How Not To Invest

Summary

Podcast Summary: "How Not To Invest"

Episode Details:

• Title: How Not To Invest
• Host: Jill Schlesinger, CFP®
• Guest: Barry Ritholtz, Co-founder of Ritholtz Wealth Management
• Release Date: June 6, 2025

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1. Introduction to Barry Ritholtz and His New Book (03:32 – 07:00)

The episode begins with Jill Schlesinger welcoming Barry Ritholtz, co-founder of Ritholtz Wealth Management, to discuss his latest book titled "How Not to Invest: The Ideas, Numbers, and Behaviors that Destroy Wealth and How to Avoid Them." Jill draws parallels between her own book, "Dumb Things Smart People Do with Their Money," and Barry's work, highlighting their shared focus on the intersection of numbers and emotions in finance.

Notable Quote:

Jill Schlesinger [03:32]: "I think that as much as you and I both have been trained by the numbers, we understand that so much of the world of finance is based on emotions."

2. The Timing Behind Writing "How Not To Invest" (04:09 – 05:45)

Barry explains the motivation and timing for releasing his new book. After establishing Ritholtz Wealth Management in 2013 and following his first book "Bailout Nation" 15 years ago, Barry felt the need to address recurring financial misconceptions amplified by events like the pandemic and rapid Fed rate hikes. He describes the organic development of the book's concepts through meticulous organization using traditional methods like bulletin boards and index cards.

Notable Quote:

Barry Ritholtz [04:51]: "It's just something about manual old school thumbtacks on a bulletin board... the stuff... self organized itself."

3. The Impact of Recent Economic Events on Investing Behaviors (05:45 – 10:53)

Jill and Barry delve into how the tumultuous economic landscape of the past five years—marked by events like the dot-com bust, 9/11, the financial crisis, the pandemic, and unprecedented Fed rate hikes—has influenced investor behaviors. Barry emphasizes the unchanging nature of human emotions in finance, regardless of external circumstances.

Notable Quote:

Barry Ritholtz [08:10]: "Human nature is exactly what human nature is. People are going to make the same mistakes they make."

4. Navigating Financial Media and Separating Signal from Noise (10:53 – 16:53)

Barry critiques the overwhelming and often misleading financial media landscape. Drawing inspiration from Sturgeon's Law, he advises listeners to be selective and critically assess the information and advice being presented. He underscores the importance of focusing on reputable sources and understanding the intentions behind financial pundits' recommendations.

Notable Quote:

Barry Ritholtz [08:46]: "Ask yourself, what is this person selling? What is their history? Am I taking candy from a stranger?"

5. Advice for Younger Investors and Learning Through Experience (16:53 – 27:01)

The conversation shifts to younger investors who may lack firsthand experience with severe economic downturns. Barry candidly states that some lessons can only be learned through personal experience, though he offers guidance to mitigate common pitfalls. He also addresses the rise of meme stock trading, emphasizing the inherent risks and low likelihood of long-term success for most traders.

Notable Quote:

Barry Ritholtz [26:54]: "They have to burn their hand on the hot stove to learn to not."

6. The Passive vs. Active Investing Debate (27:01 – 34:56)

Jill steers the discussion towards investment strategies, particularly passive versus active management. Barry defends passive investing, citing extensive research that demonstrates the underperformance of active managers over extended periods. He explains the concept of "beta" (market returns) versus "alpha" (excess returns) and highlights the difficulty of consistently outperforming the market.

Notable Quote:

Barry Ritholtz [32:16]: "Beta is what the market gives you. If you just own the whole market, here's what you get each year."

7. Practical Investment Strategies and Organizational Alpha (34:56 – 41:02)

Barry outlines practical strategies for investors to optimize their portfolios without succumbing to the allure of active management. He introduces the concept of "organizational alpha," which involves leveraging technology and strategic account placement to enhance returns and reduce taxes. Barry also emphasizes the importance of working with fiduciaries who prioritize clients' best interests.

Notable Quote:

Barry Ritholtz [38:25]: "Don't blow me up... we harvested all these tax losses through direct indexing."

8. Managing Emotions and Information Hygiene (41:02 – 43:51)

In the concluding segment, Barry discusses the importance of "information hygiene"—filtering out irrelevant or harmful media consumption to maintain emotional stability in investing. He encourages listeners to focus on controllable aspects of their financial lives, such as personal behavior, expenses, and ethical considerations, rather than external market noise.

Notable Quote:

Barry Ritholtz [43:51]: "Focus on what you can actually manage... don't rely on [the media] to make investing decisions."

