In this episode of Boldin Your Money, Steve Chen talks with Barry Ritholtz about his journey from law to leading a $6B wealth management firm. They discuss Barry’s book How Not to Invest, focusing on avoiding common mistakes, tuning out media noise, and the value of humility and process in investing. The conversation covers tech's role in finance, behavioral biases, and how to build smarter, tax-efficient portfolios in a rapidly evolving market.
Steve Chen (00:00:05):
Welcome to Boldin Your Money, where we dive into the decisions of shaping our financial lives. I'm your host Steve Chen, and today we've got Barry Ritholtz joining us from New York and he's the co-founder, chairman and CIO of Ritholtz Wealth Management. And he also recently wrote a book How Not to Invest and he also hosts a popular podcast Masters in Business. So he is pretty well known. We're going to dive into his book and talk about some of the mistakes that we want to help people avoid. So with that, Barry, welcome to our show.
Barry Ritholtz (00:00:36):
Hey Steve, thanks for having me.
Steve Chen (00:00:38):
No, I appreciate you making the time. And just before we get going, I wanted to share a quick anecdote. So I was texting my brother this morning. He shared your blog, the Big Picture with me like 20 years ago. Plus that thing used to be on Geo Cities.
Barry Ritholtz (00:00:55):
That's right. 98. It launched on GeoCities back in the day when you had to code the HTML by hand. And once Wizzywig came along with software like six apart, it went from a half hour of writing and two hours of coding to a half hour writing and two minutes of coding. Technology has made us all more efficient and more productive.
Steve Chen (00:01:19):
A hundred percent. And for people who don't know what Wizzywig is, it's what you see as what you get.
Barry Ritholtz (00:01:25):
By the way, that's the only technical jargon I'm going to use today.
Steve Chen (00:01:29):
It's okay. It's impressive. Anyway, it was the first kind of finance oriented blog ever shared with me. And so I was checking out, I was like, Hey, guess what? I'm going to have Bear Edward Holz on our podcast and he's still reading it. So he's like the daily read.
Barry Ritholtz (00:01:47):
It's just part of my process. I started on a trading desk and if you can see the rest of my office with books and crap piled up, everything is a mess and it's really quite a disaster. But in order to compensate for that, I would just put together my list every day and I learned, don't read crap on the way into the office. Get in your head when you're trying to make good trading decisions. And so I would make my list every day, here are the earnings that are coming out, here's consensus, here's the range, here's the economic lists that are coming out, economic releases. Here are the 10 things I skimmed through New York Times, Washington Post Wall Street Journal that I want to read on the way home. And that eventually became something that got xeroxed and shared around the office in the 1990s. And then that eventually became something that got, once I found people were faxing, it was like, Hey, I could just email it to them, get an email address. So that became an email list. And then in 98 that became GeoCities, which I really regret that when GeoCities went belly up, they didn't at least archive the stuff. I grabbed three or four of my favorite posts
(00:03:03):
And when they said they were going out, I didn't know, they were like, we're really going out. Yahoo did the same thing with their video and any of the appearances anyone did in the nineties or two thousands on Yahoo was this rich mine of behavioral data
Speaker 3 (00:03:23):
Showing
Barry Ritholtz (00:03:25):
Just how biased individual investors are and all that stuff disappear. I remember, well, we'll get into it a little later, but that's like one of those things like what a shame how much, there's a great story about Monty Python on the BBC and somebody lent them like $40,000 to buy the video tape masters from the BBC because they were going to just reuse 'em. Like, oh, the content isn't anything. The 40 cent tape is what mattered. And Yahoo GeoCities is the same thing. They just wipe those servers and it's gone.
Steve Chen (00:04:01):
That's too bad. Yeah, it's pretty interesting hearing your story that you were kind of doing this, faxing it around, emailing it around early GeoCities internet, and so you appreciate probably what's happening with AI and everything now, right? Another evolution of tech that is going to amplify people's influence significantly.
Barry Ritholtz (00:04:22):
I think I have a slightly different perspective on AI than a lot of people. Technology is a tool. Anything that makes me more productive, more efficient means either I can crank out the same work in less time or in the same time crank out more work. So I used to have these debates with my economist friends about the famous Robert Solo, Nobel Laureate, I think MIT Robert Solo. Technological progress is everywhere except for the productivity data. And I always laugh because it's like, so what you're saying is your measurement is imperfect or just outright wrong. Or maybe that might be true for heavy industry, but any information service or service business, I just don't believe that there's no productivity gains. I just know what we do today with 75 people would've taken 320 years ago.
Steve Chen (00:05:22):
A hundred percent. Oh yeah, right. I've seen that data too where they're like, oh, it doesn't look like we're getting more productive. You're like, I find that hard to believe given what we're doing right.
Barry Ritholtz (00:05:30):
In the book, there's a quote I rely on frequently, which is George Box. All models are wrong, but some are useful.
Speaker 3 (00:05:38):
And
Barry Ritholtz (00:05:38):
So as long as you recognize economic models, portfolio models, all of these are a, I don't want to say false, but an imperfect reproduction of reality. Take 'em with a big grain of salt, you'll be in much better shape.
Steve Chen (00:05:53):
Yeah. Awesome. Alright, well look, before we jump into the book, I would love if you can give us us just a couple minutes on your career. So I saw that one highlight. You're on the equestrian team at Stony Brook. So you're the first person here I've met who has been on the equestrian team and then I'd love to for you to zip through that.
Barry Ritholtz (00:06:11):
So spent my summers as a kid, upstate New York, play baseball, swim. Oh wait, there's a horse farm here. Hey, what can I do to ride horses? Well it's $40 for an hour. Well I'm 12 and don't have $40, but what can I do? You could muck out the stalls, water down the horses, groom them, this, that. I don't know how to do any of that. We'll show you. So I had been riding horses like Western. You sit in a saddle, it's a big comfy couch and you go for ride for the most part. I'm the one who gives the horses carrots and apples. So they like me, they do what I ask. So I undergraduate applied mathematics and physics at Stony Brook and eventually, which I was really good at in high school and in college it's like I'm pretty good at this, but those guys are great.
Speaker 3 (00:07:06):
So
Barry Ritholtz (00:07:06):
Eventually switched the political science and philosophy and when I do that, suddenly my calendar was a lot freer. So I read in this campus paper that Stony Brook has a nationally competitive equestrian team. And I'm like, wait, what? So smoke run farms was like a 15 minute walk from campus from my dorm. So one Saturday morning I walk over, I meet the head coach and I'm like, Hey, I've been riding western horses, I'm interested in learning how to really ride. And he is like, well you have to sign up for a class. It's two or three gym credits a semester and it's $5 a week, five a week. It was like 50 for an hour. And it's instructed not just on a trail. Okay, let's do that. And the ironic funny thing about that is when I went to apply to graduate, it turned out that I had been doing that for, I dunno, two and a half, three and a half years.
