Yahoo Finance

Welcome to a new episode of Opening bid. I'm Yahoo Fein's executive editor Brian Sazi, and this is the podcast that will make you a smarter investor, period. And you're definitely going to get a lot smarter after this, uh, after this featured guest. I'm sitting in front of financial media, uh, royalty. Uh, I, I would argue that is Barry Rithholtz, co-founder, chairman, CIO, Rithholtz Wealth Management. Barry, I've, I've never actually met you in person, but I've been reading your story since.2004, uh, the Street.com it's where I used to work as well, so it's good to meet you

in person,

nice to finally put a uh face to the name. Yeah, so

thisis, uh, I'm gonna resist my urge to talk about what's happening in markets today because I want to get to your new book How Not to Invest. Um, how'd you comeup with this?

So the title, I, I, you know, my first book was Bailout Nation 15 years ago.And over the past, I don't know, 5, 10 years, a lot of publishers, a lot of friends had been pushing me to do another book and, uh, Morgan Hall in particular and I kept saying, hey, you know, look back over the past 100 years, there's been tens of thousands of books.And none of them really seem to move the needle. Most investors are pretty mediocre. We all make the same mistakes. We all engage in the same foolishness, and we're all pretty mediocre, you know, and when it comes to picking stocks, timing markets, etc.And then one day I come back from vacation, you know, that lull between Christmas and New Year's, and I just start looking through some old street.com and Washington Post columns I had written, quarterly calls I do for clients, monthly, uh, letters, and I start just recognizing I spend a lot of time telling people what not to do rather than telling them what to do.And most of the time it comes from a client request. Hey, I read this about, look, the New York Stock Exchange margin is record highs. Should we sell? No, it's always at record highs when the stock market is at record highs. That's not the, that's not a correlative function. It's, you know, there's, it's coincidental not causative and so.I started kind of assembling this. Finally, Morgan, I said to Morgan Hall, who wrote psychology, and shout

out Morgan, uh, who came to the Yahoo Finances Invest conference two years ago. I appreciated that. It's a good, I encourage everybody just uh search Yahoo finds best conference. Morgan Hall is a very great, uh,

panel. So, so

I said to Morgan, tell you what, you write the forward, I'll write the book, and how not to invest was born.

What is, is you've been getting this question a lot lately as this has come out. What's the biggest mistake people making?

So there's so many different mistakes it's hard to choose the biggest, but I, I'm gonna have to say it's our constant interference with the market's ability to compound. Take a look at one of the greatest investors of all time, Warren Buffett.Most of the wealth he has today has come about in the last seven years. Why is that? Well, if you think about the rule of 72 and how frequently money doubles over time based on its returns, longevity is the key. And if you could just stay out of your own way, just let markets do their thing.You know, there aren't a lot of guarantees on Wall Street. That's as close to a guarantee as you

you can guarantee that Coca-Cola is gonna pay that dividend, right?

No, I can't guarantee that. Who knows when, when suddenly sugar drinks, you look at what's selling with Coca-Cola now it's bottled water and.Juices and, and hard seltzer and you go down all the list of things. I, I wouldn't bet any company is gonna be here 50 years from now. In fact, just look at what was in the Dow in the late 90s. Like a third of those companies aren't in the Dow anymore. And so you really have to understand 100 year companies are a rarity.Um, NYU Stern, professor of, of business known as the value guru, uh, Aswa De Motorin has a new book, The Life Cycle of Companies and companies like people. They start out as infants, they go through their teenage years. They, they, their earning capability really expands as they become mature and they grow old and die. Every company eventually dies. Just look at the biggest companies.You have to, you don't have to go back 100 years. Just go back 25, 30 years to Woolworth, Sears. Look at all the banks that disappeared. It's a Dow company. It's, it's amazing to say nothing of, you know, there's the Kmarts, um, think of all the AT&T is one of the survivors of that, but I have lists and lists of companies in the book that were considered blue chip, unstoppable, widows and orphan stocks they used to call them.Um, they eventually move on owning a broad index where as these companies begin to fade they become a smaller part of your holdings is a key part that should be the core of most investors portfolios. You can add whatever you want to that, but you can't get Alpha if you fail to get.

What are people still emotional with their investments? Still too emotional.

Are humans humans? I mean that never changes. You could go back through 400 years of history. I love the book title 800 Years of Financial Folly. Look, uh, I quote in the book, uh, Bill Bernstein, a neurologist and investor.And Bernstein discusses our limbic system that's where, um, how we've managed to stay alive and dominate the planet, uh, as a species, but that's our the center of our fight or flight response. It's where our pleasure center is it's where our pain center is and Bernstein's line is the key to financial success.is managing your limbic system. If you can't manage your limbic system, you will die poor, and that's a hell of a statement to, uh,

to people. What have you

learned, uh, after all these columns that you've written, blog posts you've written, you've managed money? What have you learned about yourself as an investor?