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Key Takeaways:

1. Understand the Emotional Aspect of Investing: Recognize how emotions influence financial decisions and strive to manage them effectively.
2. Be Selective with Financial Advice: Critically evaluate the sources of financial information and prioritize reputable, data-driven advice.
3. Embrace Passive Investing: Given the challenges of consistently outperforming the market, a broad, low-cost index fund approach is generally advisable.
4. Optimize Through Strategy, Not Speculation: Utilize strategies like tax-loss harvesting and proper account placement to enhance returns without taking on unnecessary risk.
5. Maintain Information Hygiene: Limit exposure to overwhelming and often misleading financial media to focus on controllable aspects of your financial life.

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Conclusion: In this insightful episode, Jill Schlesinger and Barry Ritholtz provide listeners with a comprehensive guide on avoiding common investment pitfalls. By emphasizing the importance of emotional control, selective information consumption, and strategic passive investing, they offer actionable advice aimed at building and preserving wealth effectively.

Transcript

[Jill Schlesinger]

Hey gang.

[Mark Ritholtz]

Whenever you call in and talk about some of the big milestones in your.

[Jill Schlesinger]

Lives, like maybe having a baby, maybe.

[Mark Ritholtz]

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[Jill Schlesinger]

A Realtor changed everything.

[Mark Ritholtz]

Realtors can help buyers understand what they can afford. They can explain all of the steps that are involved in purchasing a home, and they can walk you through every detail, from making an offer to closing the deal. Working with a Realtor can help you feel less alone or unsure about the process and that peace of mind that is the power of having a realtor by your side. Whether you're ready to move or just starting to dream, don't go it alone. Don't let what you don't know stop you from starting your next chapter. Find your [e-mail] that's championsofhome.com welcome to the Jill on Money Show. It's Friday, June 6th. It is the anniversary of D Day. We're not gonna talk too much about that, but both Mark and I are history buffs so we encourage you to explore this topic when you're through listening to this podcast. This is the program that tries to take the mystery out of your financial life and normally we try to focus on you because I care about more than anyone else. But we did have the opportunity to interview one of my pals. His name is Barry Ritholtz. He is the co founder of Ritholtz Wealth Management. And you've heard me talk about these folks before because I've appeared on some of their podcasts and their YouTube channel. But today I'm interviewing Barry about his new book. It's called how not to Invest. And I love the subtitle, the ideas, numbers and behaviors that destroy wealth and.

[Jill Schlesinger]

How to avoid them.

[Mark Ritholtz]

Barry has been in the business for a long time and it's a free flowing, fun conversation, so I hope you enjoy it. Of course, if you have any questions about anything that Barry and I talk about, just go to jillonmoney.com, click the contact Us button. Let us know if you would be willing to come on the air live because we'd love to have you. While you're on the website. Don't forget to sign up for the free weekly newsletter. By the way, our newsletter platform has changed. I mean, Mark changed it. He said it's better. So anyway, you might all be subscribed to a substack. Now, that's the same newsletter we've always had, so don't be too confused. Anyway, if you're not part of it, sign up right now. The free weekly newsletter does come out on Fridays. Okay, without further ado, here's my interview with Barry Ritholtz.

[Jill Schlesinger]

Mazel tov on the new book. It's called how not to Invest. And I guess you and I share something that is more than just our love of numbers and emotions, but also we like negatives. So you wrote how not to Invest, and I wrote the dumb things smart people do with their money. And I think they both share a through line, which is. I think that as much as you and I both have been trained by the numbers, we understand that so much of the world of finance is based on emotions. So I wanted to ask you first, why write this book now versus any other time in your career?

[Barry Ritholtz]

My first book was Bailout Nation was about 15 years ago. I'm like clockwork every 15 years, right? The sequel to this will be out in 2040. You know, we launched the firm in 2013, and the past 10, 15 years have been kind of busy. And people started nagging me. Some publishers, some friends, Morgan Housel hey, you know, you're due for another book. Why don't you put something else out? And who has time? And then the pandemic hits and I just start kind of thinking about it a little bit. And by the time 2023 rolled around, you can't see it, but I have this giant bulletin board in my office and this big stack of 3 by 5 index cards, and I just started writing ideas down and putting them up on the board. Normally, I'm very Digital. But I don't know, there's something about manual old school thumbtacks on a bulletin board and after a while it just, I don't want to say self organized but hey, a lot of the stuff that I seem to have looked at, analyzed, written, commentated about over the decades, bad numbers, bad ideas, bad behavior, it's sort of self organized itself. And suddenly I hadn't a concept and a structure for a book.

[Jill Schlesinger]

And I should mention for our listeners that Barry and his partners have created a big investment advisory firm called Ritholtz Wealth Management. I don't know how much money you guys have under management. Yeah, I was going to say 5 or 8 billion.