(00:08:04):
I had so many gym credits that I was short graduation. I had like 138 gym total credits, 118 of which applied to graduation. I had to find two credits in order to graduate too many horseback riding class. So that was really fun. Didn't know what I wanted to do with my life. And I live on Long Island and the rule is, hey, you're a Jewish kid from went to college, dunno what you do yourself, go to law school. So that's what I did loved law school wasn't a big fan of being a lawyer, graduated cum laude, but law of you all that nonsense. The teaching of legal studies is fascinating. The practice of law is really tedious and detail oriented. And the guy who named his blog The Big Picture, probably not the guy You want doing all the little detail legal work on your behalf. And when the opportunity came to go work for a friend at not E-Trade, I just read, somebody said he worked at E-Trade. No, the firm that was the predecessor firm to what eventually became, that's where I started on a trading desk.
Steve Chen (00:09:20):
Okay, got it. And how did you pick, how'd you get into trading? What motivated that
Barry Ritholtz (00:09:26):
Misery? I was miserable as a lawyer and I had done some work for somebody who later goes on to be Bill Porter at E-Trade right Hand man. And he's the co-founder of ISE, wildly successful. I'm still in touch with Marty. We chat all the time. But he said, if you're miserable as an and he's also an N-B-A-J-D. He said, if you're miserable as an attorney, you got a good head for numbers, you're good with computers, why don't you join the trading desk? What do I do? You'll figure it out. And that was essentially the training. They push everybody into the deep end of the pool
Steve Chen (00:10:02):
And
Barry Ritholtz (00:10:03):
Whoever doesn't drown. Congrats. You're a trader.
Steve Chen (00:10:06):
When you're a trader though, at that point in what years was this?
Barry Ritholtz (00:10:11):
Right around the Netscape IPO so long before the dotcom implosion, but pretty
Steve Chen (00:10:18):
Much like 97, 98, 96, 97, okay. But are you dealing with retail people and making trades for them or are you taking institutional?
Barry Ritholtz (00:10:28):
So you are executing order flow on behalf of the company and as you demonstrate the ability to do this and have a p and l,
(00:10:37):
You get a capital line and your capital grows as you show p and l responsibility. No cock up snow. And there were some guys who were wildly profitable and then would blow up. And then there were guys who were really steady and I was somewhere in between. I decided to, my wife once said to me, I don't understand, you're up 50 grand, you're down 50 grand, can't you? She's a teacher ready, steady, stable. So I had enough self-awareness to know I was always looking for that vein. The dopamine hit was really a thing. And so I figured out maybe I can make a living doing this, but what I really should do is go to a shop that has research and analytics and take everything I've learned and bring it there. In fact, I was really fortunate because I had spoken to a bunch of guys I knew from Merrill and elsewhere that were on trading desks and said, Hey, give me something. You come out of law school. It's like, give me something to read. What can I learn? And one guy suggested reminiscence of a stock operator.
(00:11:49):
Okay, classic. Probably the best recommendation someone gave me as a newbie trader was Jack sch swagger's Market Wizards, which is all about risk management and discipline, but I was kind of fascinated by the up and downs and why does this guy killing it and why is that guy getting crushed? And then next month that switches. And so I found a book, I don't know how I found it called How We Know What Isn't. So by Thomas Gilovich, a professor at Cornell. Really the first mainstream behavioral economics book. I think it was published in 93 or 91. So by 96 or 97 I stumble onto that and that just opened a whole new world for me figuring out how and why we make decisions and even more importantly how and why these decisions go awry. Not because we picked the wrong stock, but because of the way we go about that decision making process. That was fascinating.
Steve Chen (00:12:56):
So it sounds like you go through school, you try a law, didn't love law. A lot of lawyers, this happens to a lot of folks, I think
Barry Ritholtz (00:13:04):
Seven years after graduation is the stat 50% of all lawyers who pass the bar are not practiced,
Steve Chen (00:13:10):
Are out. Yeah, it's good stuff for people who are thinking about going to law school right now plus,
Barry Ritholtz (00:13:14):
But I will tell you I believe it's better intellectual training than an MBA. If you're going into wealth management, if you're going into investment banking, save a year, go get the MBA.
Steve Chen (00:13:27):
Got it. Okay. And then you're kind of writing behind the scenes the whole time. So you go from law, become a trader, you're kind of continuing to write and then fast forward you start your firm, right? In 2013, right?
Barry Ritholtz (00:13:44):
So lemme give you a little background to that. So I spent most of my career turning down money because I didn't want nervous clients in my ear. Every 2% move down. I got a little bit of pushback a month and a half ago I did a post tune out the noise and no, you can't do that. This is existential. And here it is six weeks later and we're 3% above April 2nd. Totally. And so the funny thing is we'll talk about the book, but there are four or six chapters in here on how to manage the noise and navigate it. And I sometimes forget people haven't read everything I've written. So when I say that it's within the context of here's 500 words if you want to read 5,000 words on that topic, it's a couple of chapters in the book. So Howard Marks likes to say smart and hardworking is good, smart, hardworking, and lucky is better. I'm paraphrasing. My mom was a real estate agent.
Speaker 3 (00:14:47):
And
Barry Ritholtz (00:14:47):
For someone who worked on the investment side in Wall Street, I spent a lot more time watching real estate than the average Wall Street guy. And so in oh 4, 0 5, 0 6, it was pretty obvious that if you looked at the proper data, it was obvious that something was terribly amiss. So the three data points I love to point out, if you look at a hundred years of median income to median home price, it was like this. And then in oh 3, 4, 5, 6 that did this. And then cost of owning versus renting, it's the same hockey stick chart.
