Afford Anything - How NOT to Invest, with Barry Ritholtz

Episode Date: January 16, 2026

#681: Barry Ritholtz's mom sold real estate. Those dinner table conversations about mortgages helped him spot the 2008 crash before most of Wall Street did. Now he runs Ritholtz Wealth Management and joins us to explain why we're often our own worst investment enemy. He breaks investing mistakes into three categories: bad ideas, bad numbers, and bad behavior. Here's what stood out. Research shows just 2 percent of stocks create all the market's value. The other 98 percent? Pretty much worthless. Barry says 90 percent of everything is garbage — from science fiction to investment advice. Even experts have blind spots. Michael Jordan dominated basketball but couldn't make it in minor league baseball. The lesson? Being brilliant at one thing doesn't make you brilliant at everything. Those financial memes everyone shares? They're misleading. Take Kevin's Home Alone groceries — $20 in 1990, $75 today. Sounds terrible until you realize wages went up the same amount. We actually spend less of our income on food now. Or that scary stat about the dollar losing 96 percent of its value over 100 years. Barry asks: who buries cash for a century? His math: $1,000 buried in 1925 buys almost nothing today. Same $1,000 invested in stocks? It's worth $32 million. Markets don't die of old age. Alan Greenspan warned about "irrational exuberance" in 1996. The Nasdaq kept climbing another 431 percent over four years. Recessions need triggers. They don't show up on schedule like buses. Fear wrecks more portfolios than anything else. Barry quotes neurologist William Bernstein: "Control your amygdala or die poor." Our fight-or-flight response helped us escape predators. It doesn't help us navigate market crashes. Make your investment plan before crisis hits. As Barry says, reading emergency instructions while the engine falls off at 25,000 feet is too late. He's seen every crash since 1987. Markets drop 30 to 40 percent about once a decade. Accept it. Plan for it. Barry advocates for Roth conversions and something called the "Mega Roth." Pay taxes now, withdraw tax-free later. We know today's tax rates. Future rates are anyone's guess. His bottom line: humans are terrible at predicting the future. Build portfolios that can survive anything, because anything will happen. Timestamps: Note: Timestamps will vary on individual listening devices based on dynamic advertising run times. The provided timestamps are approximate and may be several minutes off due to changing ad lengths. (00:00) Intro (02:00) How fear of mistakes can make investors too conservative (06:00) Bad ideas vs good ideas in investing (09:00) Process over outcome in decision making (15:00) Thinking probabilistically about market outcomes (20:00) Why recessions and bull markets don't follow calendars (26:00) AI's real capabilities vs hype (33:00) Different market commentator archetypes (41:00) Expertise doesn't transfer between domains (50:00) Misleading financial statistics everywhere (56:00) Managing emotions when markets crash (1:00:00) Creating an investment plan before crisis (1:05:00) Tax strategies and Roth conversions Share this episode with a friend, colleagues, and the person who shared that Home Alone grocery meme: https://affordanything.com/episode681 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Today's guest, Barry Rittholz, became famous for spotting the 2008 financial crisis before almost anyone else did. He was warning about it publicly before people were talking about it, but it wasn't because he was some Wall Street genius. It was because, as he's about to share with us, his mom sold houses. And they had these dinner table conversations when he was a kid. And so he started looking into mortgages and securitization, and very few people at the time were paying attention to the securitization market. It was this quirky little backwater of finance. In today's interview, he shares that story with us and more broadly talks to us about how not to invest. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything.

The show covers five pillars, financial psychology, increasing your income, investing, real estate, and entrepreneurship. Acronym is fire with two eyes, double I fire. Today, we are talking about the second letter I investing, specifically what not to do. I'm your host, Paula Pant. Our guest today, Barry Rittholz, is the founder and chief investment officer of Rittholtz Wealth Management, a financial planning and asset management firm that manages over $5 billion of Asset Thunder Management. In addition to correctly predicting the 2008 crisis,

he also, on Yahoo Television, became super bullish in March 2009 right at the bottom of the market. So he called the market bottom. Financial Planning Magazine referred to him as, quote, the prickly profit of Wall Street, the Daily Beast referred to him as one of the 15 most important economic journalists. and the Huffington Post calls him, quote, one of the 25 most dangerous people in financial media. He formerly wrote columns for Bloomberg opinion on the markets and investing and for the Washington Post on personal finance and investing. He's a former contributor to CNBC, a guest commentator on Bloomberg television, and the creator and host of the Bloomberg podcast, Masters in Business.

He holds a JD and used to be a lawyer. If you heard our previous interviews with Nick Majuli, Barry is Nick's boss. He has brilliant insights about the markets, and he just wrote a book called How Not to Invest. So to discuss that topic with us today, here he is, Barry Rittholz. Hi, Barry. Hi, thank you so much for having me. Thank you for being here. When we talk about how not to invest and when we focus on how not to make mistakes,

could that have the effect of making us too concerned? to risk averse? Well, it depends. I mean, let's unpack a little bit of that. First, most of us spend a lot of our time trying to figure out how to invest, how to pick stocks, how to pick funds, how to allocate assets, where we should have our money, when we should pull our money out. And it turns out that as a species, we're pretty bad at that sort of stuff.

We were not built. We have not evolved to make risk-reward. decisions in the capital markets. Avoiding mistakes by making fewer decisions and making better decisions shouldn't lead to a risk-averse portfolio. It should lead to a little less degenerate gambling and a little less chasing whatever the shiny new object is that week. Lately, it's alternatives. Before that it was crypto, before that it was SPAC, before that it was NFTs, Before that, it was mutual funds. You could look at the history of investing as Wall Street's continual attempt at rolling out new products, some of which are pretty good, most of which aren't worth your time, energy, or money.

And so when it comes to mistakes, common mistakes that people make, you've subdivided these into three categories. So there's bad ideas. There's bad numbers. Numbers. And then there's bad behavior. And I want to methodically go through all three of those. Let's start with bad ideas. First, what distinguishes a good idea from a bad one?

The key distinguishing factor is, hey, if you act on this idea, will this lead to a better outcome in your portfolio or a worse outcome in your portfolio? I think that's the key dividing line. There are lots and lots of bad ideas in the world. We live in an era where people question vaccines, people question whether or not the earth is flat. The difference between having a bad idea in politics or policy or a bad idea in investing is the feedback loop with markets is just so rapid. So if you think that the earth is flat and you're not going to make investments on anything that thinks the earth is round, the markets will very quickly disabuse you of your false belief. And that's true across all manner

of beliefs. It's not just politics and religion and whatever you choose to believe in in your off time. It's everything from, I only want to invest in my home country. I don't want to have overseas diversification. I want to pick stocks. I want to try and time markets. I want to be overweighted to this form of alternative investment or that form of whatever the flavor of the day is. Sometimes it takes a few months. Sometimes it takes a few years. But the feedback loop in markets is really rapid. And there are just endless examples of bad ideas, not only in traditional media, but today we have social media, we have social networks, we have artificial intelligence, the opportunity to read things that are just silly, unfounded, and money losing is everywhere.

