Podcast Summary: Barron's Streetwise – "10% Market Dip? How Not to React"

Date: March 14, 2025
Host: Jack Howe (Barron's)
Guest: Barry Ritholtz (Ritholtz Wealth Management, author of "How Not to Invest")
Additional Voices: Alexis Moore (Producer), Jomana Selehin (Vanguard), Jackson Cantrell (Producer)

Episode Overview

This episode tackles investor anxiety in the face of a roughly 8% decline in the S&P 500 and explores the best and worst ways to hedge against further downside. The centerpiece is a practical and philosophical discussion with renowned investor Barry Ritholtz, focusing on the traps of market timing, the myth of consistent outperformance, and the behavioral pitfalls most investors fall into. Also included are actionable portfolio strategies, a re-evaluation of the 60:40 model, and a candid, entertaining look at investment wisdom and mistakes.

Key Discussion Points & Insights

1. Current Market Drop: Context & Psychology

• [01:23] The S&P 500 is down 8% from its January peak. While not alarming for a decade-long investor, questions arise: is this a transient wobble, or a warning of deeper trouble?
• Historical US equity returns far outpace bonds, bills, and inflation—stocks since 1900: 9.7% annualized—but sharp, unpredictable drawdowns ("20%, maybe 50%") are always possible (03:16).
• Recent volatility blamed variously on potential Trump tariffs, Japanese rate hikes (ending "cheap borrowing" for US tech stocks), or overvaluation.
• Jack warns against panic but acknowledges it’s rational to ask, “Should I hedge? And how?”

2. What NOT to Do: Dangerous Hedging Tactics

• Inverse ETFs:
  • “Definitely don’t buy an inverse exchange traded fund… it's for traders and definitely not long term investors.” (04:22)
  • Long-term holding can result in catastrophic losses: "I'm sorry you're down 99%.” (05:01, Jack Howe)
• Market Timing/Cash:
  • Raising cash to time markets is rarely successful due to unpredictability; luck is not a plan (05:28).
  • "Since stocks are more likely to go up than down, you're likely to get the timing wrong." (05:34)

3. Sensible Hedging and Diversification Approaches

• Defensive Stocks:
  • "It’s tough to tell which ones are safe." (06:19)
  • Defensive labels can be misleading—utilities and packaged food companies have rallied above market levels, potentially losing their defensive value.
• Equal Weight S&P 500:
  • Offers more value tilt and reduces tech overweight but can be arbitrary and disconnected from true economic weight (08:07–09:28).
• Value ETFs:
  • Fundamental indexes like FTSE RAFI US 100 (ticker: PRF) weight companies by economic measures, not just market cap.
  • “It's done a little better than the equal weight S&P 500 both this year and over the past 10 years.” (10:04)
• International Exposure:
  • Emerging markets and overseas (Japan and Europe) have outperformed US stocks this year (11:48).
  • Add international ETFs like iShares MSCI Japan and MSCI Europe based on global market weights.
• Bonds:
  • Core to cushioning against downside—low correlation with stocks: “You should have bonds. ...The real appeal with bonds is that they have low correlations with stocks usually.” (12:16)
  • Recommendations: Schwab US Aggregate Bond ETF, high-grade corporates, and TIPS.

4. Is the 60:40 Model Still Relevant?

• [13:58 & 14:07] Jomana Selehin (Vanguard) argues the 60:40 stock/bond portfolio is a shorthand, not a rule, and should be adapted for each investor.
  • “What is 60:40? It actually means different things to different people.” (14:07)
  • Emphasizes the need for personalization and "tilting" based on the market and individual situations.

Interview: Barry Ritholtz — "How Not to Invest"

Origins and Philosophy of the Book

• "I didn't want to write this book... I spend a lot of time responding to clients and the media explaining why, no, that's a bad idea." [16:34, Barry Ritholtz]
• Inspired by Charlie Munger:
  • “‘We’re not smarter than everybody else, we’re just less stupid.’ So the idea of inverting the whole how-to book and tell people how not to sort of formed.” (17:25)

Lessons from Tennis (Investment Metaphor)

• Amateurs lose by making fewer mistakes, not by trying to mimic professionals' risky moves.
• Defensive, not flashy, wins for long-term investors: "Don't exceed your own skill level, don't make these mistakes, be less stupid, and you'll be a much better driver (or investor).” (19:21–20:10, Barry)

Can You Really Beat the Market (Alpha)?

• “In a given year, less than half [of managers] beat the market net of fees. Over five years, 83% fail. ...At 20 years, it virtually goes away, other than a handful of names.” (20:33–21:23)
• Even Warren Buffett’s historic outperformance was concentrated decades ago.
• “If the market drops 50%, it takes 100% recovery to get back to square one.” (22:21)
• Key message:
  • "Whatever you do, don’t interfere in the market’s ability to compound. If you could prevent that, you’re just so far ahead of everyone else.” (22:52)

What Should You Do When Nervous?

