Barry Ritholtz (2:33)

I'm not so sure. You know, my academic background is in college undergraduate. I started out as applied mathematics and physics and then eventually switched to political science and philosophy. Didn't know what I wanted to do with myself. So I went to law school. But each of those fields very much focus on creating these conceptual frameworks and applying syllogisms. Meaning here's a fact pattern, here's the applicable rule, whether it's physics and math or law or stocks and markets or bonds, where you're trying to figure out from what happened in the past, what might happen in the future, what the probabilities are in the future. And I found that the media I consumed very much affected that process of thinking about, well, this is what happened before and this is what the probability distribution looks like for what's going to come next. And it became pretty clear that was all emotion. The evolution from a trader to a long term investor took place slowly over the next decade. I thought I was a really good trader and kind of figured out that, oh, this was a combination of a robust bull market and being lucky. The skill was not there as much as I thought. What really turned me from a trader into a long term investor was going down the behavioral economics rabbit hole and realizing how wrong I was about so many things and completely unaware of it.

Christine Benz (4:15)

I have a question about time management before we get into the content of the book. You're an incredibly prolific writer. You've written nearly a thousand columns on money and investing, plus more than 43,000 posts on your blog, the Big Picture. So I'm curious, like, how do you find time to write as well? Run a wealth management firm. Ritholtz, I think now has 5 billion, more than 5 billion in assets, something like that.

Barry Ritholtz (4:45)

We're due to do an Update in Form 80V, so I believe it's a little higher than that. But I can't use a number until we do that form file that update. I've been a writer my whole life. I wrote for the college paper and throughout law school. You do a lot of writing. And I kind of, at one point in my life, I want to say less than a decade after graduating law school, decided, you know, I'd like to become a better writer. And there's only two ways to be a better writer. First, you have to read really good writing. That's helpful. You sort of, by osmosis, learn what good writing looks like. But second, you have to write. And so I made a commitment to myself, geez, it's got to be over 30 years ago to getting up early every morning. I'm a morning person. I never use an alarm. I sleep late now. I sleep till like 5. When I was younger, I would be up even earlier and sit down at the computer and just bang something out for two hours and post it. And that started on Yahoo. Geocities. I kind of used that process to, you know, we would give. I was a strategist at a couple of firms after the trading experience for about five years, and I found myself constantly repeating answers to the same questions to the various advisors and brokers. So I would basically take the morning notes, put them online and say, hey, it's right here. Go take a look at it. Back then, you know, there was no Google. You didn't have to worry about anyone who didn't have that specific geocities link to find it. It's like, here's the link, you know where it is, go read it. And that eventually became 6 apart type AD in 03 and then WordPress in 08, which is where I've been ever since. But it really started at Yahoo. GeoCities in the late 90s. And you just find that writing in public not only gets you feedback. The golden age of blogs in the 2000s, where you could put something online and really not be very trolled or be very, you know, spammed, but have like an adult intelligent conversation. And I found it enormously helpful. The Dirty Little Secret of Bailout Nation, my first book was. I wrote that in real time, in public. And in the acknowledgments, I credit the readers and commentators who frequently would make counterpoints or say, have you seen this article? Or that. It was really fascinating writing that way. And it was only as we got closer to, I don't know, I want to say 2010 or so, we had to shut the comments off because it just became a silly, you know, everything devolved to partisan political debates. Everything became spam and trolls. It's. Something was lost. And to the credit of the site Reddit, they seem to have managed that pretty well. That, like, that very much reminds me of what the golden age of weblogs were actually like.

Amy Arnott (7:59)

You were also really early on the podcast scene and you launched your Master's in business podcast back in 2014. Why did you decide to start podcasting and why do you like doing it?

Barry Ritholtz (8:14)

So, like most things in my life, it's my frustration and what my wife calls my infantilism when I don't, things aren't the way I think they should be and I get frustrated. So I remember flying home from a conference conference in Vancouver and changing planes either in, like, Chicago or Montreal. And during the layover, I'm watching financial television. I want to say it's cnbc, but I can't swear to it. And the interviewer has again, this is like so long ago. Is either David Einhorn or Bill Ackman on? And back then, those guys never did media, and the interviewer just asked the worst questions. Where's the Dow going to be in a year? When's the Fed going to cut rates? What's your favorite stock pick for the next 12 months? You know, those sort of dumb things. And I kind of did a slow burn on it. Get on the flight, bump into a friend. We start talking and I start whining about this. And he said, well, what sort of questions would you have asked? Hey, how did you develop your investment philosophy? Who are your mentors? What sort of advice would you give to somebody graduating college who wants to go into your field? What do you know today that would have been helpful to know when you're first getting started out? A lot of those questions I ask on my podcast each week because that's what I want to know. It's really a don't give a person a fish, teach them to fish. Like, who are you? And how did you get that way? And what I get out of it, I jokingly say I write for an audience of one. I get to sit down with people like fill in the blank Dick Thaler or Ray Dalio or Ken Feinberg or just like an insane array of fascinating people, and they'll talk to me for two hours. When does that happen? Normally I don't get to sit down with Harvey Schwartz and spend two hours talking to him or Howard Marks or just, you know, I've had a Bill Gurley. I've had a run of fund managers and VCs and economists and Nobel laureates. And someone asked me, how many billionaires have you had on? And I stopped counting at 30. And it's just, oh my God, it's the most fun I have all week.