I quote a science fiction author from the 50s and 60s named Ted Sturgeon, and people had, critics had constantly been showing him the worst examples of science fiction and saying, how come so much science fiction is crap, literally the question. And his answer was 90% of everything is crap. And that turns out to be a pretty good rule of thumb. Mutual funds, ETFs, private investments, go down the list. The vast majority of things we put our money into, even individual stocks, really aren't worth your time, effort, and money. Henry Bessimbinder over at Arizona State University literally did a study and found that all of the value created in the stock market comes from about two. percent of the stocks. So it's not even 90 percent or crap. It's 98 percent. And so you have to ask yourself, what do I believe in? Who am I paying attention to? Why am I following these folks?

And what does it mean for my portfolio? Most people don't go through that sort of self-analysis. There is a firehose of bad ideas in the media and in social media. And we all have a tendency to give them far too much credence and far too much credibility, then history tells we should. You know, you mentioned a bad idea leads to a bad outcome, a good idea leads to a good outcome. Doesn't that carry the risk of assessing decision-making based on the outcome rather than based on the soundness of the decision itself?

So I'll give a quick example. You run a red light and nothing bad happens. You don't get into an accident. you don't get a ticket, you reach your destination faster. Running the red light was still a bad idea, despite the fact that it led to a positive outcome. Conversely, a different person is a safe driver, but they get into an accident. They made good decisions, but they still had a negative outcome. So there is that distinction between the soundness of the idea or the decision and the outcome.

So I love that question. It gives us a chance to talk about two distinct things. one is being process-oriented, not doing what Annie Duke calls outcoming, meaning making a decision based on the resulting. You know, that's a terrible process. She uses in her book the example of someone going for a fourth and one on the one-yard line, which statistically is the right thing to do, and the defense held them and they never scored a touchdown.

And on all the Monday morning quarterbacks who have the result, but not the process, they all criticized it. And, you know, it's called Monday morning quarterbacking because, hey, now that we know what the result of this one incident was, we could say why it was a good or bad thing. What you're supposed to do is say the circumstances, fourth down, one yard to go, we're down by five, a field go doesn't help us. There's 10 minutes left in the game. We have to go for it. Like in those circumstances, and in fact, it was a Wall Street Journal article about a high school coach who didn't even have a kicker. They went on it forth and down always.

They always went for it because in high school, the odds are you're going to make it anyway. So statistically, he was in the right place. And it turns out to some degree, that's true, in the professionals. The person who doesn't run the red light but still ends up in an accident, well, that brings up a different issue, not so much process, but thinking about data sets and that you can't look at a single example, you can't look at a single outcome, you can't take a single anecdote and say, oh, well, that solves it. Hey, wait, your mailman's sister's son did X and therefore nobody else should do X. Like, I've literally, had that conversation a dozen times. And I have to fight the urge to say, well, if your mailman's sister's son had that experience, what is this other giant set of a hundred million examples up against that single anecdote? You don't want to be that guy. But the fact is, the world is complex

and nuanced. Most things aren't black and white. There are shades of gray. And the way you figure out what is, is by looking at all these, coming up with a reasonable analysis that says, if we do the following thing a hundred times, here's what the outcome looks like. This will happen 10%, this will happen 30%, this will happen 50%, and the last group is 20%. If you know what the probabilities and the various outcomes look like, if you think about the world probabilistically, so I hate the questions, where's the market going to be? a year from now. A little higher, a lot higher, the same or lower. Those are really, or a lot lower, those are your five choices. The irony is the person who says, well, the average return is about

10% a year, not that we tend to get that, and we're up double digits for the past three years. History tells us momentum is a real thing. We're better off giving the market the benefit of the doubt, and let's assume we're positive next year, even though it's a concentrated market with a lot of risk and elevated valuations to just say, okay, here's where this run ends, tends to be, in the fullness of time, the wrong guess. But caveat, I don't know where the market's going to be next year. I'm suggesting this is the largest probability up somewhat, probably not another plus 20%, although we had four 20% years in a row in the late 90s on the back of,

internet and telecom. So it's certainly not unprecedented to have four 20% years in a row, this time on AI and large language models. But probabilistic thinking allows you to consider what are all the various choices, what could happen. And so we have to be aware of resulting. We have to be aware of being outcome focused as opposed to process focused. And then the world is not binary. You have to realize, There's a myriad of possibilities. I love the definition of risk being more things can happen than will happen. So when you're thinking about risk, hey, I can't tell you if this, this, or this is going to be the best investment at this point.

But probabilistically, we want to be in the fat part of the curve to give us the highest possibility of a good outcome. When we are thinking probabilistically about a range of potential outcomes, how should we be thinking about the sliver of outlier outcomes that could be fatal, that could have that risk of ruin? There's always a chance that the market's going to crash. There's always a chance that something untoward is going to happen. Most of the time, things we worry about aren't the things that happen. Go back to the December of 2019, nobody had on their bingo card global pandemic that shuts the economy. Oh, and by the way, a 69% rally off of the pandemic lows. Nobody was talking about that. And inflation. That's right. Following a massive fiscal stimulus, snarled supply chains,

a little bit of greed inflation, and consumers who seem to be pretty price insensitive. You know, we blame a lot of different things. Keep in mind, the cure for high prices is high prices, meaning people who tend to say, oh, I can't pay that much for this good, it's too pricey. Well, eventually those prices come back. But when consumers don't care about price, when they're insensitive and pay up, hey, they're a driver of inflation also. So is a decade of zero percent interest rates. So is the largest single fiscal stimulus since World War II, followed by a second. and stimulus, it's hard to look at all these things and say there's any one driver, but, you know,

these outcomes that we fear tend not to be what happens. We tend to get these outliers. And the reality is, hey, markets go up and down. We tend to get a crash, you know, every 10 or 15 years. We went a long time from 87 to 2000, and then we had another crash in 0809, and then we had the first quarter of 2020. So there tends to be a pretty long gap between 30, 40% drops in the market, but they're the nature of the collective decision-making of all of us irrational humans. Yeah, we can have algorithms and we can have bots and we can have computerized trading into that, but you still have humans as a key part of this. And humans ultimately lead to bad decisions. I started on a trading desk.

So when stuff gets ugly, when the market's down 30%, I get really excited because it creates an opportunity to pick things up at a substantial discount. When markets are down 50%, I know it's painful. I know no one likes to see the value of their 401k or the portfolio gets cut in half. But if you have a time horizon of 10 years or more, when is down 50% ever? and not a great opportunity to step in. You know, we've seen a bit of a buy-the-dip mentality over the past couple of months.

