be able to get in control of their money and get it aligned with their tolerance for risk. I think we see a couple of different ways that work out as a business model for us.

The first, as you just alluded to, is the idea that we’re going to wash what is, in effect, and I’m giving you a little preview of what’s coming probably in January or February, imagine to some extent an app store for investing newsletters and for all kinds of data providers there for investment ideas. We think that’s a pretty powerful concept. It’s a small industry, frankly, that the investment newsletter, the investment publishing industry, comparatively speaking but it’s an interesting one. It’s where a lot of self-directed investors end up getting ideas.

We want to try and it’s very fragmented to some extent. There are some big leaders there, which is great. We think that we can actually give them a great advantage by making their product more relevant and really more actionable for their customers, which I’m sure is the number one reason why they lose subscribers. So we think that we can help them out a lot there. Again, for the individual investor to find somebody that they trust and sort of outsource that job of finding investment ideas and sort of flowing that into the tool, into their Riskalyze account, we think that’s pretty powerful for the user as well. We think that makes sense from a potential business model for us.

I think the other piece is on the back-end because I do think on the brokerage side there’s a lot of interest in this technology on a couple levels. One is, right now, it’s sort of an interesting situation that we’ve got right now with self- directed investors with online brokers because I think we can all see that the online brokerage industry is pretty stalled. I mean, it’s not growing. It’s definitely not growing the way that it was growing before.

I think one of the reasons for that is the online brokerage world has completely defeated the outlying stock brokers in terms of execution quality but they certainly haven’t defeated them and they haven’t even come close to defeating them when it comes to giving their clients that feeling of confidence, the confidence to pull the trigger, the feeling of safety while they own those investments and a process and a rationale to keep your portfolio rebalanced and in line with your tolerance for risk.

Zack: You’re talking about the advice layer, right, Aaron?

Aaron: I’m talking about the online brokerage.

Zack: Yeah, but what they’re lacking is this whole advice layer, right?

Aaron: Right. Well and to me, a lot of them are trying to solve it by hiring humans, throwing humans at the problem and I think that that’s cool and for a lot of people that’s a viable way, they want to invest that way and going to a lower touch model with a human advisor is really great. But for a lot of people in the self-directed world, they don’t want to go the advisor route for the fees or for whatever other reason they don’t trust it and yet at the same time in the self-directed world, we’ve sort of seen that a lot of these people they come, they deposit their money, they make their first set of investments and then they sort of fall into becoming buy and ignore investors.

They don’t make any changes and they don’t keep their portfolio in line with their tolerance risk and that’s not good for the investor and it’s not good for the broker either. I think we see a lot of interest out there among brokers. The response has certainly been really good with the idea that technology like this can really drive the consumer to be a more active investor and that’s a good thing for the broker but it’s also a really good thing for the investor because we’re going to get them out of this buy and ignore world that really has not served them well, especially over the last five years.

Zack: Are you talking about becoming an investment advisor yourself and using and actually executing the trades or passing those through to a brokerage partner, if I can ask?

Aaron: I think it goes two ways. I think definitely the tool could feed stuff to advisors and I think a lot of people are going to use the tool and fee the results to their financial advisors to spark a discussion there. I also think that a lot of financial advisors, frankly, we’re not ready to roll out a product on this, but it’s very clear that the technology would be really useful to financial advisors. Number one, for better Rule 405 compliance for knowing your customer but, number two, just for making sure that you have a far better chance if you do it quantitatively instead of subjectively of really nailing your client and making sure that that portfolio stays within the bounds of their tolerance for risk and, therefore, keeping them as a client.

But then on the online brokerage side, we think this can drive a lot of activity there as well. We’ll see how that plays out. We’re obviously not a broker-dealer so we’re not going to be able to make money off of driving trades so we’re not going to do that. We’re not going to be a broker-dealer but, at the same, I think there are certainly opportunities for people in our audience to open new brokerage accounts.