Christine Benz (10:40)

So I want to ask you, you, name dropped some luminaries there, Barry. But when you reflect on, like just the most amazing conversation or two, since you've been doing the podcast, which ones jump to mind?

Barry Ritholtz (10:54)

So the first Ray Dalio, I'm gonna give you two. One that was sort of a surprise and one that was really interesting. So the first Ray Dalio podcast. I met Ray at some event. It's gotta be 20 years ago. And back then it wasn't ray, it was Mr. Dalio. And it was this crazy event, and everybody was handing him business cards afterwards and throwing him paperwork. His poor assistant was walking out with like a box of crap that, you know they're gonna thr. And I got annoyed and I just went outside and I had been reading Principles online, you know, long before the book came out. And I'm just. It was a Bloomberg event, so that means it's well catered. And I'm standing outside of St. Paul's Church on Park Avenue, which is where it was held, just drinking like a hibiscus tea, annoyed at this scrum surrounding him. And as he comes out, I'm watching like the crowd is coming towards me and Ray is walking right up to me and it's like, hey, Ray, I don't have a business card for you. I just wanted to say thank you. And he swiveled around and faced me. Who are you? I said, I tell him who I am and what I do. And I said, I want you know you're the only person on in finance that talks about the importance of mistakes and learning from them. And everybody else kind of fakes it till they make it. And I found that really fascinating. And now he shakes my hand, we start chatting, and I can just feel the red hot hate from everybody else. Ten years, maybe it was five years later, I finally get to interview him. And when he shows up at the podcast, he's like, I remember you. And we start chatting. And prior to that, he was a terrible interviewer. I mean, if you go back and look at his, like pre2015, 2016 interviews, they're always prickly and difficult. And, you know, he's sort of elusive. And we just sat down and had like a really, really good conversation. And I remember like halfway through it thinking, oh my God, this is the best interview Ray Dalio has ever given. And I'm fortunate enough to be on the receiving end of it. So that was like, very special. And it kind of felt like that was right when Principles had come out. It felt like it was a new era for him because he became very public after that. The other one that really stands out is, I don't know if you know who Ken Feinberg was the Special Master for 911 and the Gulf of Mexico. Is it still Gulf of Mexico? The Gulf of Mexico oil spill and, and all that stuff. And when I had him on, you know, the powers that be at Bloomberg, see who's coming, he's like, why is this guy going to be on? And I'm like, because he's to going amazing and his story is insane. And it's certainly disaster resolution, is certainly related to insurance and finance, but 911 was about as US Wall street focused as any terror attack since, you know, the bomb blew up by Wall street in 1928 or whenever that was. And so I got a lot of pushback on that from a handful of people. And then the podcast dropped, and someone came up to me afterwards and said, I thought this was a terrible idea, but I couldn't listen to it without tearing up. He's amazing person. And that's an insane story. And it really was. If you haven't heard it, it's just simultaneously heartbreaking because he just tells stories of having to explain to the fireman's wife why the bond trader's wife got so much more money, because that's. Congress set him up with an economic formula for awarding these, you know, payments. And it just was astonishing. And those happen on occasion. Like, I probably have two dozen of those out of almost 550 that just stay with me, because, dear Lord. And. And I think he is an American hero. What he's done is just incredible.

Christine Benz (15:06)

So the theme of inversion, the concept of inversion is central to the book. How not to Invest, of course, is the title of the book versus how to Invest. When did you first read about this idea of inversion? From Munger. And it sounds like Charlie Ellis was influential in your thinking as well.

Barry Ritholtz (15:25)

Sure. Charlie Ellis's book, Winning the Losers Game, I think it's in its, like, eighth edition now, came out. It was based on an article in the journal, I want to say Journal of Portfolio Management. I could be getting that journal wrong, like, in the 1970s. And he eventually expanded it into a book that I read in the late 90s. And it's funny because I found a post somewhere, I want to say, like, 2012, 2011, talking about not making mistakes is more important than scoring points. And Charlie Ellis is telling, you know, I only started playing tennis in my 50s. I didn't grow up playing tennis. 99.9% of tennis players are amateurs. There's a tiny percentage of people who are professional tennis players. And the way the pros win is by scoring points. They serve aces. They do these funky drop shots. They hit the ball with a lot of power, a lot of spin. They kiss the lines. They put it in all sorts of. I don't want to say trick shots, but all sorts of shots that are really difficult to return. They win by scoring points. The rest of us, the 99.9% of amateurs, that's not how we win. We lose through unforced errors. We double fault on serves. We hit it long, we hit it Wide, we hit it into the net, we hit it in a fat way that allows the ball to come up right into the sweet spot of your opponent who can absolutely control where they want to put the ball. We don't win by scoring points. We lose by making errors. And in the amateur game, the winner is simply the person who makes the fewest number of errors. And Charlie Ellis appropriately pointed out that investing is the same way. We all want to find the next Nvidia. We all want to own, you know, be pre IPO investors into Uber or Amazon or whatever. But those are, you know, unicorns. Those are real outliers. And rather than scoring those aces, most of us hit the ball into the net. Most of us over trade. We don't pay attention to taxes or costs. We, we chase the hot hand. We underperform our own holdings, which seems impossible, but you know, if you were a buyer of ARK in late 21, I read an analysis that 92% of ARK investors are underwater. Incredible. It's one of the best years ever of any manager. Calendar year like up 168% peak to trough up over 300% and everybody piles in after, you know, the fund has run up and now they're upside down. And that's just a classic unforced error. So instead of trying to score that ace, if you just focus on avoiding mistakes, you're going to be way ahead of 90% of your peers who are trying to operate outside of their skill set and their competency.