It kind of gets beaten out of people in a real crash. So by the time you got to the summer of 2002, everybody who had been buying the dip since March 2000, that's it. They ran out of powder. They're done. And we saw the same thing in 0809

that people were like, oh, down 10%, it's no big deal, right? Down 15%. It's no big deal. By the time you're down 25,000, 30% those folks didn't have any capital left, and it became a big deal, especially people who were buying equity on margin, people who were leveraged. And the Buffett joke is, when the tide goes out, we see who's swimming naked. When the market drops, big double digits, we see who

was over leveraged. You mentioned some of the common gaps that we tend to have between major recessions, severe recessions. I remember hearing from a lot of people, right before the pandemic, many people would say, hey, we haven't had a recession since 2008, 2009. Aren't we do for one? There was a little bit of a sense of markets are cyclical and it's been so long since we've had one that aren't we, as though it's something that you could schedule. Right. What I was hearing from many of the people in this audience was a bit of a fear of heights and a sense that markets die of old age. Could you disabuse us of that? Sure. So recessions don't come along on a calendar. Markets don't die of old age. Both of these things require some catalyst

to cause them. It's really hard to have a recession when interest rates are at zero. The country had a fairly decent economy, especially by the time we got to 2015, 2016, the economy had mostly recovered from the worst of 0809. You still had some pockets here. You know, and there, but generally speaking, a robust economy with everybody having a decent amount of capital and everybody having refinanced their homes, households had the lowest debt ratio to discretionary spending than they've had in a century, and corporate America refinanced all their outstanding debt at very low rates. So you had a pretty good economy with very little leverage, very low debt servicing.

that's not a recipe for a recession. What tends to cause recessions is some sort of serious body check to the economy, some sort of thing that damages it. And to put into a little context, under normal circumstances, if you would say, hey, we're going to 10x tariffs,

we haven't done this since 1930, is that going to cause a recession? And my answer before this year would have been, unless you have a very robust economy, that could very much push you into recession. And it turned out, we've had a very robust economy. Towards the end of 2025, we're seeing a decrease in the labor market. We don't have to see big layoffs, but we're certainly seeing fewer and fewer hirings. But consumer spending has been pretty good. But so as frustrating to both consumers and retailers and manufacturers and importers as the

tariffs have been, it's taken a little bit off of GDP growth, but it hasn't caused a recession. Now, maybe that changes in 2026. I don't know. But so far, it's been, you know, you had a lot of importers and retailers front-running the tariffs and bringing a bunch of stuff in before the tariffs hit. and then there have been a bunch of companies that have been eating the increases, so it's affecting their profitability. We'll see what happens in 2026. I don't think that can go on forever. It takes a lot to cause a recession. It just doesn't come out of nowhere. And bull markets don't

die of old age. They do tend to go further and longer and higher than anybody reasonably expects. We saw that in 1996 when Alan Greenspan famously gave his irrational exuberance speech. You still had another four years and something like 431% on the NASDAQ to go, but we all have a tendency to underestimate markets. I have found the best thing to do is give the market the benefit of the doubt. You'll probably be rewarded. For sure, at a certain point, every bull market comes to an end, but it just doesn't, oh, it's too old, it's time to die. That doesn't happen. Right now, we're going through a giant build-out, of artificial intelligence. We've experienced previous things before that. We've seen

buildouts in companies from mobile. We've seen it with internet. Before that was computers. You can keep going back every decade. The rise of the electronic industry, interstate commerce, interstate highway system, civilian aviation, radio TV, the build out of telephones. And before that, wiring every house in the country for electricity. And before that, telegram and before that, railroad, there's always some new technology that comes along that gets investors and exciting. If it genuinely creates more productivity, if it allows everybody to be more efficient, ultimately it leads to higher corporate profits. That's always good for the stock market. And what we're seeing in our economy right now is a lot of mixed signals because there is a lot

of hope and optimism around AI, around the fact that this is an inflection point type of technology. It's the first technology that we've ever had that's able to reason and make decisions on its own, which sets it apart from railroads or any other piece of technology that has required a human operator and a human decision maker. Can I push back on that a bit? Oh, yeah, yeah, absolutely. So artificial intelligence is neither artificial nor intelligent. Large language models looks at the corpus of everything that's been written in that space, meaning Wall Street Journal, Bloomberg, all these big publishing outlets have their own massive archive of research, and they train their AI on that. So it's coming from this giant set of previously

written ideas, stories, whatever, from people. And then you're training it to, if this sort of question is asked, go out and find this. And so it's less intelligent. It looks like it's intelligent. What it's really doing is finding in the things that have previously been written in this space something that can answer the question that was asked. So it's, I think it's fantastic, and I use it all the time, and I don't want to sound like I'm an AI doubter. I am very much an AI optimist, but we have to understand that this is less a replacement for human intelligence than it is a replacement for a whole lot of fairly mundane tasks. By the way, that includes writing code, a lot of which is we understand how to program computers to do ABC, and here's

all that various code. Putting it together, isn't that difficult for this sort of technology. We still have issues with hallucination. We still have issues with over-emphasizing things that shouldn't be emphasized. I think the advantage people have over AI. We're not as fast. We don't have access to the entire universe of things that have been written. But we have intelligence. And very often what AI produces, it's fast, it's useful.

It isn't always the smartest answer that's out there. And we do ourselves a little bit of disservice by assuming that any time in the next, I don't know, five or ten years, this is going to be more intelligent than us. The advantage it has is to go back to your automobile accident. When a person makes a mistake and has an accident, that person learns from it and hopefully doesn't repeat that mistake. But the other seven billion drivers out there, they're still making that same mistake. If you take a Waymo or any other self-driving car and there's an issue and there's a mistake,

hey, that vehicle made a mistake, but now the whole network of cars have learned from it. So there are some really interesting things that AI is going to do for us, especially on a network basis. I'm always just a little cautious in giving it credit for being intelligent. It looks like intelligence, but it's really just finding the, things that somebody else has created and using it in context to answer a question. So if you were to make an analogy to, let's say, a PhD student writing a dissertation, AI would be the lit review portion, but not the original research.

That's right. So at least so far, maybe this changes in the future. We're not seeing a whole lot of things that are, if it hasn't been thought of before, so far, we're really not seeing AI create that. Maybe that changes in the future. But so far, humans have that advantage. And, you know, we had this conversation about how do students use AI to submit essays. You're a professor grading essays.

If one person uses AI for research but then writes it themselves, that essay will stand out from everybody else who used AI to write the essay for them. So there's an advantage to knowing how to use AI, but not sublimating yourself. to it. At Medcan, we know that life's greatest moments are built on a foundation of good health, from the big milestones to the quiet winds. That's why our annual health assessment offers a physician-led, full-body checkup that provides a clear picture of your health today and may uncover early signs of conditions like heart disease and cancer. A healthier you means more moments to cherish. Take control of your well-being and book an assessment today. Medcan, live well for life. Visit Medcan.com.

slash moments to get started. In the context of predictions around how AI and all of these new technologies are going to impact the market, there's a variety of factors that a person can look at. There are the people who are worried about overvaluation. There are the people who are optimistic about the new technological advances. You outline actually a variety of archetypes of different types of, like I'm a bit of a permable. My default mode is optimistic. There are permabairs who are sort of default pessimistic. And then you actually have kind of outlined a handful of other archetypes as well.