Speaker 3 (00:15:27):
And
Barry Ritholtz (00:15:28):
Then value of us GDP to the total value of real estate. How much is all the residential real estate as a percentage of GDP? Same thing. It's really steady for decades and then whoop. So because I was fortunate to read to be looking at that, and I also read and wrote a piece about Reinhardt and Rogo who eventually turned this into a book, but they write a paper on what happens when to a country when a credit crisis unfolds. And I'll save you 50 pages, real estate falls 30% and they use five recent examples. It was like Japan,
(00:16:11):
Helsinki, Mexico, the US great depression. I always forget whatever the fifth one is, maybe it was Sweden, Norway, but it doesn't matter. So as an exercise I said, let's see if we can, I'm making a long story short or a long story medium. Let's see if we can figure out what happens to the DAO at 13,000 a change if real estate falls 30%. And this is why I say you got to be a little lucky the number. And I did the DAO only because I didn't have the patience to do all 500 socks in the s&p. I come up with a number about 9,800, but then the behavioral finance comes in, I'm like, Hey, if we break 10, we're going to 6,800
Steve Chen (00:16:54):
Want to overcorrect? Yeah, totally. And
Barry Ritholtz (00:16:56):
I thought the number was irrelevant. It's made up just, and nobody wanted to talk about the analysis like that was 68, that's down 50%, blah, blah blah. So for all of 2007, I was the idiot on Wall Street. And then in oh eight,
Steve Chen (00:17:12):
You're a genius.
Barry Ritholtz (00:17:13):
Shit. Well it took a while in the beginning stuff started to go south and I had a conversation with a buddy, Hey, don't let me be that a-hole where if we get anywhere near 6,800, I double down and say 3,400. So you're empowered to kick my ass if I do that. And again, dumb luck. My wife's a teacher, we travel on the school calendar, it has nothing to do with me. We're on vacation, we come back, there's March, 2009, there's a message on the voicemail, Hey, we're at 7,000, call me back. Hey, we're at 6,900, call me back. Hey 6,800 I'm coming over to kick your ass. And I get home, I'm like, I was on vacation when we just got back. What are you doing? I'm going to go through all my numbers, put out a piece right now. And I literally said, cover your shirt, go longs.
(00:18:08):
Every data point I look at from market internals to economics to sentiment, they're as pinned as far to the edge as possible. And I send it out. And immediately Sunday night, Henry Blodgett responds and I had been on when the piece first came out and everybody thought I was an idiot. And then when we broke 10,000, he had me back on and he's like, come on the show tomorrow. I'm like, I just got back from vacation, I got to no come tomorrow. So he talked me into coming on Yahoo Finance and I just said, Hey, we're down 50 something percent. Every indicator is negative. When is that not a great entry. And so by the dumbest of dumb luck the next day bottom and the market's up a thousand points within like 48 hours of my interview. I think the interview was Monday, they released it Tuesday and the market bottomed in Tuesday, 8:00 AM And I wasn't sure if it was Tuesday or Wednesday when the market screamed higher,
Speaker 3 (00:19:10):
But
Barry Ritholtz (00:19:10):
It was just dumb luck. It was a total coincidence. But people started throwing so much money at me and a number of colleagues said, dude, it's so hard to raise money, you got to stop turning it down. Okay, I'll be the CIO, you run the back office crap on, don't patients for that. And that was, I dunno, almost 6 billion ago.
Steve Chen (00:19:31):
So that's how you got started. But when did the firm started? I thought it started in 2013.
Barry Ritholtz (00:19:37):
So the firm launched September, 2013. I had hired Josh from the sell side, I want to say late 20 10, 20 11, somewhere in that. So this all kind of came together slowly and then we hired Chris Van and then we hired Mike Batnick.
Speaker 3 (00:19:56):
And
Barry Ritholtz (00:19:56):
When we decided we were going to tap out and launch our own, I was pretty comfortable that we would be fine. I did not know when the fire hose would turn off. And over the next decade, Josh became a rockstar. Mike Batnick became a rockstar, Ben Carlson became a star. Nick Majuli became on and on, Blair and Callie. And we just keep adding pieces to the board. So it's no longer just me bringing the money in and if anything, I'm a minority rainmaker compared to how much talent is out there.
Steve Chen (00:20:35):
Yeah, I remember I was at one of your conferences several years ago, and I think Josh described it as we're building the boy band of bloggers as a media company. Yeah, we'll talk about the whole media side of things. So anyway, so I just want to actually, so for our audience, yeah, definitely having some insight and awareness of the history makes a ton of sense. I'll say back in 2005, I was in escrow buying our first house
Barry Ritholtz (00:21:05):
And
Steve Chen (00:21:05):
I was like, this makes no sense. I've saved my whole life. I'm in northern California to buy a house and anyone who can fog a mirror can get a million dollars of credit. I'm like, this is crazy. And I actually, so real estate is a way to build wealth, especially out here. And I was like, all right, I bailed out of the house, I bailed out of escrow and I was like, we're going to keep renting. This doesn't make any sense. And then I actually did the same thing you did, but not as I was drawing a line of the appreciation of California real estate and it was like, now it's this, but long-term it's like this. So I'm like, I'm willing to pay. I bought our house in 2009, I'm going to pay this price here, not up here. We bought it for like 30% off the peak and I had to pay.
Barry Ritholtz (00:21:50):
And that's the Reinhart and Rogo number, financial credit crises lead to real estate falling 30%. And then if you go through history, you'll see down 50% in inequities along with a down 30% real estate is not all that unusual. It happens within credit crises more frequently than not. My favorite part, my favorite line in Bailout Nation was you said they'll give a mortgage to anyone who could fog a mirror. There were two, I don't know if it's a husband and wife, but two people who bought a house together. They were strawberry pickers and if they would've taken 100% of their pre-tax income and gave it to the bank, they still wouldn't have been able to make the mortgage payment. And so when people blame the borrowers, it's like, Hey, you're the bank, you're the professionals. This is on you. You screwed this up. Our mistake was not sending all the banks to the nice building downtown with the Roman columns, the bankruptcy court. That's where they all should have gone.
Steve Chen (00:22:54):
I know that was a giant miss. I mean it was ridiculous. But yeah, if you see what's going on, it's like Warren Buffet buy when there's blood in the streets. The other thing I did get right is I nailed, I remember buying Google at three 50 and then it doubled quickly and I was like, oh, don't get greedy. And I sold, and that was a huge mistake. It's like you do have to put your money to work when people are freaking out, but then you have to keep it stay in the market. So
Barry Ritholtz (00:23:23):
Anyway, and I believe that's Rothchild who said buy when there's blood in the streets, and he was correct. Yeah.
Steve Chen (00:23:31):
Okay. So well just to wrap up this section, so did you envision this for your life? It just sounds like
Barry Ritholtz (00:23:37):
No, no plan, no idea.