• Advice differs depending on how close you are to needing your portfolio:
  • For those near retirement: reconsider equity exposure, not because of timing, but to match risk tolerance and needs.
  • For younger investors: “Who cares what happens in any given month, quarter, year? You’re looking 10, 15 years on the other side.” (26:18)
• Human risk aversion and our evolutionary impulses can harm investing discipline.

3 Crucial “How Not to Invest” Takeaways

1. Be Discerning About Financial Media:
   • “Be judicious in who and what you read or watch in financial media, especially with the understanding that you’re investing for decades, not Tuesday.” (28:06)
2. Respect the Power of Compounding:
   • "[A] $1,000 invested in stocks 100 years ago is worth $32 million. …Compounding is a mathematical miracle. Try not to interfere with it." (29:33)
3. Control Your Behavior:
   • Investors underperform their own holdings by 3–4% due to poor timing and behavioral mistakes.
   • “Investing is a problem that's been solved. ...The issue is cracking the code of our own behavior.” (30:43)

The Problem with Forecasts and Financial Media

• Humility is essential:
  • “There is so much pomposity in this field ...just, don’t be too full of yourself, don’t try to do too much.” (32:39, Jack & Tom)
• Overconfidence and specificity sell, but are unreliable:
  • "The more specific that person is, the more the viewers like them. ...They are going to be consistently wrong." (34:04, Barry)
• "If you get one outlier right, your future track record tends to be pretty poor." (35:06)

Who Should Seek Wealth Management?

• Ritholtz Wealth has no minimums and serves a wide demographic, focusing on helping people understand and use money wisely.
• Sports metaphor: "You find that so many people are trying to hit these home runs. The net net is they have a low batting average and a lot of strikeouts. ...Just get some wood on the ball." (35:43)

Notable Quotes & Memorable Moments

• “We’re not smarter than everybody else, we’re just less stupid.”
  — Charlie Munger quote via Barry Ritholtz (00:26, 17:25)
• “Counting on luck is not a plan.”
  — Jack Howe (05:28)
• “If a value tilt is what you want, then get yourself a value tilt.”
  — Jack Howe (09:51)
• “Whatever you do, don’t interfere in the market’s ability to compound.”
  — Barry Ritholtz (22:52)
• “The average investor underperforms their own holdings by 3 to 4%. ...because they buy high, they get panicked out.”
  — Barry Ritholtz (30:43)
• “Don’t try to do too much. ...Dad, you’re doing too much.”
  — Jack Howe & Tom (32:39)
• “Investing is a problem that’s been solved. ...The issue is cracking the code of our own behavior.”
  — Barry Ritholtz (30:43)

Timestamps of Key Segments

• [01:23] – Introduction of current market context and investor concerns
• [03:16] – Explaining unpredictability of stock drawdowns
• [04:22–06:19] – Warnings against inverse ETFs, market timing, and overreliance on “defensive” stocks
• [07:57–11:48] – Discussion of equal weight indexes, factor/value strategies, and international diversification
• [12:16] – Importance of bonds and practical bond strategies
• [13:58–14:29] – Jomana Selehin on evolving the 60:40 model for today's investors
• [16:34–19:21] – Barry Ritholtz explains the inverted 'how NOT to' approach and the tennis metaphor for investing
• [20:33–22:52] – Why beating the market is nearly impossible long-term; power of compounding
• [26:09–27:53] – Investment advice for nervous investors; importance of time horizon
• [28:06–31:47] – Three key “how not to invest” lessons: media discernment, compounding, and behavior
• [32:39–34:04] – Humility, overconfidence, and media’s role in forecast error
• [35:43–36:40] – Who Ritholtz Wealth serves and using “base hits” in investing
• [39:41] – Final thoughts on personalization in portfolio construction (Jomana Selehin)

Language & Tone

The tone is candid, pragmatic, and often self-deprecating, with Jack Howe and Barry Ritholtz poking fun at investor mistakes, salesmanship in financial advice, and their own experiences. The language avoids jargon where possible, focusing on relatable metaphors and practical illustrations.

Conclusion

This episode delivers clear-headed advice to avoid panic during market drops and focuses on thoughtful, diversified, long-term strategies (not flavor-of-the-month hedges or “hero ball”). Barry Ritholtz’s guidance on not interfering with compounding, avoiding costly investor behaviors, and tuning out most financial entertainment is especially timely, given persistent volatility. Investors of all ages and risk tolerances will find practical, humility-infused wisdom—reminding us that often, “less is more” when reacting to a market dip.