There's like the enthusiast to the salesperson. Can you walk us through some of these different market commentators and the frameworks that people bring when we're looking at the same set of data or the same set of facts, but we're seeing it through all of the refraction of these different prisms. That's right. Well, the old joke is to a person whose only tool is a hammer, everything begins to look like a nail. So you want to avoid becoming a bold-faced name that way. It's funny heading into the financial crisis, writing about subprime and derivatives and mortgages, I had people tell me I was a permabair. I wasn't a permabair. This is just, hey, here's an issue. I don't think people are paying enough attention to this. And lo and behold,

When we flipped bullish in March of 2009, and I really wish Yahoo saved these comments from those videos back then. Now it's like, oh, this guy's a perma bull. He doesn't know what he's talking about. Well, which is it? Perma bear, perma bull. You know, the fascinating thing is that markets move in these long cycles. We never know when they're going to end.

We do know they tend to start fairly cheap. They tend to end fairly expensive. step along the way, there's an opportunity for one of those arch types to have their day in the sun. So when a bull market starts, stocks are cheap. People tend to not really believe it. There's a lot of doubters. There's a lot of skeptics. The technical traders tend to identify or the value traders tend to identify bottoms of markets sooner than the growth folks or the permable folks, usually you're just coming off of a 612, 18 month, rather unpleasant period. And so that first group seems to find its way. As stocks rally off of the lows, suddenly it starts to attract

momentum traders and other types, trend followers. And as the market works through all of its various phases, a different archetype has an opportunity to go out and explain why now is they're attracted to stocks. Right up until the last day of the bull market, someone will be coming along and saying, here's why we love stocks right here. The point is it's not that any of these folks are right or wrong, it's that we should just recognize,

hey, there's a cycle that takes place over the fullness of a 10, 15, 20-year bull market and be aware that different strategies, different archetypes come into and out of favor over the course of this market. So when a person, the average person who's listening to this, is hearing opining on the market from one archetype or another, what part of that is sound or valid and what part of that is just a reflection of the biases

of the person doing the opining? I've jokingly said, our moms gave us all the tools we need to be good investors, probably the most important of which is never take candy from strangers. I'm amazed that I have to dredge that up from a million years ago, but if you see someone on TV or in social media or newspaper, wherever, always ask yourself, what is this person selling? And who are they? And so I like to assemble an all-star team of my favorite people that I pay attention to

in print or in electronic press. And I always ask the same questions. You know, what is this person's long-term track record? Hey, nobody bats a thousand. But you want them to be more right than wrong. What's their temperament like? Do they have a cool demeanor? Or does every 3% pullback, they're running around with their hair on fire,

screaming, this is it. This is the beginning of the big one. Like, beginning of Q4, 2025, we had a couple of sell-offs, and then go back to April and Liberation Day, lots of people ran around hair on fire. This is it. It's all over. I've been warning about this for two years. Their confirmation bias kicks in.

And finally, they've been proven right. And, you know, 10 days later, we were off to the races again. So you want that good temperament. You want them to have a good process as opposed to someone who just got lucky once. and there were just a run of people who more or less got the financial crisis right, but for the wrong reasons. And they had been negative for the previous 10 years, so I don't know if they get credit for that. Do you remember the bond analyst who warned about the coming disaster in muni bonds? I think that was pretty much the end of her career.

There's just been like a series of people who've gotten one thing right and tried to turn that into a career. they got lucky. And sometimes, you know, when you see that, you can't assume that one lucky stock pick, one lucky market call, one lucky thing that means that that's somebody you should follow. So good track record, defendable process, the right temperament. And then lastly, you want them to be fairly consistent. Like if they flit from crypto to SPACs to NFTs to private credit, they're just go into whatever the shiny thing is. You want someone who, hey, I specialize in real estate, or I specialize in market structure, or here's my expertise as ETFs. Like I'm thinking of, or behavior, or I'm thinking of the 10 or 20 people on my favorites list, and they all seem to

check that box. They're consistent. They have a good temperament. They've been a lot more right than wrong. And they have a process that's rational and defendable. And they're skillful. It's not just a one-off lucky guess. There's that paradox that the more expertise, something requires, the more luck plays a role in it? Sure. So Michael Mobisson is at Morgan Stanley. He's Professor Columbia.

He points out that when he wrote a book, thinking about luck and skill in business, sports, and finance, amangling the title of the book. But it turns out, as everybody take a professional sports team, as everybody becomes more and more skillful, the paradox of luck is, hey, a lucky bounce makes a giant difference. And the same thing is true in investing. As everybody becomes more professional, more skillful, has a process, learns the right temperament, a little bit of luck sometimes makes a giant difference in outcome, as opposed to when you have a whole mix of professionals and amateurs playing, and there's just a range of various skill levels.

In those circumstances, skill tends to win. But if everybody's really skillful, well, then luck can have a really big impact. The other thing that often tends to happen is that people who are highly skilled in one domain, we listen to them in domains that are outside of their core expertise. Yeah, the academic phrase for that is called epistemic trespass. And what that means is all about Sam Zell, a legendary real estate investor. He called himself the grave dancer because he would find these great properties that someone either got over leveraged or just was unable to carry through an economic downturn. And he would buy these great properties very inexpensively.

And then he would hold these properties for decades, some as long as half a century. Like stopping that when people talk about stocks for the long run. Are you really talking about a 50-year holding period? Zell did that. But Zell also liked to scratch his chin and make economic pronunciations. And a recession is coming. We'll skip a recession. Whatever it is.

And like everybody else, he was pretty bad about it. And yet we have a tendency, the term is the halo effect. We have a tendency to say, hey, real estate is tied to the economy. This guy's a billionaire, wildly successful real estate investor. I guess he knows what he's talking about with the economy. But economic forecasting isn't how he made his money. It was finding really good properties at deeply distressed prices and then holding them for a long period of time. When the next recession was coming along was pretty irrelevant to his whole process.