Amy Arnott (18:36)

You've written extensively about the fact that nobody knows anything and you go through a bunch of examples in the book about how this applies to different areas like movies, music, television, economics, policy, market trends, et cetera. But why do you think people still latch onto predictions and kind of gravitate toward experts who make forecasts?

Barry Ritholtz (19:05)

So there's a couple of reasons. People are very unhappy with the general concept that the universe is somewhat random. And we frequently are. Our expectations are derailed by wholly unanticipated events. Right. So my favorite few examples, nobody had in their 2020 forecast, a global pandemic is going to shut the economy. Nobody had in their 2022 forecast, Russia is going to invade Ukraine and and oil is going to shockingly come down in price. I'm Sorry, that was 2122, I don't remember which year. Or heading into 2022, the fastest rate hiking cycle that's going to lead to negative double digit returns for stocks and bonds. Like all these events happen and even some events that are sort of anticipated like the Fed hiking cycle or the Russian invasion of Ukraine. They just derail our hopes and dreams somewhat randomly. So there's a tendency to want some form of certainty. And, you know, we are social animals. We are primates that evolved in a group. So we want a strong leader who's confident and can tell us what's going to happen and keep us safe. And in fact, the academic studies show us a couple of shocking things about forecasters. First, generally speaking, the more specific a forecaster is, the more the viewers or readers like them. So two people go on financial tv. What do you see for the next year? One says, well, the future is inherently unknown and unknowable. The average returns for the market is between 8 and 10%. Let's just tack on another 8 and a half percent from where we are. And the second person says, we like the tailwind of consumer spending and likely upcoming tax cuts. And I see the Dow at 48,753. Kind of like the old joke, why do economists use two decimal points? To demonstrate they have a sense of humor? And so the viewer loves that specific forecast. In fact, anyone who makes an outlier forecast that comes true, the tendency is for them to continue to make these bigger outlier forecasts, to be wrong more frequently than the average forecaster, and to really be believed by readers and viewers. And when you look at Philip Tetlock, University of Pennsylvania professor at Wharton, talking about experts, judgment and forecasts, the average expert is no better than the average layperson in making forecasts, and the average layperson is no better than a roll of the dice. So we're really bad at this as a species, probably because a year is a long time, and that's 12 months is plenty of time for something randomly to just enter the picture like a pandemic or a war or something else, and just disrupt our forecasts.

Christine Benz (22:09)

It seems like the forecasts have been especially bad over the past few years. Well, I guess some people saw inflation coming in 2021 and 2022, and then, you know, last year, 2024, everyone thought we'd have, you know, lots of Fed rate cuts that didn't materialize. So does it seem like forecasts have been even more wrong than usual? And if so, why is that happening?

Barry Ritholtz (22:32)

I think to a greater degree, people are paying closer attention to it. They've just been wrong for my entire career. It's kind of amusing how terrible forecasts are. And we see, by the way, we see a little less of this than we used to. There used to be the Business Week annual forecast and Wall Street Journal did it, and Fortune did it. Those sort of contests have kind of tailed off because it was always pretty random who won. And if you. Depending on the date it ended, you go a day forward or a day later and the final numbers are just completely different. It really is very random. I think that between media generally and social media, I think there's a greater awareness of the problem with forecasts. I think people see it more. So it's a little bit of an availability issue. We are just kind of recognizing that this is a terrible way to make investments. Now, you go Back to the 60s, 70s, 80s, forecasts were great marketing. Someone would put out a piece, here's what's going to happen next year. They would go on tv, they would show up in the Barron's or the Journal, and it would generate a lot of business activity, especially if you're transactional. Forecasts are great if you want to drop a ticket and charge a commission. But for someone who's buying and holding a portfolio for the next fill in the blank, 20, 30, 40 years till they retire, forecast 12 months out, they're less than useless, they're destructive. Because we have a tendency to marry forecasts to our portfolios and make bad decisions based on those forecasts. So I think this is less than. It's not that forecasts are more bad today than they've been over the past hundred years. We seem to be more aware of it. And once you start, you know, I wrote a piece for thestreet.com in like 05, the Folly of Forecasts. Once you start to see how bad these are, you know, it's the old joke about science advancing one funeral at a time. It's taken a while for us to evolve past, you know, all these forecasts. And I used to be one of the few voices whining about this. Now every year you'll see a piece in the Wall Street Journal. You'll see a piece, you know, in one of the magazines, you'll see that someone will describe, hey, it's silly season. Brace yourself for all these dumb forecasts that wasn't true 20 years ago. I think people have at least some people have kind of realized how bad this is. And the reason I mention things like the Beatles and John Wick and Squid games and things like that. It's shocking when you see how terrible even the experts are at forecasting and trying to anticipate what the public's opinions are going to be in a few years, what, what their tastes are going to be what they want to see or listen to. And I use those examples in the book to kind of remind people nobody really knows what's going to happen in the future. Don't build a portfolio based on, you know, you don't have to be Nostradamus. And in fact, even Nostradamus wasn't Nostradamus. Making investments based on your predictions are likely to lead to suboptimal results.

