Podcast Summary: The Long View – Barry Ritholtz: ‘How Not to Invest’
Podcast Information
- Title: The Long View
- Host/Author: Morningstar
- Description: Expand your investing horizons and look to the long term. Join hosts Christine Benz, Dan Lefkovitz, and Amy C. Arnott as they talk to influential leaders in investing, advice, and personal finance about a wide range of topics, such as asset allocation and balancing risk and return.
- Episode: Barry Ritholtz: ‘How Not to Invest’
- Release Date: March 18, 2025
Guests:
- Barry Ritholtz:
- Co-founder, Chairman, and Chief Investment Officer of Ritholtz Wealth Management.
- Creator and host of "Masters in Business" podcast.
- Contributor to "The Big Picture."
- Author of Bailout Nation and How Not to Invest: Ideas, Numbers, and Behaviors that Destroy Wealth and How to Avoid Them.
1. Introduction to Barry Ritholtz
The episode welcomes Barry Ritholtz, highlighting his extensive contributions to the finance world through his wealth management firm, prolific writing, and influential podcasting. Amy Arnott commends his latest book, How Not to Invest, noting its depth and practical insights.
Notable Quote:
“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.”
— Barry Ritholtz [02:11]
2. Barry’s Career Journey: From Law to Trading to Investing
Barry Ritholtz shares his unconventional academic background, transitioning from applied mathematics and physics to political science, philosophy, and ultimately law school. Despite starting on a trading desk in the mid-1990s, Barry emphasizes that his shift from trading to long-term investing was gradual, influenced heavily by his deep dive into behavioral economics.
Key Points:
- Academic Background: Applied mathematics, physics, political science, philosophy, and law.
- Trading Experience: Initiated trading career in the mid-1990s but discovered trading was more about luck than skill during bull markets.
- Shift to Investing: Motivated by understanding behavioral economics and recognizing personal cognitive biases.
Notable Quote:
“The evolution from a trader to a long term investor took place slowly over the next decade.”
— Barry Ritholtz [02:11]
3. Becoming a Prolific Writer and Podcaster
Christine Benz inquires about Barry’s remarkable writing output—nearly 1,000 columns and over 43,000 blog posts. Barry attributes his productivity to a lifelong commitment to writing, adopting disciplined morning routines, and leveraging early blogging platforms like Yahoo Geocities.
Key Points:
- Writing Discipline: Developed a habit of writing early mornings, dedicating two hours daily.
- Public Writing: Engaging with readers online provided feedback and honed his skills.
- Podcasting Genesis: Frustrated with superficial financial media questions, Barry launched the Masters in Business podcast in 2014 to explore deeper, more meaningful conversations with industry leaders.
Notable Quote:
“I have been a writer my whole life... to be a better writer, you have to write.”
— Barry Ritholtz [04:23]
Podcasting Insights: Barry discusses memorable podcast episodes, particularly his interviews with Ray Dalio and Ken Feinberg, highlighting how genuine, in-depth conversations can reveal profound insights and personal stories that resonate deeply with listeners.
Notable Quote:
“When you get down the behavioral economics rabbit hole, you realize how wrong you were about so many things.”
— Barry Ritholtz [03:53]
4. Key Concepts from How Not to Invest
A. Inversion and Avoiding Mistakes
Central to Barry’s book is the concept of inversion—focusing on avoiding mistakes rather than solely seeking gains. Drawing parallels from tennis, he emphasizes that in investing, minimizing errors is more crucial than attempting to achieve exceptional returns.
Key Points:
- Charlie Ellis’s Influence: Inspired by Winning the Loser’s Game, Barry underscores that most investors lose through unforced errors rather than failing to make spectacular gains.
- Practical Application: Avoid overtrading, accounting for taxes and costs, and steering clear of chasing overpriced assets.
Notable Quote:
“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.”
— Barry Ritholtz [15:03]
B. Denominator Blindness and Bad Numbers
Barry introduces the term "denominator blindness," explaining how media often presents alarming numbers without context, leading to misinterpretation.
Key Points:
- Numerator vs. Denominator: Media headlines often highlight large absolute numbers (e.g., “Company ABC is laying off 10,000 people”) without considering the relative scale.
- Examples: Understanding whether a billion-dollar loss is significant depends on the total asset base.
Notable Quote:
“If you don't understand the broader data set, it's really easy to get misled by just that big scary number.”
— Barry Ritholtz [28:57]
C. Secular Market Cycles
Barry discusses the importance of recognizing secular market cycles—long-term upward or downward trends driven by fundamental economic and societal changes.
Key Points:
- Historical Examples: Post-World War II economic boom and the 1982-2000 bull market driven by multiple expansion rather than just earnings growth.
- Valuation’s Role: While valuations can indicate where we are in a market cycle, they should not be used as timing signals for investment decisions.
Notable Quote:
“The biggest driver of the bull market is not so much earnings as it is earnings multiples.”