But we don't go through that thought process of saying, what's this? track record like, turns out investing great economic prognostication, not so much. And we don't stop and say, did he earn his wealth or his skills or whatever we're giving him a halo around by this aspect? And there's just endless examples of people who, I'm pretty good at this, said Michael Jordan. I'm a pretty good basketball player. How hard can baseball be? And it turns out he's the greatest of all time. He's the goat in basketball. He was a mediocre minor league player. Like not even a mediocre major league player. He never made it to the bigs. That's how little his athletic excellence in basketball translated to baseball. Right. And even Sam Zell, so, I mean, and he made his money

buying distressed assets in real estate, but didn't have the foresight to see the real estate crash, the Great Real Estate Crash of 2008. So even in the domain of real estate, there is a distinction between identifying distressed assets versus forecasting what the industry as a whole holds. Right. And then you think about it, if someone who has been buying and managing and accumulating real estate over the course of decades, what expertise would he have in the securitization process of subprime mortgages?

he wasn't buying individual houses. He was buying commercial properties. What blew up the economy was so far afield from what he focused on, you wouldn't expect. There's no reason to expect a commercial real estate investor to scratch his chin and say, hey, all of these subprime non-bank mortgages that are being securitized by Wall Street are going to cause a giant unwind of the economy and a freezing of credit, nobody, or I should say very, very few people saw that in advance, certainly not commercial real estate investors. The only people who saw that were people who were paying close attention to the securitization market. And that's such a tiny, at least at the time, tiny, quirky backwater of finance. The average investor, the average mutual fund manager,

the average economist simply had no reason to even look over there. The only reason I remotely paid attention to real estate was no great insight. My mom was a real estate agent. We always had these conversations about real estate. This was dinner table conversation when I was a kid. And so I paid a little more attention than the average guy on Wall Street to what was happening in real estate and what was happening in mortgages. And it was like a loose thread.

And the more you pulled the loose thread over the course of a couple of years, the more it began to unravel. The only reason I had any sense of what was coming was because, again, going back to my mom, but for her being a real estate agent, I can't imagine I ever would have been looking in that space. Which then goes back to a little bit of luck. Yeah, smart is good, luck is better. And smart and lucky is the perfect combination. And by the way, I've had a lot of billionaires tell me this. always used to wave it off as bads, come on, you're a billionaire,

you're smart guy, you, and Howard Marks kind of disabuse me of that. I don't like, you know, not everybody had a wildly successful firm, not everybody became a billionaire, you're smart, you're hardworking, I think he went to University of Chicago for grad school.

He's like, everybody I went to grad school was smart and hardworking. Those were table stakes. Those were just the cost of admission. This happened and that happened, this happened and there's a lot of serendipity in that. Sure, you have to be willing to take a chance and responds when the opportunity presents itself. Not everybody gets that opportunity. Right. Even people who have expertise in a given domain, even if the opportunity is in front of

them, are unable to see that opportunity. And so I know you've gone through examples of the people who passed on the Beatles and the people who passed on... hilarious. Right. It's a fad. Like Star Wars. Right. Guitar music is a fad.

Yeah. There's a great quote from Paul Graham. All experts are experts in the way the world used to be. And if you think about that, right? You go to college, go to grad school, you do whatever your final thesis is. You're looking at history. By definition, if you're studying what's already happened, you've become an expert in the way the world used to be. And the same thing is true for economic and financial models.

I've never seen a back test that didn't look fantastic. Hey, give money to this funds. Look how great our back test is. And inherent in every model and to some degree inherent in every expert is the assumption that the future will look like the past, meaning these are all the factors that led me to my PhD or this econometric model or this portfolio model. And you can't get away from the fact that built into that assumption is there isn't going to be a radical change in A, B, or C. And every time the models become wildly off, or every time people pass on Star Wars, Raiders of the Lost Ark, E.T., John Wick, it's because the assumption is, well, first, you're trying to guess what the public's taste is going to be five years hence.

but also we know it works. This doesn't really fit that model. It's different. There's an example called Maya, which is most advanced yet acceptable. And that concept when you're looking at music or art or whatever is, is this too far ahead? Part of the explanation given to why so many critics,

they didn't appreciate the Ed Sullivan appearance of the Beatles in 1964. they gave bad reviews to albums like Rubber Soul and Revolver and Sargent Peppers and the White Album and Abbey Road, which at the time were the greatest recordings of their era. Pretty much all of them have stood the test when you look at the top 100, top 500, whoever does those out. It's amazing how well these albums have aged over the decades. Right. But it just goes to show you when music is changing rapidly, the old guard just is reluctant to come along.

And the older you were as a critic, the less likely you were to like this newfangled guitar music. Fast forward 40 years. The older you were as a critic, the less likely you were to like hip hop and rap. You were in a previous paradigm. And so we see this all the time. And so how are you going to forecast the future if you're stuck in the past? How can your model make an accurate look forward if it's based on what came before? Real creativity, real innovation just simply isn't in the previous frame of reference.

So you don't like the Beatles. You don't think John Wick is worth putting money into squid games. What are you mean a Korean drama about a contest where losers are killed? That sounds like a terrible idea. Said everybody for 10 years. The guy who wrote that literally had to sell his laptop because that's how broke he was at one time, according to a Wall Street Journal story.

And then during the pandemic, Squid Games became the most watched thing on Netflix and not by a little bit. It's like 2.3 billion hours. The next closest things were Stranger Things and Wednesday. Like half of that. It's amazing how, what a giant gap that it's created. And it just goes to show you how little we know about the future.

Nobody knows anything about what's going to happen next, which is why when we build a portfolio, we can't build it on, here's what I think the economy is going to do, and here's where the market's going to go, and here's what's going to happen with stocks. You have to build a robust portfolio that can pretty much withstand anything. We've talked quite a bit about bad ideas. Tell me about bad numbers. In the context of building a robust portfolio that can withstand anything, we look at statistics, we look at models of what has happened.

We make assumptions based on past performance. We say, hey, even as index fund investors, we'll say, hey, if the overall economy performs in the next 40 years the way it did in the last 40, and I invest in broad market index funds, then I'm using this set of assumptions to assume that I'll be okay. what else can we do? So let's talk about a few of my favorite bad numbers. I mentioned Bess and Binder, whose research found that essentially 2% of sole stocks is where all the value is created.

That should make us a little circumstance about our ability to find those stocks. There are 3,500 publicly traded companies in the world. So what does that mean? There's 55, 60 stocks out there that are going to be... in the U.S., 3,500, the 50, 60 stocks in the U.S. that are going to create all the value, that's really hard to do and hard to do without picking any of the other 3,450 stocks that turn out to be. Some are up a little, some are down a little, some are flat, some go to zero.

But you want to avoid those stocks. It's very difficult to do. So you can either screen all of them out, which is really challenging, or you buy them all in an index, and it'll self-adjust by market cap relative to what stocks are doing better. That's turned out to be a very simple solution for a lot of people. But that's just one bad number. Some of the other numbers that I always laugh at, how misleading they are. One is the concept of denominator blindness, where you get a number, but it's out of context.

I just saw one the other day. Some company is laying off 10,000 people. Well, how many employees do they have? Is that a lot or a little? 10,000 sounds like a lot. But if it's Walmart, that's one company every fifth store. That happens every day by 9 a.m. Somebody quits in one out of five stores.

If it's a regional company with 25,000 employees, 10,000 is a lot. So the denominator blindness, the not giving you context. The other day I have the TV on and I'm flipping past and it's like, oh, the Dowfell They said the market fell 600 points today. Well, was that the S&P, which is a 10% drop? Or was it the Dow, which is normal trading noise? You can't just say the market. You have to give us context so we know, is that a lot or a little?