Steve Chen (00:23:40):
Cruising
Barry Ritholtz (00:23:40):
Was just, I never planned on being an RIA, but it was like we were at a hybrid RIA software company. So they had a technology that I was running that division trying to figure out how to use technology to make better investment sector stock selections. And we had a BD and an RIA and as all this money was coming in, a big part of me was like, I don't want money to go here because I don't like their models, their methodology. There's not a true fiduciary part of this. So we set up the fiduciary part of the RIA inside, but you really, and I was doing a ton of CNBC in the two thousands and Bloomberg and Fox, and it was kind of funny to go on TV one afternoon, Hey, talk about hedge funds, come for the high fees, stay for the under performance and go back to the office and there's an email, here are the new six hedge funds on our platform. So this was kind of inevitable that we would've had to leave. It wasn't a good cultural fit after a while, but eventually it was like, Hey, we should really figure out how to do this ourselves. And we continually just tack into whatever's working
(00:25:00):
Right? When the wind is coming from the south, well, you're going to the north and vice versa. So whatever worked, we did more of it. We try a lot of stuff. Some of it worked, some of it didn't. When we first were thinking, and I had been hosting the Big Picture conference in since oh nine, so we had done that for a decade. When the idea came from Matt Middleton to, we had done Wealth Stack with him in 2019,
Speaker 4 (00:25:28):
When
Barry Ritholtz (00:25:28):
The idea from him is, Hey, let's get the band back together after COVID and put on another show. Great. How do we make this not be a super spreader event?
Speaker 3 (00:25:37):
We'll
Barry Ritholtz (00:25:38):
Host the whole thing outside. It'll be a festival.
Speaker 3 (00:25:40):
There
Barry Ritholtz (00:25:41):
Was a ton of pushback. There were a lot of people like, this is going to flop. You're going to land on your face. And my attitude is, if I crash and burn, I get up, I brush myself off, we try something else. If you're not failing, you're not trying hard enough hundred, you're not occasionally striking out, you're not swinging in enough pitches. So that was the whole backdrop of if it works, do more of it. If it doesn't work, do less of it. Probably pretty good philosophy in life also.
Steve Chen (00:26:10):
Hundred percent. And also sounds like, it's interesting, I met Matt Middleton, I didn't know you knew him way back in the day, but clearly you've,
Barry Ritholtz (00:26:16):
He was in Informa and we had done a few conferences with them. I want to say I don't remember if it was 2018. I vividly remember 2019 doing Wealth Stack was our conference in Scottsdale, Arizona. And Matt Middleton and his team ran it. And when they wanted to extract themselves from Informa during the pandemic, we were like, we're in, what do we have to do? So we have a small piece of them. We're colleagues and collaborators and we're thrilled to be working with them.
Steve Chen (00:26:52):
Yeah, no, it's been a really good synergy. I went to the first Future Proof and
Barry Ritholtz (00:26:57):
That was the little one. The last year was, I think this year it's going to be close to 5,000. We're full capacity.
Steve Chen (00:27:03):
I've been going to California one. I didn't go to the Miami one, but it definitely, it's been cool and useful. Fun. Fun. It's different. It makes it very real. I think it's hard. You're out here running this media company and you're like, oh, okay, there's lots of people out there in cyber world or whatever, and then you're like, oh, you bring 5,000 people, like holy smokes, there's a lot of people here. And it's real.
Barry Ritholtz (00:27:24):
The fun thing about writing, doing podcasts and writing blog posts and other things is you don't really know where it lands and what's been so gratifying. And other events are the number of people who are like, Hey man, really you've helped me develop my asset management, my investment philosophy. The whole world is trying to get me to panic out of stocks and 10, 11, 12, and thanks for doing what you do. Reading you has kept me level and steady. I mean, that is just so gratifying to know that the work, you never know who reads your stuff. It doesn't always show up, but sometimes to see that you have or having a positive impact, it's fabulous. Well,
Steve Chen (00:28:12):
I think good things happen to good people. It's clear you're like a good person and also attracting good people. I met Josh obviously. He's a nice guy and
Barry Ritholtz (00:28:21):
The whole team is just one rockstar after another. And there are people you want to hang out with, have a beer with, just spend some time with the amount of upside. Surprise. We hired Michael as a research monkey who knew he was going to become, first of all, he's an old man. He's wise behind his years far beyond his age. But then second, he turns out to have this develop the skillset. It's phenomenal. We hired C Cox when E Toro was going through some craziness and it was just one of those things where, what am I getting wrong here? She's spectacular. How on earth would they dare not do everything they can to keep her and everybody between Nick, ma, Julie, and just go down the list of people. Yeah,
Steve Chen (00:29:11):
Yeah. No, it's awesome. Well, we'll dive in. I do want to come back to this bit, but let's get into your book a tiny bit. Sure. So what inspired you to write this book? And in the preamble you were telling me you're writing a book every 15 years. So
Barry Ritholtz (00:29:25):
Like Clockwork, the sequel will be in 2040. Well, so Bail On Nation comes out in oh nine, really well reviewed Wall Street Journal, New York Times, and sells pretty well for dry financial history book. And so the firm launches a few years later and I'm busy, so the publisher wants me to do another one. P Friends, like guys we just launched with $70 million. I got stuff to do. And as is, I'm still doing the blog and that's just part of my process. And Morgan Hausel is a friend and he's kind of nagging me, dude, it's so easy. You have no idea. Just take a bunch of blog posts, string them together, no one will know Morgan, you write stories. Everything I write, there's a market data point, there's a stock just to updating that is a giant lift. And then the pandemic hits. And I find myself having a little time to think about this because I'm not commuting and for, so this is not on the board anymore, but what I started doing was just writing down ideas on flashcard three by five cards.
(00:30:41):
They're color coded, the topics and subtopics and that kind of festered for a while. And then we come home from, again, vacation plays into this. We come home from vacation in December, 2023 and you have that dead couple of days before everybody goes back January 2nd. And I just started sifting through. I do a quarterly call for clients four times a year. I start looking at those notes. I look at market commentaries, I look at research. I was personal finance column for six years at the Washington Post, and then for another seven or eight years at Bloomberg. And as I start sifting through this, I kind of discover I spent a lot of time debunking investment bullshit. And so Morgan had introduced me to his publisher and Hey, how do you guys feel about that as a title and a focus? And they're British and very proper and they're like, it's been done. What's his name? Harry Frankfurter. I did a book called On Bullshit. He was a professor. It sold really well. Every other book after that bullshit became just a shocking title. And they all did poorly.
