In Episode 75, we welcome Mike McDaniel, CIO and co-founder of Riskalyze. It’s a special episode, being recorded at the Riskalyze Fearless Investment Summit in Lake Tahoe.

Per usual, we start with Mike’s origin story, but it’s not long before the guys dive into investments. Meb asks about Mike’s investment framework – how does he think about the world as a practitioner.

Mike tells us he tries to let the market do as much as possible. One of the biggest things that will lead to success is simply being investing. And because our emotions can trip us up so much, by quantifying risk and then having a better idea of what to expect, we stand a better chance of success.

This concept is what lead to the Riskalyze Risk Number. Meb asks for an overview of what this number is and how it works.

Mike gives us a great overview of its background and how Riskalyze seeks to quantify risk on a scale of 0-100. (Basically “cash” to a “single stock.”) The conversation morphs into how the Risk Number has been further refined over the years, including the amount of historical data included.

Next, Meb brings up something Mike once said in an interview, about the two reasons why investing is broken. He asks him to expound. Mike tells us these factors are 1) the psychological pitfalls facing the mom ‘n pop investor, and 2) the complex nature of the investing environment (so many products available to the investor).

It’s not long before Meb brings up a current reality facing advisors: With asset allocation being largely commoditized with a low fee attached, where is the main “value add” for advisors these days?

Mike believes that the advisor’s role is to be the behavioral coach. He has multiple stories about the power of using data and analytics to keeping the investor invested. This leads into the most common mistakes Mike sees that many investors continue to make.

It’s not long before Meb turns the mic over to the audience (remember, this was recorded in front of a live audience in Lake Tahoe). You’ll hear:

Have Riskalyze numbers proven to be helpful when facing an SEC audit?
What will be the impetus that gets advisors to enter into the 401k space?
Most investors have traditionally relied on bonds to be a stabilizing effect on portfolios, but is the market we’re in likely to play that role? Given this, how does Riskalyze think about alternative asset classes?
In a world of low expected returns, how does an advisors balance business risk versus the client’s investment risk?

There’s plenty more in this episode, including Meb’s discussion of the impact of fees on various global asset allocations… home country bias… the challenges of trend-following… and of course, Mike’s most memorable trade. It turns out, he has two, the latter of which is what led to the creation of the Riskalyze concept.

What were the trades? Find out in Episode 75.

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When You Are Tempted to Give Up