My favorite one, since we're recording this in between Thanksgiving and Christmas, this is the time of year when Home Alone is on every channel. and a meme will circulate on social media right around now. When Kevin went to the supermarket and bought that bag of groceries in 1990, it cost him almost 20 bucks. Today, that same bag of groceries would be 75 bucks. And I'm like, okay, so what are you saying? Because I don't know about you. In 1990, I didn't put a whole bunch of dollars into envelopes and write on it save until 2025.

to go supermarket shopping. I earn whatever I'm spending on that $75 bag in the supermarket in 2025. And if you're not telling me, well, how much has my salary gone up over the ensuing 35 years, you're misleading the viewer. You're not giving them an accurate way to assess this. And it turns out wages in the United States went up more or less the same amount as food has over the past 35 years. In fact, it's even better than that because if you look at things like energy was 12, 13% of the family budget, it's now 6%. And we use a whole lot more power equipment today than we did 35 years ago. And if you look at food in the house, it used to be about 10%. It's now about 5% food in the house. But what about people going out to eat? Yeah, what about people going out to eat? Yeah, what about

people going out to eat. If you're telling me the dollars be devalued, just look how much a bag of groceries are 35 years later, but people can afford to go out to dine a lot, doesn't that kind of undercut your one-sided misleading argument? So that sort of thing is out there all the time. Probably the worst offense of that is the U.S. dollar has lost 96% of its value over the past hundred years. It's like, why would anybody hold the dollar for a hundred years? It's a medium of exchange. It's not a store of value. I love to show the example of if you take $1,000 and put it in mason jars and bury it in your backyard for a hundred years versus the guy who a hundred years ago put that money into the stock market. So one person, $1,000 in mason

jars, the other person, $1,000, assume there was an S&P 500 index. There wasn't, but by the equivalent of it. Right. What happens? Well, you're technically correct. Take those bills out of the ground, 100 years later, what $100 bought in 1925, and what they can buy in 2025, you can buy 96% less. However, if you take that $1,000 and put it in the stock.

market through the power of compounding. I love asking people, what do you think it's worth? And I always get half a million, a million. The answer is $32 million, which is a shocking, shocking number. Just follow the rule of 72. The market goes up, or rule of 72 is what's the return percentage divided by 72? That's how often it doubles. So 72 divided by market goes up 10% a year on average, every 7.2 years, the stock market double. So, 1,48, 16, 32, 64, you get pretty 128, 256, 5, 12. You get to a million dollars pretty quickly. And then the same thing, 2 million, 4, 8,0, 16, 32. So it's kind of fascinating. Technically, if you buried $1,000, it lost 96% of its value.

All right, but whose fault is that? The dollar is not a store of value. Real estate is a store of value. Stocks are a store of value. Bonds are a store of value. You can even argue precious metals like gold is a store of value. But burying dollar bills for a century, hey, the problem isn't that the dollar has lost its value.

The problem is that your great-grandfather was a terrible, terrible steward of capital. And had they put it into the stock market, you would be wealthy today instead of having $1,000 that is worth a 25th of what it was a century ago. Right. So bad numbers, misleading numbers, and these get memed all the time. All the time, constantly. All the time.

And that kind of goes back to what we were talking about earlier with the TikTokization of financial advice. you know, people are now getting financial information from a wide variety of sources, many of which are just not that good, but in the absence of knowing how to separate the wheat from the chaff, that can be quite misleading. That's right. So start with don't take candy from strangers.

That's pretty simple rule, mom taught us. But be aware, everybody online is selling something. Could be this substack, could be this product, whatever it is. But be aware of how terrible so much of this advice is. So two really interesting things. On Twitter, there's a feed called TikTok investors. And this person pulls the most hilarious advice, all terrible, from Instagram, from TikTok, from elsewhere. 401Ks or a ripoff.

What do you mean? Your company gives you a match. That's free money. How is that a bad idea? Right. Or never buy a house. house. A house is a giant money sink. Well, you have to live somewhere, and if you find a reasonable house at a reasonable price, and you don't want to be subject to a landlord telling you

what you can and can't do when you want a little property around you, I'm not saying buy a price in any house, but there's a reason there's no supply of houses out there. A, we've underbuilt it, and B, people like living in places where they own and they can control, and they can paint whatever call it they want and yeah it's a pain in the asses a lot of maintenance and and taxes and other things but it's pretty clear owning a house is part of the american dream my favorite piece of bad advice was if you're out in international waters on a boat on april 15th you don't owe taxes that's right and um turns out that uh not only is that wrong but there's so much nonsense yeah on ticot reel's Instagram, what have you, that the IRS had to put out a bulletin that said these 47 pieces of

tax advice that you'll see on social media will cost you back taxes, interest, penalties, and in a few examples, jail time. Saying you don't owe any IRS money because you're in international waters on a boat, it's one of those things that, you know, not going to work out well for. you. And so that's just about taxes. That's before we get to stocks, crypto, bonds, funds, 401k, real estate, small business investments. There's just a fire hose of nonsense out there. And it brings me back to Ted Sturgeon. 90% of everything is crap. There's a reason, you know, we give out awards to the MVP in various sports leagues, why there are championships.

really, really fantastic performance, great success is very rare. Not everybody in the world who have paid for internet access and signed up for social media are the people that are going to lead you to the promised land. In fact, you have to assume that none of this is easy. It's all really difficult. My big takeaway as I was writing the book was it wasn't how I began. thinking about this when I first sat down, but by the end, it's like, man, as a species, forget just as investors, but as a species, we really need a whole lot more humility in how we

approach the world. We're no way near as smart as we think we are. We have no idea what's going to happen next, and pretending otherwise just doesn't help us. And by the way, Here's thousands of years of human history, certainly a hundred years of modern investing history. Let's try and learn from the errors that everybody else has made. If only we made fewer errors, we would all be much better investors. That actually leads us to behavior because in a bull market, it's very easy to say, yeah, you know what, we should be rational, we should have some humility, we should make good decisions. we should buy and hold low-cost index funds with good asset allocation and a little bit of

attention to asset location. My work here is done. Yeah. Yeah, exactly. It's like in a bull market when you're employed and your kids are employed and everything's going well, the stock market's looking good, you're almost done paying off your mortgage and everybody's happy. It can be very easy to feel as though we can be rational.

That's right. And then something hits. Maybe it's a pandemic. Maybe it was April of 2025. Something. Maybe take the time machine and go all the way back to 2008. But something hits and this time it's different. What do we do?

How do we curtail that? By the way, it doesn't even have to be something bad. The old joke is nothing makes people more furious than seeing their idiot neighbor make a fortune. And so their FOMO is a real thing. for most of investing history, we called it fear and greed. There are two sides of the same coin. One is an emotional and irrational fear of losing what we have, and the other is an irrational fear of,

why don't I have more of this? When something bad happens, we have been hardwired, our wetware has evolved over millennia to avoid these existential threats. And the concept of risk aversion basically teaches us that we hate losses twice as much as we enjoy gains. Like more or less, that's the proportion.