Amy Arnott (26:01)

So related to that, you write that investors have to be willing to say, I don't know, and that being able to say that is kind of a superpower. How can people get more comfortable not just with not knowing, but admitting that they don't know?

Barry Ritholtz (26:18)

Yeah, this is kind of a pushback to the fake it till you make it idea. You know, the cockiest people, especially when we follow the Dunning Kruger curve, are people who really have no awareness of their own lack of skills and knowledge. And you have to have some degree of intellectual self confidence to say, I don't know. I have a vivid recollection during the Enron era of Jeff Skilling really abusing analysts who would ask questions about this business model. Doesn't make any sense to me. Can you explain it to me? And he would harangue them and say, you're obviously too stupid to cover us. What he's really saying is anyone who admits they don't know, I'm going to single out. And to say that to someone like Skilling or more recently to Theranos or some other frauds in history, you have to say, this doesn't make any sense to me. You know, what was fascinating about Theranos was they had this really amazing list of board members and just, you know, crazy well regarded people, and yet none of them were biotech or medical device venture capitalists. So the entire VC community that specialized in healthcare and devices and medicine passed on it. And everybody else who showed up, you know, they all seem to rely on each other's reputation, but nobody did the work. If someone would have said, wait, I don't, I don't understand this. I went to medical school and when you just, instead of tapping a vein, when you just do a pin prick, you're getting all sorts of other contaminants along with the blood. How do you deal with that? John Carreyrou's book is amazing, going through all this, but you have to say, I don't know. If you don't know and if someone says you're an idiot, you're not smart enough to invest in this Company. The correct answer is, well, I'm not an idiot, but clearly you are not comfortable explaining it. And my spidey sense says if you can't explain this to a 10 year old, then it's probably not worthy of my money. And that, that is really important. You have to understand what you're investing in and if you don't, move on. It really was an important lesson that Jeff Skilling accidentally taught us. Anybody who responds to the question, I don't know, with derision and ridicule, I don't want to say they're a fraud, but they're certainly not worthy of your money. Jeff Skilling was a fraud and Ken Lay was a fraud. But it's an important lesson. If you don't understand it, then don't put your money into it.

Christine Benz (29:04)

You have a section in the book called Bad Numbers, which is about how numbers can play tricks on us. So one of the concepts you discuss is what you call denominator blindness. Can you discuss what that is and why it's so common?

Barry Ritholtz (29:18)

Sure. So this comes from an academic study, I want to say, about 20, 25 years ago. And when you look at a fraction, you know there's a number on top or number on bottom, essentially a percentage. So if I say something is 25%, what I'm really saying is 25 over 100. The 25 is the numerator and it's the change that took place. The denominator is the data set we're dealing with. So it's 25 over 100. And the media is notorious for running numerator headlines but leaving out what the data set is. So my favorite example is fund XYZ lost a billion dollars this year, or company ABC is laying off 10,000 people. Are those numbers big or small? I mean, objectively, in our lifetime, everyday lifetime experience, a billion sounds like a lot of money. 10,000 people laid off sounds like a lot of people. But you can't answer that question unless you understand the context. So if the fund that lost a billion dollars was a $2 billion fund, that's a horrific shellacking. You're down 50%. But if they're a giant fund with $100 billion in assets, well, that's daily noise. The average market moves are about 50 basis points 1 way or another. A billion dollars is 1%. It's nothing. Same thing with 10,000 people laid off. Well, if it's a small regional company that has, you know, 20,000 people, giant whack to their employment ranks. But if it's Walmart. With 3 million people working for them worldwide, it means one person is losing their job at every fifth store. I think Walmart probably loses more than that every day. Just the churn of 3 million employees. So if you don't understand the broader data set we're talking about, it's really easy to get misled by just that big scary number. And keep in mind, media is in the business of generating enthusiasm and excitement. They want you to watch this show, click this link, go to this website, listen to this podcast. And so there's a tendency to like, make things bigger. You know, if it bleeds, it leads. Denominator blindness is how that manifests anytime we're talking about numbers.

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Amy Arnott (32:25)

Principle that nobody knows anything, you also have a section in the book that discusses secular market cycles and it sounds like you think they are worth paying attention to. Can you unpack that a bit? How do investors know when we're in a secular market cycle?

Barry Ritholtz (32:45)