So a couple of things. First, um, you know, uh, I host the podcast and I get to interview a lot of very successful fund managers, billionaires, Nobel laureates, all those sort of fun people on, on masters in business and I'm, I'm genuinely surprised at people who, you know, we've, you, every now and then we meet someone and we say,Um, there's an old joke that guy's humble and deservedly so, but these people don't have to be humble. These people, um, have achieved great success and I'm always surprised at the degree of humility that these folks bring to the field of investing and they've all said, hey, there's a lot of randomness in the world sometimes smart and hardworking, those are just table stakes, um.Uh, you have to be aware of what you know and what you don't know, and it's very humbling to realize how much of the world we just lack an expertise in.

Should investors follow billionaires?

I mean if you wanna read what Howard Marks writes or what Ray Dalio writes, uh, go ahead, but recognize their financial needs are very different than your financial needs you know if you're a billionaire, you're thinking about the legacy you're gonna leave, the philanthropy, um, you're gonna engage in the foundation you're gonna set up. Ray Daley is a perfect example. He believes that oceans are a key part of the health of the world.Um, of the planet and so he's been putting tons of money, uh, into how do we keep the oceans blue and clean and thrive.

He's beenscaring me too. I caught up with him at Davos and we did one of these podcasts for 25 minutes. He's really concerned about the country's debt situation.

Well, so I, I'm less concerned about the debt because I've been hearing complaints and concerns about that for

right off the top of your book, RayDalio,

yeah, he's one of the first, uh, one of the first, um, blurbs, but here's, uh, here's the thing.What Ray does with his money and what Ray's needs, probably a little different than your viewers' needs and your listeners my needs. Typically, most of, most people who are investors, they're putting money into a 529 to save for their kids' college.401k to save for retirement. Maybe they wanna save money to buy a house, but then it's what am I gonna do with this money after I join the choir invisible. So sometimes it's generational wealth transfer, sometimes it's your favorite charity, but that's almost for the average investor, hey, what are you gonna, what am I gonna do when I'm done with this money?Uh, it's very different, and you really have to approach how billionaires manage their money very differently than, hey, I need to draw down a certain amount of money in retirement in order to, to live on. Billionaires don't have that issue. They're not, they're not thinking about, gee, can I take 3-4% a year without and not outlive my money? It's not a problem for them.

Yeah, well, hopefully I'll get there at some point. Hang with us, uh, we'll be right back on opening bid.Welcome back to Opening. We're hanging out here at the NASDAQ, uh, talking all things markets with, like I said at the top of the show, uh, financial media royalty. Barry Ritholtz, co-founder, chairman, CIO at Ritholtz Wealth Management, author of the new book How Not to Invest the ideas, Numbers, and Behaviors that destroy Wealth, and how to avoid them. I think you and I could, uh, have an interesting chat on this. What is the role of media in investing?

So, you know, I'm a big science fiction fan. I read a ton of, um, Heinle and Philip K. Dick and.Asimov as a kid and there was a writer named Ted Sturgeon who got tired of defending sci-fi against criticism. Why is so much sci-fi junk? And his response was 90% of everything is crap and you know, when you look at the worlds of mutual funds and ETFs and stocks and you look at the fire hose of media, turns out to be a pretty good rule of thumb. Um, it's too lazy and easy to say don't read anything.Right, I, I don't buy anything, don't read anything, don't do anything. I find that sort of criticism lacks nuance. The truth is the media is filled with really smart insightful people who add value. You just have to be selective and critical of who you're gonna follow. I recommend to people to put together their.Their favorites, their all-star list, you know, so you probably know half the names on my list, uh, not only Morgan Hall, but Jason Zweig and Sam Rowe and former

Ya finance colleagues Sam Rowe, shout out Sam Rowe, really enjoy your newsletter.

Appreciate you.

Um, Bob Pisani, Carl Cantanilla, these are people who have all lived through a number of cycles.They have a process. They're thoughtful. They don't run around with their hair on fire when anything happens. I mean the noise from a 10% pullback from all-time highs, and let me point out you get a 10% pullback every year and a half on average. It's not like uh this rare crash bubble. It happens all the time.So you want someone who's not just occasionally lucky but has a process that is rational and defendable and gives you an ability to understand what's going on a little better, not that you have to act on it you should just be aware that that last.Data point is a perfect example. Some people down 10%. This is the beginning of the end. That's it. The bull market's over and some of the more rational people who are a little more experienced and a little more thoughtful and a little more data-driven.Said no, we've had 53 of these going back to 1950. That's one every 18 months on average down 10% is not uh a signal that you have to get out of equities.