I love to point out if any, I'm not a big gambler. If you go to Vegas right outside the casino floor is always a jewelry and watch shop. You have some winnings. You step off the floor. Oh, let's buy a new Rolex. Let's buy a new diamond bracelet for my significant other. The money that you win is. is a temporary increase in your standard of living,

and it's completely meaningless. The money that you lose, that's blood money. That's real cash. And when people take a big hit in the casino, what am I going to do? I'm not going to pay rent this month. I'm going to miss a mortgage payment. I'm going to have to tap into the kids' college funds.

Like, it's real damaging. And so we feel panic when we see the market begin to roll over. especially if we're enjoying a five or a 10 year run where markets have just been going up and up and up. We forget markets go up and down. Now, the bare markets tend to be shorter. They tend to be more of an event, whereas a bull market is a much longer experience. But it's human nature to say, you know, you're thinking about what my retirement looks like, what this looks like. Hey, I have $10 million.

Hey, I have $20 million. dollars, whatever it is, I have $2 million, that'll cover my retirement. And suddenly the 10 is 5, the 2 is 1, the 800,000, it's terrifying. And we know that if you leave it alone in the fullness of time, it'll come back. We understand that intellectually. Emotionally, it's really difficult. I love the joke about somebody asks the fund manager, hey, the market is getting shalact, how are you sleeping at night? And the fund manager says, I sleep like a baby. Really? We're down

25% and everything is doing terrible and no one knows where this is going to end. How do you sleep like a baby? And the joke is, I wake up crying, wet myself and cry for mommy every two hours. I'm sleeping like a baby. And it's that sort of Wall Street Gallo's humor that reveals a real truth, which is we are emotional creatures. We feel these things. our stomach gets nodded, our flight or a fight or flight response is engaged. This reaction has kept us alive for hundreds of thousands, millions of years as we have evolved. It doesn't help us in capital markets. And so that is the conflict.

William Bernstein is a neurologist and an investor. And he talks about the amygdala, which is the part of the brain that controls. your fight or flight response. And he said, the secret to investing is managing your amygdala. If we fail to control that, if we don't learn how to manage that, you will die poor. And that's a really, you know, from someone who knows both the finance and the medical side of it, there's a lot of truth to how we respond to these external events very much determines how successful we are managing our own portfolios.

Where I think a lot of people get tripped up in managing the fear response is that many people don't have necessarily the awareness in the moment to say, I am feeling fear. Instead, that fear is expressed in the form of rationalization. The underlying feeling might be fear, but the idea is here are eight rationalizations as to why I should make this particular decision that is not aligned with my investment thesis. I always like to tell people your first step in managing yourself is putting together an investment plan, whether you work with a financial advisor or just do it yourself. You have to have a plan.

Here's how much I'm going to save. Here's how I'm going to invest the money. Here's the circumstances that will lead me to make changes in this. Maybe there's a life event. Maybe there's an inheritance. Maybe there's a change in job. But these are the factors that you can control. Things like recessions, drawdowns in the market, crashes, shouldn't be part of that plan.

It's, hey, you have 20, 30, 40 years. Here's your plan. Follow your plan. If you're watching TV on a regular basis, if you're hearing the sort of drumbeat of negativity, if you're just paying attention to the fire hose of noise that's out there, you have to recognize how easily that'll lead you astray. The first step is put together a plan. And if you're on a plane, they tell you before we take off,

read the manual for what to do in the case of emergency on the seat back now. If an engine falls off at 25,000 feet, maybe it's a little too late to reach for that instruction. your manual, everybody's going to be in the wrong headspace. So plan in advance, follow your own plan, be aware that that stuff happens. Like, recessions come along. Markets crash. We have a regular drawdown all the time. It's fascinating that we were not even 5% off the all-time highs last month. And people were screaming like it was 09. And it just goes to show you, hey, markets go up down. How do you not

understand this? And so once you internalize it, it's kind of fascinating. Early in my career, I had no portfolio worth talking about and every move in the market was gut-wrenching. And then 25 years later, it's like, okay, now I have

a pretty decent portfolio. And every time the market drops, it's like, yeah, I guess this is what happens. You know, I've seen this movie before. I know how it ends. We'll be fine in 10 years. I wrote something about tune out the noise in April right after Liberation Day, and the pushback was you can't just tune out the noise. This is a substantial change. Something is going on.

All right. So what are you going to do? You're going to sell here? You have no choice but to ride this out. There really is no other option. Had you sold, what are the odds that you're going to get in before we had that 90-day pause? that's always the challenge with market timing is you say I'm out here and I'll get back in lower really hard again we are social primates we evolved to be a cooperative species we don't have

fangs or claws or armor we're soft, chewy and delicious and the only way we survived was being cooperative and understanding that so when all the rest of your tribe is panic selling it's really hard to say, no, no, I said I would buy back lower. I'm going to buy back lower. We tend to want to do what the crowd is doing. When I was a kid, I used to watch Mutual of Omaha's Wild Kingdom, and it always started with the aerial shot over the savannah. There are millions of animals everywhere.

And then they would zoom in on the zebras, and there was always one zebra on the edge of the herd, a little off. And you knew that guy was lunch. And so there's safety in numbers, this safety doing what the crowd is doing, or at least emotionally, there's that safety. So it's really difficult to try and jump in and out. It's really difficult to not participate in what the crowd is doing. You just have to accept that stuff happens. There'll be recessions, there'll be drawdowns, there'll be crashes.

You have to have a plan that allows you to navigate that. Is there anything that we haven't covered that you'd like to talk about? The only thing we really haven't spoken about is the aspect of taxes. A lot of investors don't pay enough attention to this. What your net returns are, including fees and taxes, is what you're left over with. That's what ends up in your bank account. And there's a lot of simple things you can do to make sure that your after-tax returns are the most they can be.

Some of that is, but we talked briefly about 401Ks or IRAs, but that also includes 503Bs, 529s, HSAs, there's the alphabet soup of various tax advantaged items you can do. Work with a qualified, not just a CPA, but somebody who is an investing tax specialist. There's just a lot of different boxes people have the opportunity to do to reduce their total tax obligation. There are two things we always talk to people. One is about reducing your taxes. The other is about deferring your taxes. So if you're a high earner and you're in the top bracket and you could not take your distributions until you're retired or in a much lower bracket, that's a giant savings and it's not all that difficult to accomplish that. Taxless harvesting doesn't get paid

enough attention to. I think that's really significant. But the bottom line is, is it's not about how well this fund did versus that fund. It's the totality of your investment. Did you invest enough for your retirement? Have you checked every box that's available? There are lots and lots of levers available to investors. Make sure you become familiar with all of them. Or if you don't want to do that, if you're bored by the details of tax planning, we'll find someone who's good at that who can help you with it. A bit of a lightning round question. But on this show, I like to identify my own biases and communicate that with my audience. And so, as I mentioned earlier, I'm a bit of a permable.