There are opportunities for, perhaps, some deals with brokerage firms who want to use the technology and we’re excited about that. There’s a lot of opportunity here and, at the same time, we’re committed that we’re going to keep this tool available to consumers for free because we really think, from a strategic standpoint for us, not only is it great for consumers and great for self-directed investors, it’s really sort of our showcase, a way to showcase our technology even while we put it to work as foundational technology in other places where the broader world probably won’t see it.

Zack: This has been a great conversation. One question that I typically end the sessions with is basically your opinion on resources to learn about investing that you yourself sort of can recommend or find yourself using, whether they’re websites or off-line materials, things that, I’m just curious where you’re going for investment advice and I think my listeners are as well.

Aaron: Sure.

Zack: Like those are the sort of inputs that built Riskalyze. What are you reading? What are you looking at?

Aaron: Yeah, that’s a great question. One of the books that is on my piles for this holiday break is, “The Black Swan” because that is something that any investor has to think about for the last five years. So I’m interested in that. I would say that there are a couple different things that interest me a lot. I’ve always sort of liked what “Seeking Alpha” has done. I’ve been a “Motley Fool” fan for a long time. I really like a lot of their content and thought process. I think I really like watching CNBC, particularly in the mornings when it’s less the sort of after-the-markets-close shows, opinion shows.

I generally like the news stuff and I like to just develop my own conventional wisdom, if that makes sense, of what I’m hearing in the news, what I’m filtering out of the news about sectors, about different companies, about different industries. I would say that the other thing that I’ve found, and I think this really informs our thinking about Riskalyze as well is that a lot of people tend to sort of, and I’m talking about self- directed investor world, not day traders necessarily, just the kind of people who are active managers of their own money, I think they tend to sort of run in little packs of four or five or six people.

It’s a very loose sort of network where you’re e-mailing friends and talking about ideas and it’s like, “Good Lord. Look at what RIM did today or Josh. I never dreamed that they were going to still be on fire for this long,” and stuff like that. Sharing those ideas and talking through those things, I think that’s something that really informs our thought process at Riskalyze as well. What we’re going to roll out in the next couple weeks is your ability, once you’ve created that list of stocks or ETFs or mutual funds that you like on Riskalyze, the ability to sort of snapshot that and share that with other people in your network. You can grab the URL. You can share it with five friends or if you’re a famous financial blogger, you can post it on your blog and say, “Here’s the stuff that I’m interested in and I consider for my investing.” The cool thing is that any of the Riskalyze users can grab that, throw out that into their own portfolio equation and build a completely different portfolio but using the same ideas.

Zack: I love it. It’s risk but it turns it all social. It’s like that personalization. I agree with you. I think we all tend to share, somewhat socially, we share our ideas and our performance and look for ideas from our friends. I love that you’re connecting all those dots.

Aaron: Absolutely. We’re excited but I sure thank you for the opportunity to be here on Tradestreaming. I don’t want you to think that I overlooked Tradestreaming when I was just talking about what we look for. Tradestreaming is actually the only investing site that I subscribe to in my e-mail right now.

Zack: Come on.

Aaron: I’m serious. I was trying keep my e-mails very clean. I have everything else coming through like Twitter, RSS feeds, stuff like that. Tradestreaming is the one newsletter that still makes it into my e-mail every week so that’s kudos to you.

Zack: Well, I’m honored. Thank you very much. The great part of this conversation is that I feel like I already know you because the concepts that you’ve built into your system are things that I even talked about in my book that came out in 2010, like investing app store, personalization of risk, all these types of ideas are things that I was talking about then that I really feel are just beginning to be leveraged by entrepreneurs and creative people like yourself so kudos to you as well.

Aaron: Well I am just on to Amazon and I have put in my order for your book so there you go.

Zack: Thank you very much. Thank you so much for joining us. Aaron Klein, the CEO and, I guess, co-founder or founder of Riskalyze.

Aaron: Co-founder, correct.

Zack: Okay.

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Tradestreaming is a community of investors learning directly from experts. I’m Zack Miller, investor, entrepreneur, and founder of Tradestreaming.com and I literally wrote the book on how to invest in the age of Facebook and Twitter. Tradestreaming is the resource I’ve created to help me become a better investor.  I believe it will help you … Continue Reading