— Barry Ritholtz [32:19]
D. Role of Valuations in Investing
Barry argues that while valuations matter, they should not heavily influence investment decisions. Instead, a disciplined, long-term investment approach like dollar-cost averaging often outperforms attempts to time the market based on valuation metrics.
Key Points:
- Valuation as Context: Valuations reflect market cycles but acting solely on them can lead to missed opportunities.
- Investment Strategy: Consistent investing regardless of short-term valuation changes typically yields better results.
Notable Quote:
“Valuation is not a timing signal. Valuation is a reveal of where we are in a market cycle.”
— Barry Ritholtz [38:47]
E. Disconfirming Your Beliefs
Barry emphasizes the importance of actively seeking out information that challenges one’s existing beliefs to mitigate confirmation bias.
Key Points:
- Confirmation Bias: The tendency to favor information that confirms pre-existing beliefs, often at the expense of critical analysis.
- Practical Steps: Engage with diverse viewpoints, argue both sides of a case, and rigorously test one’s investment theses.
Notable Quote:
“Looking for disconfirming information is always better than just going out and finding things that, oh, that's right, I got this right.”
— Barry Ritholtz [44:47]
5. Philosophies on Money and Consumption
Barry critiques the anti-consumption mindset prevalent among some financial advisors who advocate against purchasing everyday items or lifestyle upgrades. He argues that money should be viewed as a tool to enhance life’s experiences rather than simply a metric for saving or spending.
Key Points:
- Balanced Consumption: Encourages spending on meaningful experiences and necessary upgrades (e.g., safer cars) rather than extreme frugality.
- Money as a Tool: Emphasizes using money to buy time, security, and happiness through experiences rather than accumulating material possessions.
Notable Quote:
“Money is a tool that allows you to accomplish certain things... It's a way to keep score, it's not.”
— Barry Ritholtz [48:58]
6. Personal Reflections: Time Allocation and Retirement
Barry shares his perspective on time management, inspired by Oliver Burkeman’s 4000 Weeks. He highlights the importance of using money to free up time for meaningful pursuits and experiences, rather than getting bogged down by endless financial goals.
Key Points:
- Value of Time: Recognizes the finite nature of human life and the importance of prioritizing experiences and relationships.
- Retirement Philosophy: Unlike some who retire out of necessity, Barry envisions continued engagement in writing and investing as long as it remains fulfilling.
Notable Quote:
“Money can buy you security, it can buy you time, it can create experiences... It’s not a scorekeep.”
— Barry Ritholtz [57:41]
7. Conclusion: Final Thoughts and Takeaways
The conversation wraps up with Barry expressing his hope that his book and ongoing contributions help investors adopt a more rational, long-term approach to investing. He reiterates the importance of viewing money as a means to enhance life rather than an end in itself.
Notable Quote:
“It's the people and the time you spend enjoying those.”
— Barry Ritholtz [63:46]
Key Takeaways
- Avoiding Mistakes Over Seeking Gains: Focus on minimizing errors in investing rather than chasing high returns.
- Contextual Understanding of Numbers: Always consider the broader context when interpreting financial metrics.
- Long-Term Market Cycles: Recognize secular trends driven by fundamental changes rather than short-term fluctuations.
- Valuation Awareness Without Overreliance: Use valuations to understand market cycles but avoid using them as primary investment signals.
- Combat Confirmation Bias: Actively seek out opposing viewpoints to ensure well-rounded investment decisions.
- Balanced Consumption: View money as a tool for enhancing life’s experiences rather than a strict metric for saving.
- Prioritize Time and Experiences: Allocate time and resources towards meaningful activities and relationships to maximize life’s value.
Notable Quotes Summary:
- “My academic background is in college undergraduate... emotion.” — Barry Ritholtz [02:11]
- “I have to get up early every morning... thing was made.” — Barry Ritholtz [04:23]
- “Everyone else kind of fakes it till they make it.” — Barry Ritholtz [15:03]
- “It's really easy to get misled by just that big scary number.” — Barry Ritholtz [28:57]
- “Valuation is not a timing signal.” — Barry Ritholtz [38:47]
- “Looking for disconfirming information is always better than just going out and finding things that... about what you’re doing.” — Barry Ritholtz [44:47]
- “Money is a tool that allows you to accomplish certain things.” — Barry Ritholtz [48:58]
- “Money can buy you security, it can buy you time, it can create experiences.” — Barry Ritholtz [57:41]
- “It’s the people and the time you spend enjoying those.” — Barry Ritholtz [63:46]
Conclusion
Barry Ritholtz’s insights in How Not to Invest and this podcast episode provide a compelling guide for investors seeking to build and preserve wealth through disciplined, rational strategies. By emphasizing the avoidance of common investment pitfalls, understanding the broader context of financial metrics, and viewing money as a means to enhance life’s meaningful experiences, Barry offers a refreshing perspective that challenges conventional investment wisdom.