(00:31:56):
Well, let me play with this. I'm thinking about it. And so I normally like to work on software, but the board is just a little different. And so I'm moving things around and I'm like, this is going here and now I'm here like a cop show. It looks like the murder board for figuring out who's the killer. And I start to, it's like a wordle where suddenly, wait a sec, all these are all numbers related. All this is all idea and media related, oh wait, here's all behavioral related and I don't want to say the book,
(00:32:36):
But once I kind of fell into that and then I reached back out to, and by coincidence as I'm having this epiphany, Morgan and I chat and he's nagging me again and he doesn't know all the work I've been doing for the past few years. So I say to him, I'll make you a deal. You write the forward and I'll write the rest of the book. And he is like, done. How hard can it be to write a forward? So how hard can it be to write a book? So that was the genesis of it. Whereas Bailout Nation was kind of a slog. It was cathartic, but every week a different company would blow up. And then I have to rewrite a chapter and then Lehman Brothers blows up and I'm like, fuck, I don't have an ending. I got to write a whole new ending. This was a pleasure. So just as a perfect example, I think the financial crisis is how people learned who I was. I had been doing CBCs and Fox and CNN and Bloomberg since like oh two, but there's a million people who is this guy? Nobody knows who he's, I had a GeoCities post in, so I was working for a firm, Klein comes in from out of town chic from the Middle East, and he owns a bazillion shares of Cisco. And I had been watching Cisco, which is going to be the first trillion dollar company.
(00:34:04):
And really kind of thinking by January, 2000, the cracks on the facade were starting to show, even though we've learned all marble markets go further, higher and longer than anybody expects. And this guy comes in and, Hey, will you come in and talk to my client next week? He's flying in from wherever and he owns a butt ton of Cisco. And I'm like, oh, funny you mentioned Cisco. I was just reading Paul Saga at Alliance Bernstein
(00:34:36):
Who if he wasn't the ax on Cisco, he should have been. And he had turned negative and everybody hated him. Which by the way, fast forward to oh seven and I got to relive his experience. So I reached out to him and said, Hey, I have a client, we're not a clients of yours. Do you have five minutes to talk? And he's like, sure. So we have a client coming in with a lot of Cisco, I'm not comfortable with the stock fundamentally or technically you've been covering it for forever. And he proceeds to regal me for a half hour with the tail of when Cisco launched, all their clients would buy their goods or finance their goods themselves. Cisco was just a seller of product. They had nothing to do with sort of like you
Steve Chen (00:35:22):
Had the car dealer where you can,
Barry Ritholtz (00:35:23):
Right? What was the GM one that blew up or Ford Credit or between 1988 and 1999, they went from 0% vendor financed to 92% vendor finance.
Steve Chen (00:35:41):
They're getting, in other words, they're getting a lot of exposure.
Barry Ritholtz (00:35:43):
8% of their clients were buying product and 92% of their clients were
Steve Chen (00:35:49):
Financing it.
Barry Ritholtz (00:35:49):
Were taking product and leaving them a piece of paper, which as we later found out was worthless. A promise to pay when your client is bankrupt is worthless. So when I say this to the client and oh no, Cisco's going to be a trillion. Alright, so it's going to be a trillion, it's 500 billion now you've made a hundred x. Why are you hanging around for the last leave a little for the next guy is what they used to say on the trading desk. Hey, you don't have to capture it all,
Steve Chen (00:36:18):
They take your advice.
Barry Ritholtz (00:36:20):
So I found out that they sold half, which I was unaware of till months later. And so March, 2000, the market peaks May, 2000. Fortune magazine has this big piece, Cisco the one stock you have to own. And so I write this up and crickets, nobody says a word. This is tariff. This is ridiculous. The vendor finding all this stuff. By the way, another annoying thing I forgot to say from GeoCities in the ensuing 25 years, since that May, 2000 fortune covers out SCO proceeds to fall 95%.
Speaker 3 (00:37:02):
The
Barry Ritholtz (00:37:03):
Other stock that they said, yeah, you don't want to own Microsoft, they have legal problems. And I think the other one they looked at was ge, which didn't do as well as Microsoft, but did much better than Cisco. Not only did a full 95%, here we are today. I haven't looked at its price recently, but as I was writing the book, it was still 20 something percent below when that article came out.
Speaker 3 (00:37:26):
So
Barry Ritholtz (00:37:26):
I got to revisit all these things that nobody paid attention to, and now we know how the movie ended so we can discuss it in a different context.
Steve Chen (00:37:37):
So I have a question. So just to go for a second on this today, when you're helping clients though, do many of them walk in with that kind of position a concentration? Or is it much more like indexing and taking a broader approach?
Barry Ritholtz (00:37:51):
It depends on the client. It's a little bit of everything. We've had the chapter on regret minimization in the book. We've had people walk in, Hey, I have a portfolio of $11 million, $10 million is fill in the blank, Amazon, apple and whatever. So here's your choice. You can ride the Bronco or you could say, I've already won and I'm going to exchange potential upside in a super hot stock for less volatility and more predictable returns.
Steve Chen (00:38:23):
And what are people saying when you have that? How do people typically end up when you have that conversation?
Barry Ritholtz (00:38:29):
Well, 90% of the answers are that's going to generate an incredible capital gains tax bill. And so we set up a tax practice. We also in conjunction started using Canvas as our direct indexing platform. And so the answer usually at that point is, well look better to take a hundred dollars and pay $20 in capital gains than to not get the 80 net. So you have three choices we can try and sell a little bit over the next, you tell us how much capital gains tax you want to
Steve Chen (00:39:05):
Pay, five years or whatever,
Barry Ritholtz (00:39:07):
Or how many years you want this to go for.
Steve Chen (00:39:10):
And
Barry Ritholtz (00:39:10):
We could do that. You could ride the Bronco and hey, maybe it works. Ask shareholders and GE or Lehman Brothers how that approach works or Enron or Sears or I've got a giant list for you and if we set up a portfolio with direct indexing, we could save you a decent amount of tax loss harvesting. If you just own 10 mutual funds, Hey, maybe it's 2025 bips a year direct indexing is 75 80 or better a year. And so maybe we could take that seven year and cut it down to 6 5 4, depends on what happens.
Steve Chen (00:39:46):
Oh, so interesting. So you're setting up a direct indexing portfolio over here, capturing a bunch of tax losses and then using those tax losses to rebalance people out of their concentrated position.
Barry Ritholtz (00:39:57):
Someone says, I've really caught low cost basis in X, Y, Z, and I'm willing to sell a million dollars a year and sell and pay $200,000
Speaker 3 (00:40:10):
In
Barry Ritholtz (00:40:10):
Taxes a year.