[Barry Ritholtz]

That's depends on, depends on where we close today.

[Jill Schlesinger]

Exactly. And so a lot of you may be familiar with some of his partners who've been on our air. So as you were putting this book together and you, I guess I wonder if this specific five year period that we've seen the past five years amplified those different sections. You know, bad ideas, bad numbers, bad behavior. Because we went through so much in that, in that very short period of time. How do you think that that translated into all of these ideas coming to fruition? Was it just because we were home and had the attention of more people who couldn't go to live sporting events and decided they wanted to trade instead?

[Barry Ritholtz]

I don't know. Every time I flip on the news and some riverbank has overflooded and wiped out a town, people always say the same thing. This is a hundred year flood, but we're going to rebuild. Well when was the last time this happened? Oh, about two years ago. Hey, maybe we should stop calling these things hundred year floods. In my career what do we have? We had the dot com implosion in 9 11. We had the great financial crisis, we had the flash crash. We had the first false expectations of a tariff driven in recession, Q4 of 2018. Then we had the pandemic and then the pandemic recovery and then the fastest Fed hiking cycle in modern history in 2022. And then back to back plus 25% years, 2324. And then this year's sort of tariff mayhem. I'm kind of hard pressed to say that it's a little bit different in the past five years, but it's no different at all. Because human nature is exactly what human nature is. Until, until Elon Musk implants chips in everybody's brains. People are going to make the same mistakes they make. They're going to react emotionally. The news is what the news is. It tends to be a little histrionic and click baity and ephemeral and distracting. And as long as that fire hose is coming our way, to say nothing of algorithmic social media, hey, we're going to take our eye off the ball. We're going to become distracted, we're going to make mistakes.

[Jill Schlesinger]

And as you write, I mean, essentially there are all sorts of pundits of which I guess some would consider us because as our listeners may or may not know, Barry hosts a great show on Bloomberg and you write quite a bit and your partners have shows that are on YouTube and some of them appear in other outlets that some of the outlets that you, I think, are sort of disdainful of. So how do you marry the idea that so much of this business is predicated on baloney because nobody knows anything about the future, with the idea that, you know, you and I are out there on the, in the media talking about this stuff?

[Barry Ritholtz]

Sure. So. So two things. And, and first, I wouldn't say so much disdainful as you know, in the book, I talk about Sturgeon's Law. Ted Sturgeon was a sci fi writer in the 50s and 60s, and people used to say to him, how come so much. And this was back in the day of pulp magazines and, you know, that sort of drek, sci fi, how come so much sci fi is garbage. And Sturgeon's response was, 90% of everything is garbage is crap. So you have to be really selective. So it's not that any one channel or any one magazine or any one radio station is so bad. It's that, hey, I grew up in the era where my mom told me, don't take candy from strangers. And so if someone shows up on TV or in a magazine and says, buy xyz, that's a stranger. And your first question should be, who is this person? What's their process and methodology? What's their track record? Have they lived through a few cycles? Like, what's their temperament? We talk about judicial temperament. You need the appropriate investment temperament. And so it's not that I'm disdainful of any one channel, radio station, newspaper, magazine, website, substack, on and on. It's that ask yourself, what is this person selling? What is their history? Like, am I taking candy from a stranger? And the book has a number of chapters that tries to teach people, here's how to separate signal from noise. Here's how to create your own all star list. Here's how to say, you don't have to actually hire these People, you can read their stuff for the cost of a modest subscription or on a free substack or on YouTube, but you can't just try and dip into the fire hose because it's overwhelming. And you know, to channel Ted Sturgeon, 90% of it is crap.

[Jill Schlesinger]

Well, I love the idea that you kind of point out that, you know, you have to be, let's say, critical, somewhat defensive. Like defensive driving. Right.

[Barry Ritholtz]

Skeptical, less gullible.

[Jill Schlesinger]

How about those? And you know, you say like Tony Robbins, he may be self help guru, but, you know, his advice was terrible. You also note that you talk about Robert Kiyosaki. I was laughing because this guy is a real knucklehead. I gotta be honest with you. I know he sold millions of copies.

[Barry Ritholtz]

But 32 million copies, some ungodly like 7 million Twitter followers.

[Jill Schlesinger]

Yeah.

[Barry Ritholtz]

This is insane.