I have an optimism bias. And one thing that I've said in many previous episodes of this podcast is I also, in the great Roth versus Trad debate, I definitely have a pro-Roth bias. I tend to default Roth unless there's a strong argument otherwise. Do you have a feeling in the Great Trad versus Roth? I'm going to want up you. So there's a thing called the Mega Roth backdoor conversion. So now we're going to get really tax wonky. But essentially, if you have a traditional 401K or IRA, you have the ability to convert it to,

all right, I've put all this money in pre-tax. I'm now going to pay the tax and convert it. And there are people who can help you figure out when the best time to do that is. And so when I'm pulling money out, I know. that whatever I'm taking out is after tax and I don't have to worry about it. There's a pretty solid case for doing that sooner rather than later. Even if you're still working and you're still getting pre-tax contributions, you end up with two buckets instead of one.

And what the tax nerds in my office like to say is the more buckets we have to choose from, the more flexibility, the more options we have. And that works out to be really advantageous. again, all the stuff is well detailed by the IRS. You can really do this the right way. None of this is like crazy, be on a boat, get arrested sort of stuff. Like, all this is well understood. The IRS puts out regular bulletins. Here's how to do a 403B. Here's how to do a mega Roth. Here's how to do the conversion. This is well-known stuff. But unless you're one of those CPA investor tax nerds who pays close attention to this. We found a lot of clients have been leaving a lot of money on the

table. And once this gets implemented, it's just a giant win. So I'm with you on the Roth conversion. Nice. And the mega Roth is even more advantageous. This has not been around for 100 years. This is like a relatively new development in the world of Roth. But all of my tax guys, just they're giddy about this. Nice. Awesome. I fully support. that. As a strong Roth supporter, I fully support that. It's easy to find information about this. Traditional 401 is you're putting pre-tax money in and you're taking money out that's taxable. Roth, you're putting post-taxed money in, which means it grows and comes out tax-free, which is a lovely thing. Yeah, exactly. And I love the certainty premium. You know, we know today's tax rates.

Right. We don't know the tax rates in 2040. That's right. There is a certain certainty premium that we lock in. That's exactly right. Nice. Well, thank you for spending this time with us. Where can people find you if they'd like to learn more? Ritholtz wealth is the firm. Go to Rittholtz.com and you'll see the blog. I put up all of the podcasts and everything else over there.

Just Google us. We're easy to find. The firm is not only here in New York City, but we have offices all over the country. And we've been doing this for, let's see, we're now in year 12, and we're planning on doing this for another 100 years. Amazing. Thank you. My pleasure.

Thank you for having me. Thank you, Barry. What are three key takeaways from this conversation? Key takeaway number one. Just 2% of stocks create all the value. So stop trying to pick the winners. Because most people waste their time, trying to find the next runaway unicorn winner,

trying to be the person who does the equivalent of buying Nvidia in 2020 and then holding it. And it is probably, holistically unlikely that that's going to happen? Henry Bessonbinder over at Arizona State University literally did a study and found that all of the value credit in the stock market comes from about 2% of the stock. So it's not even 90% or crap, it's 98%. And so you have to ask yourself, what do I believe in?

Who am I paying attention to? Why am I following these folks? and what does it mean for my portfolio? And that's why it makes way more sense to stick with index funds. That is key takeaway number one. Key takeaway number two, your emotions will destroy your returns. Here's how to fight back. The thing is, when markets crash, your brain's survival instinct kicks in,

and it makes you want to sell everything because you want to avoid the thing that's hurting you, which is your portfolio. but controlling your fear response, that's the key to investment success. Morgan Howsell actually has a quote about how your success as an investor is not going to come from the years that you are on cruise control. It's going to come from how you reacted to just a couple of punctuated periods of distress across your lifetime.

And for many people, that's when the emotions kick in and get disguised as rationalized. William Bernstein is a neurologist and an investor, and he talks about the amygdala, which is the part of the brain that controls your fight or flight response. And he said, the secret to investing is managing your amygdala. If we fail to control that, if we don't learn how to manage that, you will die poor. And that's a really, you know, from someone who knows both the finance and the medical side of it, there's a lot of truth to how we respond to these external events very much determines how successful we are managing our own portfolios. That is the second key takeaway.

Finally, key takeaway number three. And this ties in with the previous one, the memes that you see online, the chatter that you see on social media, the stuff that goes viral. it's designed to elicit an emotional response. That's why it goes viral. Boring things don't go viral. Neutral, nuanced, non-emotionally evocative things don't go viral. And so if you're looking at a lot of social media and you're feeling pessimistic, it's probably because you're seeing a warped version of reality that is designed to keep you outraged or scared because That's what keeps you engaged. That's what keeps you doomsrolling. In 1990, I didn't put a whole bunch of dollars into envelopes and write on it save until 2025 to go supermarket shopping.

I earn whatever I'm spending on that $75 bag in the supermarket in 2025. And if you're not telling me, well, how much has my salary gone up over the ensuing 35 years, you're misleading the viewer. You're not giving them an accurate way to assess this. And it turns out wages in the United States went up more or less the same amount as food has over the past 35 years. So remember, social media is never a good source of information

about either the stock market or the economy because the nuanced truth gets buried while viral memes. They leave out a lot of context. Those are three takeaways from this conversation with Barry Rittholz, the founder of Ritthold's wealth management, and the author of How Not to Invest. Thank you so much for being an afforder. If you enjoyed today's episode, please do three things. First, subscribe to our newsletter.

Affordanything.com slash newsletter. It's 100% free. And as my buddy Joe says, worth every penny. Number two, please open up your favorite podcast playing app. Spotify, Apple Podcasts, Pandora, whatever it is that you're using to listen to this show. Open up the app. Please leave us up to a five-star review. Write some words, share what you enjoyed about this show.

And of course, make sure that you've hit the follow button so you don't miss any of our amazing upcoming episodes. And number three, most importantly, share this with the people in your life. share this with the person who keeps sending you the home alone grocery memes. Share this with that person who panic sold in April 2025. Share this with your cousin who keeps predicting the next crash over and over and over on a near daily basis and has been doing so for the last 15 years. Share this with everyone who says that we're overdue for a recession. I'm using air quotes.

You can't see that because this is audio. Share it with that coworker who made a fortune in crypto and won't stop talking about it and, most importantly, share it with your mailman's sister's son so that he understands why you're not making investment decisions based on his anecdotes. Oh, and share this with anybody who takes a boat out into international waters on April 15. Share it with them as well. That is the most important way that you spread the message of F-I-I-R-E. Thank you again for being an afforder. I'm Paula Pant. This is the Afford- Anything podcast, and I'll meet you in the next episode.