Speaker 3 (00:40:12):
So
Barry Ritholtz (00:40:12):
The next question is, well, if we can sell more and cap your cap gains at 200,000, is that something you would like? Or do you want to sell a million and pay as little taxes as we black letter law legally with IRS approval can. And so depending on their answer determines what the strategy looks like And clients, we have a lot of clients who are in the tech industry. We have a lot of clients who work on Wall Street or work in finance. So anyone with capital gains or employee stock or whatever. And let me tell you something, when you, and then when we do their taxes, when you find they overpaid 40 grand last year, no one cares if you're 10 basis points ahead or behind
Speaker 3 (00:40:57):
The
Barry Ritholtz (00:40:58):
S and p, but you get a $40,000 refund that they weren't expecting. Oh my God, why am I wasting my time? Picking stocks is always the answer
Steve Chen (00:41:06):
A hundred percent. I think as people get, this is our users too, right? As people get wealthier, they start thinking much more about taxes and hopefully and not losing money than trying to continue to build. Once they get to a certain level of wealth, you
Barry Ritholtz (00:41:20):
Would be shocked how many people don't. And when you lay it out, it's like, oh my God, what have I been doing the past 10 years? It's always fun to see those sort of responses.
Steve Chen (00:41:31):
Okay, so back to the book a bit. So How Not to Invest is the big takeaway. Basically make fewer mistakes.
Barry Ritholtz (00:41:39):
I dedicate the book to two Charlies and they both explain the idea of make fewer mistakes. Well, Charlie Munger famously was asked, Hey, are you and Warren just smarter than everybody else? And the most Munger thing Munger could say was, we're not smarter than everybody else. We're just less stupid. And I've always loved that because it's such an inversion of the way we typically think. And then Charlie Ellis, who's well known for Greenwich Associates on the board of Vanguard, chairman of the Yale Endowment, like legendary investor in finance, he used to liken investing. This was a paper in 1975, which became a book in 1990 something. He would liken tennis to investing and say both of these activities are a winners and a losers game. What does that mean? Well, in tennis winners win by hitting with power accuracy, serving ACEs, hitting the ball where their opponent isn't kissing the line drop shots. That's how 0.01% of the world plays tennis. The professionals win that way. The rest of the amateurs like myself, that's not how we win. We actually lose through unforced errors.
Speaker 3 (00:43:04):
We
Barry Ritholtz (00:43:04):
Play outside of our skillset. We hit the ball long, we double fault on the serve, we hit it into the net, we hit it right into our opponent's sweet spot. Just dumb mistake after dumb mistake. And to mix metaphors, I'm a car guy. I've taken a lot of high performance driving classes, which I'll let the secret out. They're really very, very sophisticated defensive driving classes. But the takeaway from that is you have to stay within your capabilities and the capabilities of the vehicle. If you set the course record on the straightaway, but you're going too fast and can't make the turn and crash and burn into the wall, the record doesn't count. You have to make the turn. And so learning how to just operate within yourself is such a huge advantage. So make less mistakes was the philosophical idea I began with.
(00:44:02):
By the time I finished the book, I couldn't help but notice that two other themes emerged, and one is, Hey, everybody in finance needs to have a little more humility. We all need to be a little more humble and stop pretending we know what comes next. There's a whole section in the book on Nobody Knows Anything. It's the William Goldman quote, all the studios passed on Star Wars Raiders, the last Arc. Oh, we have another alien film coming out. We're going to pass on et. There's a chapter on John Wick, there's a chapter on all the reviews on the Beatles first appearance on Ed Sullivan. And it's hilarious how dumb and terrible these things are. So applying that to markets, the economy, stock, picking, investing, hey, you don't want to make a bet or a guess as to what comes next. You want a portfolio that's robust enough to withstand anything, and that requires us to just admit we don't know what comes next. So that was a theme that just kind of emerged and having some humility and then having done 500 masters in business the first time a billionaire says, well, I just got lucky. You think they're blowing smoke up your ass, but when you hear it 5, 10, 20 times, I'll never forget, the guy who really put this into sharpest relief from me was Howard Marx of Oaktree Capital.
(00:45:33):
He once said, you also have to get lucky. You have to be in the right place, right time. And I'm like, Howard, not for nothing, but you are smart and hardworking. Don't tell me you're this successful Kush. You are lucky. I think he went to Columbia and the guys he used to carpool, it was like him, Lee Cooperman. It was like four future billionaires and I'm trying to remember who the other guy was. But anyway, he said, I went to school with 200. I said, it's smarts and hard works. And I said, everybody at Columbia School of Business that I went to school with were super smart, many smarter than me. He said, super hardworking. I wasn't the hardest working person there. Not all of them. He didn't say he became billionaires, but
Speaker 3 (00:46:21):
Not
Barry Ritholtz (00:46:21):
All of them achieved his level of success. And he goes, you could be smart and hardworking, smart, hardworking and lucky is better.
Steve Chen (00:46:30):
I'm picking the right markets. Picking the right business models. Yeah, all that stuff.
Barry Ritholtz (00:46:34):
I mean, I've met so many people in so many different markets, businesses, strategies, styles, that it's not, hey, it helps to, we launched in 2013, I just did a piece last week, a spectacularly underappreciated 15 year period. When you look at rolling 15 year periods, I'll make this really short. The best 15 year period in the past century has been the 15 years after World War ii, right up to 1957, 18% a year. You go to 99, the 15 years average, 17% a year. This market, which everybody has hated, right? I mean, I wrote a piece in October oh nine, the most hated bull market in Wall Street history and was this is the third best 16% a year. There's a little of luck in, Hey, we're going to launch now as opposed to 2000, if we would've launched in 2000, I think it might've been a little rougher.
Steve Chen (00:47:33):
Yeah, interesting. And what do you think about the next 15 years it feels like, and from my perspective, I'm like, you've been around for a while and seeing these ups and downs and it feels like things are accelerating, tech is coming quicker and quicker, and these cycles are coming quicker and quicker. I mean, do you think the next 15 years could be equally good or better?
Barry Ritholtz (00:47:49):
So I don't know what the next 15 years are like, but I'll give you two interesting observations about it. First, such a small dataset. If you look at 1957, well the next decade was pretty damn good, right up until 1966. Then you had a 16 year bear market, but you still got 10 more good years. Fast forward in 1999, not for nothing, but really from 2000 to 2013, lots of ups and downs, but essentially you ended where you started. So with a data set of two, it's kind of hard to forecast historically. So that's data 0.1. Data 0.2 is simply this. Every time President Trump makes a decision, if you can tell me who the last person had his ear was,
Speaker 4 (00:48:39):
And I'll
Barry Ritholtz (00:48:40):
Make it really simple, if it's Pina Navarro, well, if it's Treasury Secretary Scott Besson, then I'm really optimistic because he's the guy who came up with a 90 day pause. He's the guy who's driving the deal with China. Besson is a wall streeter. He understands what Mr. Market wants. He understands how consumers have a finite amount of cash. And if you pass a massive VA tax,
Speaker 3 (00:49:07):
Call
Barry Ritholtz (00:49:07):
It a tariff, call it whatever you want, even if manufacturers and exporters and importers eat some of it, it's going to go to the
Steve Chen (00:49:15):
Consumer percent.
