Wilton Risenhoover Talks RobotDough, AKA the "Capital IQ for Consumers"
Think your investment strategy could have made you rich off Apple, Google or Amazon? RobotDough lets you find out.
RobotDough is, as founder and CEO Wilton Risenhoover describes it, “like Capital IQ for consumers.” Risenhoover says that he wanted to take the best ideas of professional-grade tools, repackage and simplify them “and make them available to people who can't necessarily afford [the professional-grade] price.”
That, Risenhoover says, is where he and his team started in developing the site. “We're going to try and build a consumer brand around easy-to-use computerized financial tools,” he said during a recent interview with Benzinga.
Before launching RobotDough, Risenhoover worked in software development and investing. “[I've built] software systems for most of my career,” he said. “For 15 years I've been involved in over a dozen online products. Pretty much any product is online nowadays, but I've done quite a few of them.”
While working toward his MBA, Risenhoover began to think about the prospects of building a new website that catered to the financial community. “I spent a lot of time studying finance,” Risenhoover said. “In the process, I realized that there weren't any tools available to individual investors who wanted to make better investments by valuing companies. There were some very expensive tools available – Capital IQ, Bloomberg, and so forth. We had exposure to a lot of these at UCLA, but anybody who doesn't have $1,000 a month is out of luck.”
Risenhoover was particularly bothered by the lack of free cash flow information. “Free cash flow is one of the most important things you should be looking at when valuing a company,” he said. “There's no mention of free cash flow on Google Finance (NASDAQ: GOOG).” Likewise, Google Finance does not provide any details regarding enterprise value.
“There are a lot of tools available to consumers, don't get me wrong here,” Risenhoover assures us. “Free stock charts and all kinds of charting systems out there. But really, those are focused on people that want to do technical analysis. Those types of tools don't do any fundamental analysis, so really there's a big gap. That's kind of where we started with RobotDough.”
Building the Platform
Risenhoover describes RobotDough as an equity research platform. “The core of RobotDough is the stock screener,” he revealed. “We provide a bunch of things that you can screen on RobotDough that you can't screen elsewhere. You can screen on free cash flow, enterprise value, things like the Piotroski score. We also have all of the items on the balance sheet, the cash flow statement, and the income statement.”
Interestingly, RobotDough allows you to build a full formula. “On most stock screeners, like Yahoo! (NASDAQ: YHOO) and Google, you can put together a little range of values,” Risenhoover said. “You can say, ‘Find me a company where the P/E ratio is greater than 15 or less than 20' or something like that. But with RobotDough, you can say things like, ‘Find me companies where the cash per share is greater than the share price.'”
This gives you the ability to build “free-form equations,” Risenhoover said, “and kind of stack these rules on top of each other to build really sophisticated algorithmic formulas for selecting companies.”
That, Risenhoover says, has been really popular. “From the stock screener, you can save these strategies. If you create a screen in RobotDough and save it, then we'll automatically do a one-year backtest for you and we'll tell you how it would have performed if you had invested on that screen.”
What's more, users can choose to share their strategies with other users. “And then what happens is [that] we'll actually run that strategy every night. When we get the new financial data from our providers, we'll run your strategy and then you can get a daily update of all the new companies that that strategy has found. So the idea here is to save yourself some time.”
Risenhoover compares the whole process to having a bunch of little robots, “where you program them with the formula and then they run every night, and send you an e-mail with a list of new companies you should be looking at.”
Thus, if you're a newbie, Risenhoover says that you can come to the site and “browse the list of strategies that other people have made and see what the performance has been on them.”
“And then you can simply subscribe to one of them or look at the rules that it had and learn from it – from the work of other people – because you can actually see the rules [for their strategies],” Risenhoover said. “So we really try to build something for everybody here; the complexity and sophistication that will attract the experienced investors, but also try and simplify it a little bit for the novices.”
Beta in Full Swing
During the beta stage of RobotDough, users can take advantage of its features for free. “But at some point we'll be looking at ways to monetize the site,” Risenhoover said. “We have over 1,100 strategies in our database right now, and most of them are private.”
“If you want to use it as a tool strictly for your own research and not share it, that is certainly something you can do,” Risenhoover continues, but adds that there are a lot of people who like to share their strategies. “They want to have credibility, they want the reputation. They want the visibility. And maybe they're feeling a little altruistic as well.”
As far as key strategies are concerned, Risenhoover said that he sees a lot of investors who are focused on value investing. “We see a lot of Benjamin Graham-type strategies on the site as well,” he said. “People try to mirror Joel Greenblatt's strategy. There's also some that are based on Bill O'Neil's writings. So there's a wide variety of stuff, but it's all primarily value-based.”
Risenhoover suspects that could be due to the fact that RobotDough does not provide intraday pricing. “All of the pricing on our site is end-of-day,” he said. “So you're gonna see less technical analysis and more fundamental analysis with that kind of data set.”
Testing Your Strategies
One of RobotDough's most intriguing features is its backtesting tool, which is currently only offered within the private beta but is scheduled to launch before September.
“We have 20 years of historical data for all the companies in the world,” Risenhoover boasts. “You can build a strategy. If you want, you can go back in time and backtest it and see how the strategy would have performed over the last 20 years.”
Needless to say, the RobotDough team thinks this tool is very powerful. “If you wanted to go out and build this capability yourself, it would cost a ton of money,” Risenhoover said. “But we actually got quant-grade data – this is the same data set that hedge funds buy whenever they want to do their backtesting.”
But don't confuse this backtesting tool for anything you'll find on E*Trade (NASDAQ: ETFC).
“If you look on E*Trade or a discount broker, a lot of these guys have backtesting tools,” Risenhoover said. “These tools are interesting and they're free, but all they do is backtesting on a single security. They basically look at technical analysis of a company. So you'll say, ‘I wanna test a strategy against Apple (NASDAQ: AAPL).' And [the site] will run and tell you how that strategy would have made money at trading Apple.”
While that's certainly helpful, Risenhoover said that those tools cannot take an investment strategy and apply it to an entire universe. “Our technologies are a much broader and a much more useful tool for doing this kind of large-based fundamental backtesting,” Risenhoover said. “It's in a private beta right now, and we're taking names for people who want to sign up.”
Providers of Data
RobotDough gets all of its fundamental data from Reuters.
“It's the same company that provides Google with its data set,” Risenhoover said. “We actually have global coverage, which is a really big selling point for us. There's a lot of people in the rest of the world that don't have as many sophisticated investment tools as we do here in the United States. So we actually licensed the global Reuters database.”
As a result, RobotDough has acquired data on 45,000 companies from over 130 stock exchanges. “If you want to do a search for companies on the Australian stock exchange, we've got it,” Risenhoover said. “We've got London, South Africa, Hong Kong, all of China, Kuwait, Kazakhstan – the list goes on and on. So we really try to reach out to people who are overseas who invest in foreign markets that don't have the ability to invest in the United States and try to build something that's available to them as well.”
RobotDough, which officially launched at Finovate last May, is expected to develop very quickly.
“We're always planning on innovating, so there will always be some features that we are baking, and we try to get features out to our users as quickly as possible in order to get feedback from them,” Risenhoover said. “It's the idea of trying to build a minimum viable product, which has proven to be very effective in software development these days. We try to build features and try to put them in front of people very frequently. So we will probably always have something cooking in beta as we go on. But we'll probably move the majority of the site out of beta. I would say within the next six months.”
Risenhoover concluded by saying that RobotDough is going to be announcing a new feature this September at the fall Finovate event in New York. “We've been selected to present there again and we have some stuff that we're working on that's pretty interesting.”
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