So I'm gonna go back up real quickly here in real time. I'm gonna go back and put my market pundit uh hat back on. So I used to be an analyst for over 10 years. I would go on and I would look right into the camera saying shares of Walmart are likely to pop another 15%.margins are up cash flow is up. I'm gonna slap a buy rating on the stock. I think the next 5 years of cash flow are gonna be strong for Walmart. After somebody sees me do that, what should they do? because they don't know squat about me. They're essentially just hearing me pitch a stock, and I should, I should say I'm not recommending any stocks. I don't do any punditry anymore. Like a lot of folks are ingesting stuff that is saying how do they know how could they feel safe in what I'm

sharing? So it they number one.One, they shouldn't, at least not until they do the home, their homework. So I, I don't remember if it was UPS or FedEx. The other day I'm watching TV. FedEx,

terrible. Uh,

OK, so it was FedEx, by the way, that's how little I pay attention to the company, but I remember saying JP, I heard it like 7:30 in the morning. JP Morgan downgrades FedEx price target to 280, um, on week outlook from management.Um, stock is down 9% in trading, uh, pre-market trading, and my immediate response in my head is, what's this analyst's track record of predicting the stock movement, predicting the sector, predicting the overall market. By the way, they lowered the stock to 280 from what? Oh, it turns out from where were they two weeks ago? 323. And by the way, the stock is 230. So what do I?about their target. Secondly, and this is the thing that really, really cracks me up. I began my career on a trading desk and I could tell you unequivocally, pre-market trading is thin. There's a lot of noise in it. You get crazy extreme prices. Someone just says, we can't show that on our books, dump that. I don't care what the price is. What is down 9%.Mean it actually turns out to have no correlation to how the stock is going to do over the next 6 months, 1 year, 5 years. So we, we can't trust the analysts judgment on the call. We certainly, and lastly, when management says we foresee weak outlook based on what's going on with geopolitics and tariffs.Uh, history tells us very often that's boilerplate. The corporate counsel saying, hey, we may have worse numbers, spit this out there, sometimes it's right, sometimes it's not. All of these things are speculative guesses about the future, none of which are quantitative or data driven.And I don't want to deploy my capital best based on somebody's best guess who has at most an iffy track recordof success.

Having said all that, uh, always listen to Barry and myself wherever we may pop up on the numerous billions of pieces of content we produce, uh, any given year. But let's stay on that thread because FedEx, um, not good results, uh, Delta War, Nike is warn, Ernie's call has been bad. Estimates are coming down.Does it feel like to you or we're on the cusp of another market move and it could be major market move it could be up or down. I'm, I'm not taking any sides to this, but the market has taken a lot of hits so far this year.

Yeah, I love the JPMorgan line. Congress asked him what's gonna happen in the markets, and his answer was markets will fluctuate, um, and it turns out to be, turns out to be pretty right. So one of the ways to look at this that I find so interesting is, um,Uh, we are storytelling creatures. We love narratives. So, uh, 47 gets elected, Trump 2.0, and the market says in its infinite wisdom or the narrative about the market is, hey, we're gonna get tax cuts, we're gonna get deregulation. The FTC is gonna stop, um, harassing mergers. This is gonna be a much business friendlier environment, and the market rallied on that.And then January 20th rolls around and then we get to, um, Tariff man does what Tariffman said he was gonna do. By the way, none of this is a surprise. President Trump, whether you like him or dislike him, he told you, he