Barry Ritholtz (00:49:15):
Yeah, people have a finite amount of, you will have a worst GDP worst consumer spending, lower corporate revenue, lower profits. This is not a prediction. That's simply math. So if Besson is the last person, I don't mean a hundred percent of the time, and
Steve Chen (00:49:31):
You're like, it's going to be good, market's going to go up,
Barry Ritholtz (00:49:33):
Right? If you say Besson is the last person speaking to him,
Steve Chen (00:49:37):
75%
Barry Ritholtz (00:49:38):
Of the time, I'm bullish as all hell. If you take Pina Navarro who's a fourth tier economist from a third tier school and he's the last person, well then bad news, I'm hiding under my desk because this whole craziness, the rumor was that when Trump asked Jared Kushner to find him, a economist who supported tariffs, Kushner goes to Google and out of the bajillion economists in the world, there's one schmuck who thinks Smoot Hawley in the 1930s tariff was a great idea. So if it's 75, 25, we'll be great. If it's 50 50, there'll be upward trend, but with a lot of volatility. And if it's 75% Navarro, 25% Besson, hold onto your hat, kids shit's going to get bad.
Steve Chen (00:50:32):
Well, do you think that it feels like Trump in the administration is definitely getting the message right? They started like, Hey, let's do liberation day Come market goes crazy. I think Trump's like, oh, I don't like when everyone's pissed off. I was actually talking about this with a friend of mine on the hike this morning. Who knows you guys? And it's like, okay, let's be a little bit more rational. And then the markets come back. It feels like, hey, maybe in 90 day pause, we're going to get some quote deals. We're going to get the tariffs backed down effectively to where they closer where they started
Barry Ritholtz (00:51:04):
Started. By the time this airs, a post that I have coming out this coming Monday or whenever this comes out, maybe it was last Monday, is titled, the Market Remains Undefeated. And what that means is I give three references and it doesn't matter what's driving. It could be the bond market. It doesn't make any difference. In October oh eight, after Lehman Brothers had blown up, Ben Bernanke went to Congress and said, Hey, our charter is low inflation, full employment. Now there's this structural credit crisis and things are frozen. We don't have the authority to do this. We want you guys to give us the authority. I dunno if you remember this week in October 9th or October 11th, that was a Monday, and Ron Paul got up, gave a fiery speech, and the market went right into the shitter for the next five days. Friday everybody, they voted it down.
(00:52:00):
Friday, they call Bernanke back and he says, Hey, listen, this is going to keep going until you guys figure out when the president gets a phone call from the CEO of Ford, my bank is telling me they don't have any capital. I'm not going to make payroll. Monday, Bernanke told the story of calling his wife and saying, go to the at m and take out as much cash as you can. So what was the market down? I don't even think it was 20%. I think it was like 11, 12, 14%, something like that. And they pass whatever you need. And that was enough to start the process stabilizing this market was still priced too high and there was a lot of crap that had to be resolved. But that's what set up the next quarter. March. Oh, nines bottom. Fast forward to 2020. I love this story. I don't remember if it was a Monday or a Tuesday, but one day in the week, Congress is debating renaming a library in dc. Is there anything that matters less than whose name is on some local DC library? And they're just arguing they can't pass anything. And then the next day, the NBA cancels the season and suddenly all sorts of dominoes start to fall. And really the market begins to accelerate. It had been dribbling down mid-February. There were a lot of store shelves that were wiped out.
(00:53:25):
You couldn't get alcohol, you couldn't get sanitizer, you couldn't get bleach, you couldn't get toilet paper. People began freaking out within a matter of a few weeks as the market plunged, 34% in 17 trading days. The US Congress that could not agree on renaming a library passed the single biggest fiscal stimulus at 10% of GDP since World War ii. So CARES Act one was giant under President Trump. First term cares, act two was Trump Cares, act three was Biden. And then you had the infrastructure bill, the inflation reduction bill, the semiconductor. Those are 10 year things. And then fast forward to 2025. So my takeaway is, fuck around and find out. Let shit get really bad. And the market will say, and to be fair this time, the market simply said, oh, we were expecting 10% tariffs, a hundred percent tariffs on 182 country means our year ahead expectations for corporate revenue and profits we're way too high. We're make up a number, 10, 20% too high on revenue, 30, 40% too high on profits. We have to adjust to reflect the math. This is just math. And down 15% Besson and Lutnick are in the Oval Office saying,
Speaker 3 (00:54:54):
Hey,
Barry Ritholtz (00:54:54):
Your legacy is going to be worse than Hoover. And Mr. Market remains undefeated.
Steve Chen (00:55:02):
No, that's great. It's an interesting side story. I had a guest on recently. We were talking about social security and just in terms of Congress being able to act. So the last, everyone's worried about social security running out in 2034,
Barry Ritholtz (00:55:15):
Social security will never run out. Whoever says that, please pass along the message. Hey, Ritholtz says you're an enumerate idiot. You don't know how sovereign countries operate and we can never run out of money. Now, there are issues with that, but when people say social security is running out of money, what is FICA capped at? 160 grand. 150.
Steve Chen (00:55:40):
Alright,
Barry Ritholtz (00:55:40):
Make it a half a million. You're good for another century.
Steve Chen (00:55:43):
A hundred percent. Well, the story is that basically the last time, I think it was 1983, we got within two months of running out of money in the Social Security Trust fund. And then bang, Congress fixed it all with making some adjustments and then here. And so the prediction is probably the same thing's going to happen. We're going to run right up to the wall and I'll look get fixed, but people don't have to worry about it.
Barry Ritholtz (00:56:03):
Every time I hear somebody say, the government is like a household budget, let me stop you right there. Do you like sports or movies? We can't talk about this. You clearly have no idea what you're saying. I don't have a standing army in my house
Speaker 3 (00:56:19):
And
Barry Ritholtz (00:56:19):
I don't have a printing press where I can run off. Or a central bank where I could create as much money as I want. And eeg look at oh 8 0 9. Oh my God, we're out of money. No, no, we're not. Now the risk is you become Venezuela. But so far we've avoided that fate.
