Hi Dr. Smith, please tell us about your tech journey so far.
I started building financial technology websites in 2003 when I built SeasonalTrader.com. In 2005 I launched TradeStops.com which offered trailing stop loss alerts to retail investors before brokers offered them. TradeStops grew to 30,000 paying subscribers tracking over $20B of their own assets on what grew into a portfolio management platform. I exited TradeStops in late 2019.
The investing tool Finiac is a risk analytics platform for independent investors who want to invest smarter. Could you please highlight its USP?
What I learned from my 15 years with TradeStops is that independent investors have little to no understanding of risk management. No professional investor would be in the markets without risk management and yet even the basics of risk management are absent in the retail world. There is a huge value add in being able to help independent investors leverage best practices in risk management. We know that these analytics add value. The challenge is in creating a user-experience that independent investors can relate to and leverage.
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Is predictive analytics possible for the market? Could you please share a few of your strategies?
I do believe that predictive analytics can work well for independent investors – when combined with good risk management. I interviewed Jack Schwager of Market Wizards fame a while back and asked him what the Market Wizards have in common. He said, “Nothing really, except that they all are pretty religious about risk management.” That’s a really amazing observation.
I actually believe that in today’s markets, risk management itself has become a predictive analytics because so much of market structure today is about more sophisticated institutions having better visibility into market flows than independent investors. Sophisticated institutions are then able to warehouse risk and outlast independent investors. Buffett famously said that markets are a mechanism for transferring wealth from the impatient to the patient. I would say that today’s markets are a mechanism of transferring wealth from the risk illiterate to the risk literate.
In addition to risk management, I’m a big believer in cycles and seasonality. They don’t work all the time but sometimes they work like magic. If you combine them with risk management to limit downside and unlimit upside, I’ve found it to be a winning formula. I believe that cycles work because markets are made up of human decision makers (even those writing and running the algorithms) and humans are cyclical.
How exactly does the features of cloud are used for cycles analysis tool?
The cycles analyzer offered by the Foundation for the Study of Cycles runs entirely in the cloud. We use services like Amazon Web Services to provide amazingly responsive analytics to any device at any time. Our lead engineer and fellow Board member Lars von Thienen, is just a brilliant engineer who has made all this possible.
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How has the crypto landscape changed over the past couple of years? What predictions do you make for 2025?
Crypto is going through one of its many ups and downs – aka cycles. I’ve said over and over again that if you can’t stomach a 75% drawdown you shouldn’t be in crypto. And that’s just for the blue chip cryptos like BTC and ETH!
Blockchain is a legitimate technological innovation in that it is the first time that anyone can exclusively control a purely digital asset without having to worry that the asset can just be copied. If you hold the keys, you control the asset. This has all kinds of important potential for our increasingly digital lives. That potential is still in the process of being unlocked but it is real and it will eventually be unlocked because we want sovereignty over our digital lives and we don’t have that right now.
Micropayments is also something that is inevitable because there is so much value to be unlocked there. Think about it – you can’t economically transact online for less than $1 right now. What’s going to happen when you can do a meaningful transaction for $0.01? The amount of innovation and commerce that will open up is mind boggling.
By 2025 we will see real companies generating real revenue by providing real services that allow real people to control and monetize their digital assets and transact in micropayments. I believe that the blockchain ecosystem will most likely be a combination of ETH and BSV.
One advice that you would like to give to the investors focusing on portfolio diversification?
Diversification really isn’t a mystery. It’s just math, but you’ve got to actually use the math. That’s what Finiac.com is all about. Finiac gives you the tools to build a diversified portfolio by allowing you to see the math in a more intuitive and dynamic way. See the math. Be the math.
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One book that you want to suggest to our readers.
Only one?! Wow, ok. I’ll go with an easy to read old classic that most people have never heard of – The Zurich Axioms by Max Gunther. The subtitle of the book will tell you why I like it – “The rules of risk and reward used by generations of Swiss bankers.”
Your favorite fintech quote.
“Be the bank.” – Dr. Richard Smith
Thank you, Richard ! That was fun and we hope to see you back on globalfintechseries.com soon.
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Dr. Richard Smith – Berkeley Mathematician and PhD in System Science – is a fintech entrepreneur, the CEO of The Foundation for the Study of Cycles, and the author of The Risk Rituals newsletter. Dr. Smith has built a reputation as “The Doctor of Uncertainty” amongst his academic peers and has helped government agencies and Fortune 500 companies alike make sense of complex sets of data. In his upcoming book The Risk Manifesto, Dr. Smith will aim to further educate investors on how to circumvent self-destructive instincts and adopt a systematic way to manage their fear of risk With his background in mathematical theories of uncertainty combined with his investing and trading experience, Dr. Smith is a regular speaker and lecturer and particularly enjoys opportunities to share his knowledge and help others gain an edge in the market.
The premiere international non-profit cycles research organization, established in 1941 as a nonprofit corporation by economist Edward R. Dewey, is dedicated to the interdisciplinary study of finding and analyzing recurring patterns. This includes the economy, natural and social sciences, the arts and more as more than 4,300 natural cycles have been documented with interrelated patterns. Our Mission is to discover, understand and explain the true nature and origin of cycles, thereby solving the mystery of recurrent rhythmic phenomena, as has been observed in both the natural and the social sciences, and while so doing instruct others, how to apply this new knowledge for the greater good of all life.