gave us earnings guidance. He told us,

he said, I'm gonna do this, and he has done it. And so, by the way, there's another chapter in the book Love Trump or hate Trump. It's no way to invest. You have to just put your politics aside, but now we have tariffs and uh.On Monday and then tariffs are off on Tuesday and then we get them on Wednesday and they're off so there's sort of a run of chaos, it's wild enough that people start to get concerned for their jobs. Businesses start to say, well, we want to do some capex spending and we want to build a plan here and we wanna, uh, create some work there, but we have to wait and see how this shakes out because we don't wanna spend millions or billions of dollars.And then find out there's a tax that we didn't anticipate or a tariff or what have you and so everybody's throttling back and what I've been telling clients and others is, hey, before January 20th, the risk of recession was very low, the risk of a market crash was very low, uh, collapse of the dollar, geopolitical turmoil, go down the list, they were all low. Today they're still relatively low historically.But they're appreciably higher than they were two months ago. So, and, and let me point out we're barely 2 months into this presidency. And so if you go back to December, all those risk factors were, you know, single digits. Now they're teens. They're 1015. I don't know how economists come up with the 35% chance of recession. Um, right, I, there was a Wall Street Journal article years ago, always, always predicting.40% because if you're right, you look like a genius and if you're wrong, well, I didn't quite say it was half. So, so those are, those sort of forecasts and I spend a lot of time making fun of forecasts in the book because as a species we're terrible at it. But, um, when, when you look at this and say, I can't tell you to completely ignore this. I want to tell you tune out the noise, especially.If you're investing for 1020 years in the future you'll be far beyond, uh, 2028 or even 2026, but in the meantime, um, yeah, we have to acknowledge that we have to acknowledge that some risk factors, increased risk of recession, obviously volatility has spiked way up before it began to come down this week a little bit.Um, so it's hard to keep focus when it's just a fire hose. I think when we look back at this era, remember the first Trump presidency from the day he was elected until he was sworn in, he was tweeting at different companies and every time he picked, I love Tim Apple, no, no, it's

General Motors Tim Apple.

Every time he tweeted at somebody, the stock would wobble, it would.After a few months of that, the market kind of became inured to that and the tweets didn't affect stock prices very much.I, uh, my wishful thinking is, hey, by the time we get to July 4th weekend, the worst of this will run its course. That's not a prediction. Wishful thinking at best, but we'll

see what

happens.

I

appreciate that optimism the last minute or so of these podcasts, we always love to get a hot take from our guest. Do you have a message to meme stock investors, and I bring this up because.I'm still trying to dissect what GameStop reported. They horrible year sales down 30%, operating profits down close to 100%. They're operating 3300 retail stores, cash flow is going out the door, but now they want to do crypto. What do you tell to these people who are on YouTube, Reddit saying they love thiscompany?

So

what

I

tell those people is keep doing that.Stay at it, have at it. When I was a kid, I used to watch Mutual of Omaha's Wild Kingdom and the aerial shot of the herd of gazelles moving across the savannah. There was always one gazelle that kind of wandered away from the crowd and you knew what was gonna happen. That was gonna be lunch for a bunch of.Lions, somebody has to be that gazelle that's gonna be sacrificed for lunch. I love the GameStop investors. I love all these meme stock people because they are a cautionary tale for the rest of us. There's no magic formula. There's no substack that's gonna get you rich.You can use deploy your money to get rich slowly over time. We know how returns average over decades. Take advantage of it. If you think that you're gonna be that one outlier, the odds are that you're not. None of us would say, I could take LeBron James one on one in basketball.He's an outlier. He's a one of a kind player. You can't take him. Three of your friends can't take him at once. But at the same time, we all imagine that we're gonna be roaring Kitty and find that one random stock that's gonna turn $10,000 into $10 million. I'm sorry, but it's a lottery ticket. You're more likely to be hit.By lightning, then you are to do that. And we, the media loves these stories because it's all survivorship bias. You don't see the other 10 million meme stock traders who made no money or worse went broke. You just see the one or two people who made a ton of cash. And so everybody thinks, I want some of that lottery ticket, and I'm sorry to be the fly in the ointment.Um, you're not, you're not gonna beat Michael Jordan. You're not gonna find a bajillion dollar stock. And if you are for some reason fortunate enough to own Nvidia or Amazon or Apple or Google or Microsoft or any of the great stocks of our era, if you own them cheaply, well, be sure to take care of the rest of your portfolio. Find a way to manage around that and don't.Risk taking a large fortune and turning it into a small fortune. All

right, uh, so if you're a meme stock investor and you're out there playing around with GameStop and you heard what Barry just said, what I just said, uh, get out, get it, get at us on X because I, I could just see the messages coming already. Uh, no, keep

it up, keep buying that stuff. Yeah, you have to, you need someone as a cautionary tale for the

rest. I, I

appreciate that. I can't wait for these messages. Uh, how not to invest the ideas, numbers.Behaviors that destroy wealth and how to avoid them. Barry Redholtz, good to see you in person. Uh, I grew up reading your stuff, so, uh, welcome to the Al Fines podcast table. Thank you so much for having me. Appreciate it. Alright, that is it for the latest episode of Opening Bid. Be sure to hit us with all those 5 star 5 stars on every single podcast platform we're on like Apple Music and, uh, what else? Amazon Music and I don't know, 6 or 7 other ones. Also those, uh, thumbs up on YouTube. Appreciate your comments. I try to answer them all, keep them coming. We'll talk to you soon.