[Jill Schlesinger]

Yeah. So this guy is the author of Rich Dad, Poor Dad. For anyone who adheres to him, I would encourage you all to listen to a podcast called if Books Could Kill, co hosted by Michael Hobbs, Peter Shamshiri, who absolutely destroy, Pick apart Kiyosaki and the advice he gives. But when you are looking at these kinds of folks who are doling out this advice and we say, what are they trying to sell? You also make the point that, look, it might not be they're trying to sell you a financial service. They could be trying to just sell books or content, which you and I do. Right. But I think that what made me feel like you really were doing some table setting early in the book was the three simple things that you suggested. The financial plan, the broad asset allocation, and basically get rid of the distracting noise in the media diet. So if that's the case, I wonder if we're basically righting ourselves and talking ourselves out of a job. And I'm going to guess that you're going to say no, but how do we get people to judiciously dip in and out and know what's advice worth taking? What is entertainment? What's infotainment? How do you advise our listeners around that issue?

[Barry Ritholtz]

So first, you know, I very begrudgingly came to the conclusion when I was writing this book that, you know, after Bailout Nation, you know, the question that people kept asking is, how the hell did this happen? My thought process was, okay, I've, I've approached this as data driven and objectively as I can, there's the answer. Here's how the crisis happened. It was these 12 things, but primarily these seven or eight things that were the key driver. It was no One thing, it was lots of things, lots of people, lots of institutions, and it's resolved. And then, you know, six months later, I see the same silly arguments. It was caused by the military, housing allowances. No, it was caused by Fannie and Freddie. No, it was caused by fa. All those things which are thoroughly debunked if you just look at the data. And so when I approached this book, it was, okay, I'm not going to be able to convince everybody. Somebody has to be on the losing side of the trade, right? You can't. You know, what's the old joke? Trade takes place when there's an agreement on price but a disagreement on value. So the thought process was, I'm not going to be able to save everybody, but people who are a little thoughtful and circumspect and say, hey, this endless parade of noise, this endless, you know, the business of finance is getting in the way of my portfolio. I need, you know, I need a reset, I need a readjustment. Let me just remind everybody that when I was in college, all of financial media consisted of one guy coming up, coming out each Friday night on PBS. For me in New York, it was Channel 13 named Louis Rukeyser. And for an hour, he talked about what happened, he talked about what might be coming up. He brought a guest on, he brought some panelists. That was it. It was an hour of tv and it was plenty. So I don't think so much has changed that. You need 247 constant immersion in media. I recall being on vacation in Puerto Rico with limited bandwidth and my wife always makes me leave the laptop at home. I did have an iPad with me, and so I wasn't plugged into my usual sources. But this was February of 2020, and the pandemic was kind of ramping up, but we hadn't shut down yet. And you flip on financial television and they're in full on panic mode. And, you know, the book is filled with academic researchers, endless, endless notes at the end. One of my favorite research pieces, that people who panic sell out of equities. About a third of them never return to stocks again. Think about what that means for anybody who panicked out in 08 09. They missed one of the greatest bull market runs in history. And so, you know, to quote Dr. Bill Bernstein, your ability to control your limbic system is what's going to determine how successful you are as an investor. Fail to control your limbic system, which is responsible for fight or flight, your adrenaline, your dopamine, your pleasure center, your fear center. Fail to control your limbic system and you will die poor.

[Jill Schlesinger]

You know what, you bring up such a great point that like, I think we're about the same age, maybe a year or two between us, but when we were coming up, there was not. There was Louis Rukeyser and then there was Consuelo Mack and then there was the Financial News Network. This wasn't a big part of how we gathered information. I also wonder if, you know, the ubiquity of news and the availability of all this stuff that's online, how we can not just help people defend against the noise. I think that's what you say, you know, you want to defend against that, manage it and then. But also to be able to take things for what they are. So many Americans are dipping into their news from social media and they don't even know what, what to make of it.

[Barry Ritholtz]

So again, the having gray hair and having lived through how things used to be is, is really useful. You know, you go back 20, 30 years ago, if not. I've been writing publicly since the late 90s. But you publish in a newspaper or a magazine and someone doesn't like it, well, they write a letter to the editor and nobody sees it. Now everybody has an iPhone, which is a. Or the non Apple equivalent, which is a portable broadcast studio in your pocket, and they pay for mobile access. And there's no gatekeepers, there's no editors, there's no publishers. Nobody is saying this person is worthy of paying attention to or not. And by the way, even back in the day, part of the reason I started blogging in the late 90s, I would get annoyed at stuff I read in the papers that were wrong. My favorite example is the Wall Street Journal published something. I don't remember, it was 05 or 07. But look, housing is getting better. Look at the sales improvement from February to March, March to April, April to maybe. And I had to teach them what seasonal adjustments are. Hey, every year housing bottoms December, January, and it peaks July, August, because people who have kids want to get into the new school district before the school year starts, so their kids aren't starting out, you know, a month behind. And by the way, instead of looking at it February to March, March to April, April to May, look at it year over year, which removes the seasonal impact. How is May 2006 compared in May 2005 to May? And you could see 2003 and 4 were huge. 5 it fell 6 it fell more, 7 and 8 it collapsed. You have to understand the fundamentals of this is just basic Mathematics. Back in the day when Bill Gruskin was the dean of the Columbia School of Journalism, I would occasionally do a Math for journalists seminar with them and show up and say, Here are the 10 biggest mistakes everybody who's starting out with, you know, a civics or an English major run into when they start covering finance. And, you know, here's seasonal adjustments and here's how to inflation adjust something, which is a pet peeve of mine, which I really go off on in the book. But none of this stuff is you don't need to be a Ph.D. from MIT in applied mathematics. This is high school math, maybe freshman statistics and probabilities, but even that 90%, you don't even need that. It's just, you have to understand the fundamentals of arithmetic. Otherwise, you know, there's a great Joan Robinson quote, one of the pioneering female economists of the 20th century who said, we study economics not to learn about the economy, but so as to not be fooled by economists. And that is absolutely true.