Sure. So. So nobody Knows Anything refers to the expert forecasts about the future. I love the Paul Graham quote. All experts are experts in the way the world used to be. And when you're making a forecast, you're kind of predicting that the future will be like the past. And, and as we've seen, that is not always the case and is often not the case. What I like to do when I look at market cycles is to think about not when this is going to start or when this is going to end, but what are really the underlying drivers of what takes place in the economy, in the market, in society. And so the concept of these longer term secular markets, and I didn't invent this term, this has been around for a century. You know, there are a lot of books from back in the day, if you read, they talk a little bit about the difference between cyclical and secular. I've kind of personally expanded it to include society and the economy. But let me give you a couple of my favorite examples. So World War II ends. 1946, 10, 15 million GIs return home. They get the GI Bill, which is the Equivalent, inflation adjusted, of a few thousand dollars a month. They get to pay for college. And after five years of being on a wartime footing, there's all this pent up consumer demand. And we shift from military spending back to consumer spending. At the same time, we see the build out of the interstate highway system, we see the rise of automobile culture, we see the rise of suburbia. The civilian aviation begins to take off, the electronics industry begins to take off, which is the predecessor to semiconductors. And so you start this post war period of this boom where markets go up and down, recessions come and go, but the overall trend is upwards and it's a huge, huge move higher. Generally speaking, a couple of things accompany a secular market. We tend to see consumer sentiment get better and better over the course of that period. More people are getting hired, unemployment rates come down, wages go up. Just generally a positive economic boom. And the way that shows up in the market is kind of fascinating and has a lot to do with valuation questions later. But historically these, these secular bear markets start out with markets relatively cheap compared to average prices in equities and compared to what, what the bond market is doing. And they tend to end relatively expensive. And when they ends, it leads to a secular bear market. And so by the way, the secular bull market starts with a low PE and finishes with a higher pe. While most people focus on earnings, in fact, think about how much of our time and energy is focused on on earnings. The biggest driver of the bull market is not so much earnings as it is earnings multiples. So my favorite example, 1982, the bull market begins and ends in 2000. We start with a PE of around 7 on the S&P and end with a PE of around 32. And that period of time was marked by the increased willingness of investors to pay more and more for that same dollar of earnings. And 75% of that gain from 82 to 2000 wasn't earnings improvement, it was multiple expansion. Now look at the flip side of that. You know, the market kind of peaked 20 years after the end of World War II. In 1966, the Dow kissed a thousand, didn't get over a thousand on a permanent basis till 1982. And the whole time the earnings multiple compressed. And that's the psychology of investors willing to spend less for each dollar of earnings as the bear market takes its toll. Bull markets tend to go longer and further than anyone expects, and they tend to be longer than bear markets. But these are just rough outlines and squishy things. I hate the plus 20% is a bull and minus 20% is a bear. Those numbers are just useless for investors. There's no data that backs them up. It's just a rule of thumb. We have 10 fingers and 10 toes. Someone in the media made that up. I have yet to see a quantitative study that says if you're in the market when we're plus 20%, you'll do better than when we are in the market when we're minus 20%. Just look at Q1 of 2020, you were minus 19% one day. The next day you were minus 27%. What are you supposed to do with that? Sell. Three days later, the market bottomed and took off on a 69% rally. So I always look at these rules of thumb and say, what advice, what guidance do they provide for investors? The 20% bull and bear market number is meaningless and actually destructive to investors. There's been a ton of times where the market falls 20% and kind of finds a bottom a month or two later. And if you sold on that 20%, not only did you incur giant taxes from the previous gain, then there's the question of how do you buy back in when everybody is panic selling? And the answer is, most people can't. They lack the discipline. You know, again, we're social primates. We want to do what the crowd does. We don't want to be ostracized. We don't want to be tossed out of the group. And it's really hard to fight what the crowd is doing. And that's why noticing the secular bull market hopefully prevents your emotions from leading you to tapping out just because the market was down 15, 20%.

Christine Benz (38:55)

I wanted to ask about the role of valuations. You write in the book that valuation matters less than we tend to believe. And even when it does matter, we tend to make the wrong decisions related to valuation. So should investors pay attention to valuations at all, in your view?

Barry Ritholtz (39:12)

So, yeah, you can pay attention to valuation, but you probably shouldn't act on it most of the time. By the way, people hate these shades of gray answers. They want a black and white up or down answer. And the world is much more complicated than that. So let's take 82 to 2000. Perfect example. People hated stocks. Remember death of equities in a few years before the COVID of Business Week, you were getting 10% on your bonds, not 10% real because inflation was so high in the 70s. But stocks over that 66 to 82 period lost 75% of their value in inflation adjusted terms. And so stocks were cheap in the mid 70s, they got cheaper in the late 70s, they got even cheaper in the early 80s. If you're a long term investor and you were buying through that terrible period and very few people were, you killed it over the next 20 years. You really. And the same thing happened in the 2000s, from 2000 to 2013, if you were a buyer, you crushed it in the 2000s. Even though you had to live through the great financial crisis, you crushed it in the 2010s. So what does valuation have mom and pop investors pay attention to? For my whole career I've been hearing how expensive the market is on a computer, on a Shiller Cape basis, the cyclically adjusted P E ratio. If you got out of equities because the cape was high, you left untold millions on the table. If you look at stocks and say, hey, you know, the long term average P E of the S and P is 15 and we're at 18 or 20, so I'm going to get out. It's just an incredible amount of missed opportunity. Valuation is not a timing signal. Valuation is a reveal of where we are in a market cycle. And I don't know if that's all that actionable. If you only buy stocks when they're cheap, you get these narrow windows every decade or so. And my colleague Ben Carlson, I write about this in the book, did an analysis that said what happens if you only bought stocks when they're at their lows? It turns out dollar cost averages do much better because of the advantage of compounding. Whereas only buying stocks when they're cheap, only buying stocks when they're close to their lows or both, underperforms simply dollar cost averaging into a broad index.

Amy Arnott (41:45)

You have another section of the book called Bad Behavior, and one of the chapter titles in this section is why Politics and Investing Don't Mix. And it seems like this issue is particularly relevant right now where with the second Trump presidency, we have these big changes and headlines and announcements coming out every day. Is there something that you think people can do to kind of tune out the noise and avoid getting sucked into making changes based on political headlines?