[Jill Schlesinger]

I was very delighted and honored to interview David Booth from Dimensional. And I don't know if you saw the movie that was created, documentary that was created about the founding of Dimensional. I found it really instructive to talk to a guy who is surrounded by a lot of heavy duty mathematicians and some Nobel prize winners and all that about the idea of uncertainty and how so much of our financial world is based in uncertainty. And I'm wondering, Barry, if you can talk a little bit about how that uncertainty can maybe not nudge us the wrong way when it comes to managing our personal finances.

[Barry Ritholtz]

Sure. So. So first, a quick pet peeve. Very often we use the phrase uncertain or uncertainty not to reflect what is unknown, but really it's a tremendous reveal of our own angst. And so let's just start about the future. Right? The future is inherently unknown and unknowable. Yeah, we can extrapolate trends forward, we can do some basic things, but just you mentioned the past five years in the year ends, look ahead. In December 2019, nobody had on their bingo card a global pandemic closing the world economy. By the way, fastest 34% drop and we finished the year from that low plus 69%. And by the way, the next year another 20 something percent, 29% rally. So, so nobody had that. Nobody had heading into 20, 22, 500 basis points of Fed rate hikes. Oh, by the way, the Russians will invade Ukraine, there'll be a terrorist attack in Israel that kills a thousand people. And oh, also there'll be a bloody War that kills tens of thousands people, Nobody has that. So when you see these look aheads, a year out, a year is so long, so many random things can happen that, you know, saying we have the future is uncertain doesn't really tell us anything other than yes. When you have a president saying tariffs on tariffs, off tariffs on tariffs, there's a lack of clarity, there's a sort of whimsy that comes with these decisions. You don't know what's happening when. And so you could say it's uncertain. Maybe it's we. The phrase I prefer is we have a lack of clarity looking forward. And what that sometimes does is companies, they don't know where to build a plant, they don't know where to hire people. Hey, let's just let the dust settle. And then you see families. Maybe this isn't the year to book that expensive trip to Disney World. Let's just put that on hold for now. But what I find in the media when I hear someone show up on Bloomberg or CNBC or wherever and hey, what do you think about what's going on in the market? Well, there's a lot of uncertainty. I think the reality is we spend a lot of time and mental energy constructing our happy little model of the world around us filled with lots of assumptions and wishful thinking and, you know, the rosy tint of nostalgia on, on our own recollections and that allows us to go through the day in our happy little bubble and when suddenly the market is down 5%, 5%, 5%, 5% three days in a row and everything is mayhem. When you see the. I came to this conclusion watching a CEO on Bloomberg. I wish I can remember who it was, but it was, you know, early 2020, as the pandemic was starting to ramp up and you could see this guy was terrified and, you know, he had just that little bit of brow sweat and that little bit of nervousness beyond what you see when people go on TV for the first time. And it was clear, oh, I know why this guy is uncertain. He can no longer lie to himself. He has to acknowledge he has no idea what the F is coming next. And so that ability to create your happy little set of rationalizations in any given day, once that goes away, yeah, of course the future is uncertain.

[Jill Schlesinger]

But that goes back to your advice about your three simple things, which is, yes, life is uncertain and certainly at the extreme, you know, in a global pandemic or a big huge stock selloff, but the financial plan, the broad based asset allocation and reducing that, that noise in your media diet that those three things can actually help you manage your own emotions throughout any of these extreme events. Because obviously, you know, you're right. Nobody knows what's going to happen next. I guess what we're all seeking is a way to cope with it. Someone said to me once, you know, you look like when you go on television, Jill, and like, it is bad, and we've gone through these terrible times. You're very calming. I said, do you know why? Because I've been through a lot of these things. And so once you're through them and you've actually managed it, and you don't think that there is a man behind the curtain like that guy on CNBC might have thought, or once you recognize that so much of the things that we are looking at, they're fragile in the moment, that you can kind of get real with yourself. And I think that that's one of the benefits of your book, which is you're sort of outlining that, you know, not just that there's uncertainty, not that people don't know what's going on and that, like, not that we don't understand that there are going to be bad times and there's going to be bad actors and bad math, but what you can do as an individual, you, listener, right now is to understand that and figure out what is your coping mechanism. My concern is that we have a generation of younger investors who haven't lived through really bad times yet. And I don't know when the next big one's going to be, but we have had exactly two months of recession in the last 15 years. So I am somewhat concerned about the blase nature and the way that essentially anyone under the age of 40 has reacted to maybe scary economic headlines and just saying, oh, buy the dip. Don't worry, don't worry, don't worry. Without understanding, like, well, you know, actually recessions are really bad and they can hurt you. So can you offer some advice for some of the younger people listening who maybe have not gone through a real terrible recession where it is a cascading amount of fear throughout the economy?

[Barry Ritholtz]

No, I can offer them no advice. They have to burn their hand on the hot stove to learn to not.

[Jill Schlesinger]

Tell me more, tell me more.

[Barry Ritholtz]

So that's number one. Number two, someone said to me, me on the book tour, so what about all these meme stock traders and these people buying stuff like Gamestop and all these other things? And I'm like, keep doing it. I love when someone else pays my tuition. You crash and Burn and I'll learn from you. But, but in all seriousness, you know, that's just the reality. I, I started on a trading desk. They just pushed everybody in the deep end of the pool and anybody who didn't drown, congratulations, you're a trader. But the, the two things that kind of crack me up. One is not only have we had so little recessions over the since the financial crisis ended, but when you look at, I did a blog post recently, we have no idea how good we've had it over the past 15 years. When we look at all the rolling 15 year periods in the, in the modern era, there are three periods that stand out as just outstanding. First, the period after World War II ending sometime mid-1957 plus 18% a year was the average returns over 15 years. Fast forward to the period ending in 1999, the 80s, the 90s, the dot com boom, the technology boom. Plus 17% a year for the prior 15 years. You look at the period ending mid 24, that's plus 16% a year for 15 years. That's the third best rolling 15 year period in modern history. And so yeah, of course buy the dip works until it stops working. So the, the really the thing that cracks me up about people who have never seen structural inflation or haven't seen like arguably you could say from 2000 to 2013 was a long term structural bear market. Everything peaked in, let's call it March 2000. And all of the major indices were not above that level until 2013. And so you have similar to 1966 to 1982. Always learn your market history. A period where The Dow kissed 1066, it didn't get over a thousand, at least not on a permanent basis until after 82. That was a 16 year period. So people live through 13 years. Maybe they're a little young, they don't fully remember that. But I always recommend Adam Smith's Money Game. Adam Smith is the nom de plume of a writer in the 50s, 60s, 70s. And there's a chapter in the money game that talks about a fund manager who every couple of years hires a whole bunch of young he calls them young Turks, young guns to run portfolios. And these guys, they haven't lived through his experience. So they'll buy stuff he's terrified to buy, they'll own stuff that seems reckless and improbable. And as soon as the portfolios crack, well, the senior guy liquidates all the portfolios and tells the kids, thanks, but we're done here. You kind of have to go through that process, you kind of have to get the battle scars, the baptism of fire, because there's no other way you could look the part of the reason. The book is called how not to Invest. We have a century and tens of thousands of books telling people how to invest. And you know what? A hundred years later, people are still pretty mediocre investors. So the philosophical approach was, hey, you got to live through it. You got to suffer the pain. You got to earn your battle scars. And maybe I could save some of you some money if I just show you what not to do if you avoid the obvious mistakes. But a lot of people are still, they still need to touch the hot stove in order to learn. Don't touch the hot stove.

[Jill Schlesinger]

I love that. So you have one of the things I love in the book when you have your unforced errors. Because as an aging athlete, you know, I love a discussion about unforced forced errors. So obviously, I like the first three are really important, which is have a plan. So in other words, if you don't have a plan, that's an unforced error. Paying excess fees and not being aware of the tax situation. And then you go into your behavior and a conversation about asset allocation and passive versus active. And so I know that when people hear me on this show, I try to boil things down. I'm a very, I'm very into like, whatever is the simple approach is probably the best. And it's probably, you know, if it's really complicated, avoid it. So I'm sort of allergic to most insurance products. But if you're talking about passive versus Active, you know, I know that at Ritholtz Wealth Management, you're essentially more of a passive firm. Is that right or am I misstating that?