Barry Ritholtz (42:27)

Sure. You have to understand why politics is emotional and investing is done best when it's logical and rational. So I give a couple of favorite examples in the book. I remember in the early 2000s when George W. Bush was president and he had passed a trillion dollar near trillion dollar tax cut and all my trader buddies and hedge fund managers on the left, you know, all kind of stroked their goatees while smoking a Clove cigarette at Reggio Cafe and explained why this was going to blow up the deficit and not create jobs. And, you know, that sort of grad school pontification that I always joke about and markets just about doubled over the next few years. You know, you give me a trillion dollars, I can throw you a hell of a party in the market. It fast forward a few years later. Obama is elected in 08. He sworn in in January 09. And obviously he didn't cause the financial crisis that predated him by a good number of years. But Michael Boskin writes an editorial in the, in the Wall Street Journal why Obama is destroying the Dow. And his timing was, you know, chef's kiss. The next day the market took off and it didn't look back. And, you know, if you thought that Obama was going to destroy the Dow and you got out of the market based on that, well, you made an emotional decision. And markets, you know, tripled over the next couple of years. And it's just anything that is emotional is a bad basis for making a decision. You know, a lot of the book talks about how we've evolved over the past few million years and the things that kept us alive on the savanna, the things that allowed us to adapt to a hostile, challenging world. To us creatures that are soft and chewy and delicious and don't have claws or fangs or armor, was our intelligence and our ability to adapt to these circumstances. We have all inherited that. Wetwear, which did a great job back then, doesn't help you figure out how to manage your risk capital and how to behave around it.

Christine Benz (44:52)

Another piece of advice you give in the book is to disconfirm your beliefs, meaning that you force yourself to seek out and read opposing points of view. Can you discuss what you think are the best ways to do that? And is that harder to do if these social media algorithms are constantly feeding us things that confirm what we already believe?

Barry Ritholtz (45:12)

Sure. So. So first, this comes from confirmation bias, which you can look at Dick Thaler and Kahneman and Tversky for really explaining. And very famously, you know, Galbraith once said, when presented with facts that oppose our ideology, we're given the choice of either changing our beliefs or ignoring the facts. And, you know, everybody gets busy on the proof that the facts aren't really the facts. So confirmation bias has been around forever. And in fact, there's lots of studies that show it affects how we perceive the world, how we see things. If you are looking off in the distance and you see your spouse, your kids, your dog, and you Estimate where they are versus something random or unattractive. You estimate the things you love as closer to you than you do, things that you have no opinion or dislike. It literally affects how we see the world. And so rather than looking for things that confirm your beliefs, force yourself to try and disconfirm your beliefs. You know, my favorite part of law school was moot court. And in order to they teach you this, you have to be prepared to argue either side of the case. So if you're defending a point of view, maybe halfway through you're going to get tapped and now you're prosecuting that point of view. And that's an enormously useful trait for investors. If you're forecasting the end of the world, you have to be able to explain why the world isn't going to end and why the economy and stocks are likely to go higher. The same thing with individual companies. If you're an individual stock picker, and you probably shouldn't be, but if you are, before you're long a stock, you have to explain why it's not going to work out. And before you short a stock, you have to explain why this can keep going. It's really difficult to look at the world objectively that way. So I have some people who, I know their philosophy, I know their process, I respect how they go about things. I often disagree with them. But. But like Jim Bianco and I, you know, we frequently agree on some things, but we also frequently disagree on other things. I love reading his stuff because it forces me to sort of check myself and make sure that I'm not believing something that's nonsense. Same with Cliff Asness. We have very different worldviews. But Cliff is a crazy smart guy who's also very funny and very articulate. And if I'm on the other side of a trade from Cliff Asness, damn, I better know what I'm talking about. And what I mean by trade is it could be an investment, it could be a belief, it could be an economic expectation. Cliff and Bianco and a bunch of other people. If you're reading folks that you are not in the same belief bubble and I'm talking markets and economics, but the same is true for, you know, fill in the blank politics or EVs versus internal combustion engines. It forces you to sharpen your thinking, to be smarter about what you're doing and to also understand, you know, the risks that you might have overlooked. So looking for disconfirming information is always better than just going out and finding things that, oh, that's right, I got this. Right. I don't have to worry about that.

Amy Arnott (48:46)

I wanted to just briefly touch on the whole realm of financial advice and the kind of anti consumption mindset that we often hear so called financial experts telling us not to buy lattes or you shouldn't replace your car, even if it's that's 15 or 20 years old. And you have very strong opinions about this. And I'm wondering if you could just briefly touch on why you think that kind of line of thinking and consumption scolding is misguided.