[Barry Ritholtz]

So the core of what we do is broad asset allocation with a core of beta. We like Vanguard VTI. There's a BlackRock equivalent.

[Jill Schlesinger]

Just. Can you just please define beta for our listeners?

[Barry Ritholtz]

So beta is what the market gives you. If you just own the whole market, here's what you get each year. And all the academic research that looks at active. And by the way, the current phraseology isn't so much passive as it is, quote, low cost index versus active stock selection. When you look at the active managers, in any given year, somewhere between 60 and 65% of them fail to beat their benchmark. This is just basic research that's in any given year, 30, 40% of people beat their benchmark, which means a majority fail to now extend that to five years and two interesting things happen. Not only does it go from 60 something percent underperforming to 80 something, but the people who are in the successful group are different. Each year it's a different group of fund managers have different styles, geographies, strategies come in and out of favor. And so five years net of fees, something like 82% of people fail to beat either the market or the benchmark. Meaning if you're going to pick an active fund manager, the odds are 1 in 5, 20% that you'll be successful over a five year period. Extend that to 10 years and it's something like 91%. Extend that to 20 years and you're left with a couple of dozen unicorns. And they're all household names. Everybody knows who Peter lynch is, everybody knows who Warren Buffett is on and on because they're, they're unicorns. Something like 99% or 98 and change percent of active managers failed to deliver value net of fees after 20 years. And it's not because they're bad stock pickers. There's another piece of research in the book that finds out that active managers turn out to be very good stock pickers. They're terrible stock sellers. They either panic out at the first sign of trouble or worse, something is in a collapse and they're doubling down all the way. And Bill Miller's streak was broken in 08 because he, an excellent stock picker, kept buying on the way down and it, you know, broke a 15 year streak of outperforming the S and P. By the way, since the financial crisis ended, he's continued to kick the S and P's. But the risk is if we have another catastrophe, he's probably situated too aggressively to deal with another financial crisis.

[Jill Schlesinger]

So let me ask you, as you know, like a lot of the people who listen to this show, they kind of let their investments, they've already bought into the Barry Ritholtz, Jill Schlesinger view of the universe. Like keep it simple, you know. Of course I know that. There are plenty of people who are listening who have like a little fun money account. They'll tell, you know, they'll come on the air and we'll talk and well, I have a little this, I have a little that. It's okay. What a lot of the folks who are listening to this program want to understand is, you know, how do they have some balance in their lives? Like we are immersed in the numbers, in the conversations about, you know, your retirement number. How have you seen this change? I feel like you And I came up at a time where, you know, people were like just gunning it, but the next generation has a little bit more balance in their work life calculation. Do you think that's a good thing, a bad thing? Like, how do you view this?

[Barry Ritholtz]

Such a complicated question. There's so many different ways to go with this. So first let's just start with some simple logic. Everybody gets 24 hours a day. That's all there is. How you choose to spend your time is really how you're defining your life. So whether that's, if you really love whatever, stock picking, trading, and that's what you want to do into your 90s, knock yourself out. If you're good at it, hey, even better if you're not so good at it, maybe you should just limit your Cowboy account to 5% of your liquid net worth so if it blows up, you don't destroy your retirement. And if it does, great. You know, I can't tell you how often we've had people come in. I have $11 million portfolio of which 10.5 is Nvidia. I don't know what to do. So people kind of freeze when, when they have outsized winners. Hey, if it's 5%, you can let it ride. You can have fun with it and not worry about it. But, but secondly, you know, you want your portfolio to be working towards a goal. You, you want it to be purposeful money. Not just, you know, Archer, Ghost and Bill Hwang. More, more, more, more leverage, more aggressive betting until it blows up. He took a billion dollars to like 22 billion and turned that into zero through a combination of aggressive portfolio management and excess leverage. So you want an appropriate amount of risk and volatility because gains returns are the flip side of the coin of risk. Hey, if you want no risk, buy a 10 year treasury and hold it till maturity and you have zero risk and you'll get 3% and you're not going to really be very far ahead of inflation, but that's risk free sort of investing. If you want equity returns, well then you have to assume a little bit of risk. And this is what I mean by the core of your portfolio should be a broad index, should be beta. You'll never achieve alpha, you'll never generate above market returns if you're not at least getting market returns. So lock in market returns with pick a number, 50, 60, 70% of your portfolio as a broad index. And then you could do other things around it if you like. I'm making this up off the top of my Head. If you like Japan or India, if you like momentum or emerging markets, small cap value, well, there's an ETF for that. Knock yourself out, Go buy that. The things that we do as a firm around the core portfolio are things like direct indexing that allows us to offset capital gains. We have a lot of clients who are either founders or sold their business or had an employee stock option plan because they worked at Apple or Amazon or one of the big tech shops. And managing around the taxes is really problematic. By the way, you outperform the market by 10 or 20 basis points. Your clients don't even notice. They could care less. It's just, don't blow me up. I hear that all the time. On the other hand, you find a way to say, hey, we harvested all these tax losses through a piece of software that does direct indexing and we managed to offset $50,000 in capital gains taxes that you don't have to pay. Oh my God, you're just the greatest thing since sliced bread. People take that really seriously. And so for us, we use a lot of technology and I talk about that in a couple of chapters in the book as ways to create, for lack of a better phrase, and I apologize because it's such a horrible phrase, Organizational alpha tax alpha. Ways to generate above average returns. Not because your market timing, not because you're picking stocks. Like just simple stuff sometimes like account location. Meaning, wait, this is your active trading account. Why is this a taxable account? You know, you could do the same thing with your IRA or your 401k and not pay capital gains on that until you take money out in 25 years. Just simple things like that that sometimes people miss. I also discuss in the book the value of working with a fiduciary who is legally obligated to have your best interest come first and not someone trying to sell you a used car. And so there are lots of little things you can do to say the core is just a broad low cost index. Yes. While that's true, it's all of the ornaments and all the garland on the tree that makes it interesting. And so think of the core index as your Christmas tree. Think of the little things around it, ways to manage taxes, ways to manage your estate so your heirs aren't paying any taxes. Just ways to make sure you're focused, that your portfolio represents what you're trying to achieve and in the easiest, cheapest way to achieve it.