Barry Ritholtz (49:23)

Sure. So you know, there's so much about this to talk about. So first, a lot of people have kind of found fame and fortune by being budget scolds. And I think Dave Ramsey is right. If you're carrying a giant credit card debt, you should do what you can to pay that down. Like most things in life, a good idea gets taken to an illogical extreme and it becomes pretty useless. If you're a middle class or above earner and your bills are covered and you're saving for retirement and you want to buy a latte, who cares if $5 is the difference between well funded retirement or not, then something else is wrong with what you're doing. It's like why are we focused? And by the way, the latte nonsense started in the late 2010s before the pandemic, where we were pretty much looking at about 30 years of no real gains in wages even as corporate profits has gone up and valuations on homes and everything else had gone up. And so why are we focused on the pennies when the hundreds of thousands of dollars are problematic? If you haven't received a better than inflation raise for 30 years, Latte is irrelevant. And then secondly, the advice, don't buy a new car, never buy a house, don't buy a boat. All this dumb stuff. It's half of advice. The correct advice is have a household budget, figure out what you can afford, live within your means. The never buy an example is terrible advice. It's funny, I keep hearing so I live on an island, I'm a boater since I'm a kid, I'm a fisherman, I love being out on the water. It's a lot of fun. If you think you should never buy a boat, ask yourself how come every time you go anywhere near the water, there are mariners, marinas filled with hundreds of boats. Doesn't matter if it's the ocean, a lake, wherever you go there are boats. Obviously someone is having a good time on boats and you Know again, some of the people in my office have asked, hey, well, how do you feel about this sort of boat or that sort of boat? And it's like you guys have little kids, you go out for the day, you will create memories that last a lifetime. And by the way, my first boat was a hundred bucks. It was a rowboat that I dropped a crappy little Yamaha engine on and we would go fishing. It was a blast. And you know, you don't have to spend a bajillion dollars. You just have to live within your means. The same thing is true for sports cars. You don't need to buy a Pagani Hawaii RA or a Bugatti Viron at $4 million. If you're interested in cars and you want to have fun, go buy a used Mazda Miata for $15,000 and have a blast. My first couple of cars cost me nothing. And I've spent the better part of the past 25 years buying old crappy cars and fixing them up and having a blast with it. For me, that's fun. One of my partners imports these old Range Rover Santanas from Europe where they cost nothing. They're like five grand. He fixes them up, drives them for a couple of years and sells them. He thinks that's fun, but it's well within his budget. He can afford it and he enjoys it. The thing that I think the spending scolds forget is that money is a tool and it allows you to accomplish certain things. No, money for the most part, especially above a certain amount, won't buy you happiness, but it does buy you security, right? It does buy you the ability to have options and choices. And you know, the people who proudly drive 20 year old cars, I don't know about them, but I want my family to have the latest, greatest safety technology. I want lane departure warning and just happened the other day. We're driving down the street. I live not too far from a preserve and I consider myself, well, we all consider ourselves above average drivers, but I've taken every high performance driving class there is, so I feel like I can legitimately say I'm an above average driver. And this deer leapt out of the side of the road and ran in right in front of us and the car. Before I can even like it happened so fast, like before I could even my brain could even process what was going on, the car itself slammed on the brakes. It's a collision avoidance system happened and I missed the deer by about 8 inches and they just hopped away. Don't you want your family Protected from that? Don't you want crumple zones and the latest, greatest safety? Do you really trust 20 year old airbags in your car? Just stop and think about, you know, the KAWAKI Leonard, the NBA All Star famously was driving a 20 year old SUV. He's got $105 million contract and all I can think of was how reckless is it to put that contract at risk in LA traffic with 20 year olds, you know, airbag activators and sealed gas and you know who, who wants to put $100 million at risk? If he damages his knees or his wrists, his career is over. Buy yourself a new truck that if heaven forbid, you're an offender. Bender, it's not a career ender. And I don't know, I want the latest greatest safety protecting my family. I'm always shocked at people who don't recognize that money is a tool that allows you to do that. Look, the world is full of risks. You can never get rid of all of them. But if you make better decisions, you have better outcomes. And you know, this doesn't mean you have to go out and spend a million dollars on, on a crazy expensive car. Any Honda or Toyota has every safety feature you can want. And you could buy them new for 25, $30,000. You could buy them three or four years old with, you know, new cars today are so modern and reliable and they go put the best safety equipment around your family you can. 20 years ago there wasn't even Bluetooth. Are you telling me it's safe to be on the phone in a car you don't have blue? It's just so misguided now if you can't afford a new car, don't buy a new car. That's pretty obvious. But, but if you're driving a 20 year old car and you don't have blindside warnings and seat belt pretensioners and ABS and traction control and the best cruise control that'll automatically stop before you hit something. I don't know about you, I don't want that for my family. In fact I have a bunch of cars from the 60s and 70s and 80s and when I am out and about in these cars I am hyper conscious and that it's totally analog. And I have no safety features in this car other than seat belts. I have an old vet, it's a lap belt and the thing was made, it doesn't even have a passenger side mirror. It's not that it fell off. They didn't think that was important. They didn't make it with them those days. So if I'm out with my car buddies, we're usually out in a caravan. There's a bunch of us. Everybody is very safety conscious. But I'm very aware that, man, if I have an accident in this, you know, the car will be totaled and hopefully I can, you know, survive it. I have had accidents in modern cars where you walk away and you just know if that was, you know, a 25 year old car, you're in the hospital for a couple of weeks. Sorry to go off on a rant, but I'm deeply offended by people that are very comfortable putting their family in cars that are not up to modern standards.

Christine Benz (57:32)

So for our last question, Barry, we wanted to ask not about financial allocations or money, but time on earth allocations, which I think we tend to underrate. So toward the end of the book, you mention Oliver Bruckman writing about the average human lifespan being just over 4,000 weeks. Can you talk about where you want to spend the most time in the weeks you have left? Not in terms of physical location, but what kind of stuff do you want to do? And do you anticipate that you'll ever retire?