[Jill Schlesinger]

I just want to finish by saying that the. You have this tiny illustration at the end of the book about Understanding what you can control and what I think would be great is that if we, you and I should work on this and we could just do it for life as opposed to investing out of my control, like what my mother thinks of my hair. Out of my control. Right. I cannot control that. Or what a, a television producer thinks is, you know, the most important thing. There are certain things that are out of our control, but the things that are in your control about your self awareness and the way you consume media and how you manage your life and your planning and your behavior, I think that is such a wonderful button for the end of this conversation that the things that you can focus on that are so important are the things that you can control and the things that matter most to you. And generally speaking, that ain't markets, right?

[Barry Ritholtz]

Well, when you, when you ask the question about, you know, what to focus on, I use the phrase information hygiene. But when you look at all the things that the media has a tendency to focus on, it's not your behavior or your expenses or your education or your ethics, all of which are within your control. It's just a laundry list of things that are completely out of your control. And every year there are fantastic reasons to sell equities and every decade you look back at those reasons to sell equities and they all turn out to be terrible. And so asking yourself, why am I watching an hour of TV about stuff I can't control when the Fed's going to cut, I can't control the tariffs, I have no idea when the next superstorm hits, I can't control the outcome of elections. Why don't I focus on the things that I can control, like how I respond to events, not to get all stoic and, and ancient Greek and Roman philosopher philosophers like Seneca was onto something. But you know, focus on what you can actually manage. And I don't want to say ignore all of the things, things that are out of your control, but at the very least, can you we put them into proper context. And you know, remember the media has 24, 7 hours to fill. Magazines and newspapers have column inches to fill. The Internet is the beast that must be fed. It's an infinite maw. And so a lot of what they cover are just noisy things that are kind of interesting. Just don't rely on them to make investing decisions. Don't take candy from strangers.

[Mark Ritholtz]

If there's something going on in your financial life and you need some assistance, some guidance, maybe just a little mentoring, just go to our website jillonmoney.com click the contact Us button, write us a.

[Jill Schlesinger]

Note, and if you'd like to join.

[Mark Ritholtz]

Us live, check the box. Mark does everything else. You can subscribe to this program on the Odyssey app or wherever you find your favorite podcast. And if you're not subscribed to Money, Watch our program that drops on the weekends.

[Jill Schlesinger]

You should do it right there on.

[Mark Ritholtz]

The Odysee app as well. Our music is composed by Joel Goodman. Mark Tularsio is our executive producer and king of all things Web, and we are distributed by the fine folks at Odyssey. Try to lift someone up. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you on Monday. When you're with AMEX Business Platinum, going.

[Jill Schlesinger]

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[Barry Ritholtz]

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[Jill Schlesinger]

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[Mark Ritholtz]

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[Jill Schlesinger]

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[Mark Ritholtz]

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[Jill Schlesinger]

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[Mark Ritholtz]

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[Jill Schlesinger]

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[Barry Ritholtz]

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[Jill Schlesinger]

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[Barry Ritholtz]

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[Jill Schlesinger]

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