Barry Ritholtz (58:05)

You know, I see guys like Mike Bloomberg and Charlie Ellis and you know, they're in their 80s and still working because they do something they love. And even though I know Charlie plays tennis and Mike plays golf, they're still at work. Like, Charlie Ellis just put out a new book. You guys just interviewed him. Mike Bloomberg still golfs. He's in the office, you know, three or four days a week when he's not traveling. I'm not a golfer. I don't know if I would really retire. I would like to. This book was a joy to write. It was so much fun. I hope that comes through on the pages I would like to keep. You know, my last book was 15 years ago. I don't want to wait till 2040 for the next book. So I'm going to hopefully keep doing that. The Oliver berkman book called 4000 Weeks About Time management is really anti time management. He talks about, you know, the idea that we're going to get organized and this is what a billionaire's morning routine is like. And you too can be like this. He says, the human life is insultingly brief. And I love that phrase. And it makes you realize how short life is and how important it is to again, use money as a tool. Money can buy you time. And what I mean by that is, hey, when I was a kid, I delivered newspapers. I shoveled walks when it snowed, I mowed lawns in the summer. I will use my money to pay someone to mow my lawn because I don't want to do that anymore. I will use money to buy things that free me up from what I consider to be not my favorite use of time. And you know, it's really funny when we're dealing with clients, especially type A entrepreneurs, business people who spent their whole career working and saving and striving, and suddenly they hit a point and pick a number, 60, 65, 70, 75, where it's time for them to at least throttle back a little bit. Getting them to make that shift, getting them to say, hey, I could slow down and enjoy some time with the family, spend some money. Like, I can't tell you how often we have a conversation with people, hey, I want to buy this beach house. Hey, I want to take the whole family back to Italy so they could see their roots and meet some of our relatives that are still there. And they can afford to do that every month, go on a worldwide trip every month to get them to do it once. You really have to twist their arm because that mental shift from accumulation mode to preservation mode to distribution mode is so challenging. It's so difficult to do. Money isn't a way to keep score. Money isn't proof that you're good or better than anybody else. Money is simply a tool. You know, I, I won't go over Maslow's hierarchy of needs, and that's the basic security that money buys, but it gives you optionality, it gives you choices. It frees you up to spend the time that you have on this planet doing what you want with the people you love. Not to get all woo or touchy feely, but it's not a scorekeep. It's not. But there's a quote from Soho Bloom that I really like. He says, it's not that money is unimportant, it just can't be the only thing. It's a thing, but just not the only thing. And you have to think about money as a way back to the cars and safety. What, what can money do for you? I find money can not only buy you security, it can buy you time, it can create experiences, it can create a series of ways of living your life. If you. We have a lot of clients that are very interested in philanthropy. You know, you can move the needle and make other people's lives better with money, yourself, your family, and whatever your favorite philanthropic causes are. That's a huge, huge thing. It's not he who dies with the most toys wins. That's wrong. And in fact, most of the toys that we buy don't bring us happiness. Cars are a great example. I have a bunch of old cars that I've cleaned up and repaired. They're not the latest, greatest thing, but the joy in these cars are going to events with friends and we hang out, we have a good time. I remember vividly before I owned a car, organizing a car event for a group of buddies. This was, I want to say, in the mid-90s. I was pretty broke. And 30 of us in 25 Ferraris, five Porsches, and I'm in a passenger seat went screaming out of the Midtown tunnel on Sunday morning at 7am if you've never heard, you know, two dozen Ferraris screaming through a tunnel, it's. It's an experience. Drove all the way out to the Hamptons, just had a blast. Ended up going to breakfast here and lunch there. And everybody just hanging around talking about this car and that car. It's not the gadget. It's not, it's not the car, it's not the boat, it's not the watch, it's the people and the time you spend enjoying those. I have friends who are crazy comic book collectors. They don't even read it. It goes into a sealed envelope and is in a, you know, special room in their house. But they love the events and they love talking about the writers and the artwork. And as soon as we focus more on the experiences than we do on the toys themselves, it's a much better outcome. And that means you don't have to spend a lot of money. Just stay within your budget and you'll be fine.

Amy Arnott (64:10)

Well, thank you so much, Barry. This has been fascinating discussion and we had a ton of questions that we didn't get to. But there's so much thought provoking material in the book and also in the articles that you write. So thank you for that.

Barry Ritholtz (64:26)

Well, thank you. My pleasure. And I apologize for the length of my answers. To paraphrase, I didn't have time to make them shorter.

Christine Benz (64:36)

It was a lot of fun. Barry, thank you so much for being here.

Barry Ritholtz (64:39)

Oh, my pleasure.

Christine Benz (64:46)

Thank you for joining us on the long view. If you could please take a moment to subscribe to and rate the podcast on Apple, Spotify or wherever you get your podcasts. You can follow me on social media hristinebenz on X or at. Christine Benz on LinkedIn and Amy Arnott on LinkedIn. George Cassidy is our engineer for the podcast and Carrie Gretchik produces the Show Notes each week. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us@thelongvieworningstar.com until next time. Thanks for joining us.

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Unknown/Unidentified (67:09)

SA.