Steve Chen (00:56:38):
Well, we can, and luckily for us, all our debts are denominated in our own currency. So yeah,
Barry Ritholtz (00:56:44):
In the RI household, in the riol household, there are no riol bucks or riol coins. I have to trade with dollars. And so my family household budget can't say, oh no, there's a financial crisis. Let me just print up another billion dollars. I cringe every time I hear that. But I no longer get angry, I just say, so Nicks game seven, what do you think? Because we're not going to talk about this. Yeah,
Steve Chen (00:57:13):
Yeah. Alright, well look, I know, I want to make sure, I want to cover a couple more quick things, but I know we're running against the clock real quick. But just to recap. So in terms of your book, you dive into, be careful of the media, be careful of your own behavior, be careful of bad data. If you had to summarize the biggest risks people face and the things that they should not do, what would that be? In a couple minutes or a
Barry Ritholtz (00:57:41):
Minute? So when you talk about media, one of the things I tell people is don't take candy from strangers. You remember, your mom used to tell you that there's a bajillion websites, a million podcasts. Now I have 500 channels on cable. And to say nothing of endless YouTubers and Instagram and tiktoks, the one advantage of the old days were there was three channels on tv. There was the New York Times, the Washington Post, everybody had the plethora of outlets out putting out commentary, opinion, nonsense is so large, I think it's lazy just to say all media's garbage. Although I quote Ted Sturgeon in the book, who was a famous or not so famous science fiction writer in the 1940s, fifties, sixties, people always used to bust on him about how terrible science fiction was. And his answer was, you're reading the wrong stuff. Science fiction is no different than anything else. 90% of everything is crap. And if you take, and that's been called Sturgeon's Law, Sturgeon's Theorem. If you take that philosophy and apply it to finance and financial media, hey, you know what? Look below the top decile of ETFs. Most ETFs ain't worth it. Mutual funds, maybe you don't even have to look at the bottom. 95% hedge funds, venture capital, alternative pacs, wherever you look and stocks
(00:59:19):
Wherever you look in the world of finance,
Steve Chen (00:59:21):
90% bad.
Barry Ritholtz (00:59:23):
And then I'm not looking to harp on Fortune or Forbes or Bloomberg or CNBC or CNN or all the magazines. All the advice I give in the book is because I am both a giant consumer and producer of content and media. So my advice to people is simply this. If you're going to pay attention to somebody who you don't know, well then maybe you are risking. Cisco is the one stock you have to own. There's a chapter in the book about the Apple stores that were launched and the Business Week headline, and this was before Bloomberg owned them, but the Business Week headline was, sorry Steve, here's why the Apple stores will never work. Fast forward Apple was something like $5,700 per square foot. I don't remember if it was per day. Most by far, Tiffany's was number two. Half of that before you take investment advice from someone who doesn't know you, doesn't know your risk tolerance, doesn't know your financial circumstances or even your tax bracket, maybe you should be aware of who they are, what their process is like,
Speaker 4 (01:00:40):
And
Barry Ritholtz (01:00:40):
What their track record is like. So my advice is always build your own all-star team of people that you've been following for a while. They have a process that's defendable. They didn't just throw a dart once and get lucky, and they're living on that.
(01:00:56):
And there's so many examples of that. They're levelheaded, they've seen a few cycles and that you can trust that they're not just going to freak out and lose you money. So I never say ignore all this. I say, don't take candy from strangers. If you can't answer those five questions, what's their process like? What's their track record? Are they cool under fire? How long have they been doing this for? Give us some examples of where they were with the crowd right up into the point of the crowd becoming an ugly mob. If you don't know those answers, why on earth are you listening to these people? It's just astonishing to me. Don't take candy from strangers.
Steve Chen (01:01:38):
Okay, I appreciate that. Hey, look, I know we're getting the time here. So last thing is, as you look forward, obviously it's been great learning about your career in the book and what you're doing here. How do you think the world changes and with AI and with wealth and advice over the next five to 10 years, given what you're seeing, is it going to be kind of the same? And I'm also curious, just for your own firm with Red Holes, obviously it's pretty, I think one differentiator is you guys started 70 million, now you've got 6 billion, largely organic, right? You're not buying companies.
Barry Ritholtz (01:02:16):
We did one acquisition kind of as a favor. I jokingly say BlackRock had bought a RoboAdvisor in 2015, and it's not their core competency. It's not what they wanted to do. And we worked out a purchase that was a win-win win. It was, they wanted it off their hands. We negotiated a fair deal, we got a slug of assets, and the clients got someone who would actually return their calls and emails and be very proactive with them. So everybody was happy with the, that's the only acquisition we've done so far. Although never say never. I don't know what the future holds. The AI question is really fascinating because I got enough gray hair that I remember when people were talking about internet companies, and that was not just Cisco, but Yahoo and pets.com and Global Crossing and Metromedia Fiber, and there were all these internet related companies. And the ironic thing is every company is an internet company. We all have a website, we all live on email, we all have digital uses of our services. And I really try and think about AI in the same way The media focus, again, don't take candy from Strangers, has been on the Magnificent seven.
(01:03:35):
But to me, the more interesting play is the, let's call it not Magnificent four ninety three because those are the companies that are going to deploy ai. They're going to become more productive, more efficient, more profitable. They're either going to offer more services at the same price or the same services at a higher degree of profit. I don't see how the rest of, forget it. If you want to own Nvidia own Nvidia, I mean, I think Nvidia is the first US company to lose a trillion dollars in market cap. So a lot of people made a ton of money on the way up. The example in the book is Arc. And I don't think Kathy Woods did anything wrong. I think the media feted her after she was up 163% and everybody piled in just before the mean reversion kicked in. That's not her fault. That's people who took candy from strangers.
Steve Chen (01:04:32):
Well, she was leaning into, I think the narrative of some of these stocks are just going to keep going to the moon. And I don't know.
Barry Ritholtz (01:04:39):
So same question. What's her long-term track record? Well, how many cycles has she been through? Does she keep cool under fire? Is her process defendable? I'll let you in on a little secret. My favorite joke is, Hey, if you ever want to confess a murder, do it in the last 10 minutes of a podcast because normal here, no one's listening. But I never had her on masters in business. I sat down with her in 20 15, 20 16 in Iceland of all places. And I mean, she's very intelligent. She's been really successful in a lot of ways. I could not figure out what the hell her process was. We had an hour conversation. I'm like, but how do you do this? And I walked away thinking she seems to be smart, but I can't defend this. And so I missed the runup, but I also missed the subsequent collapse. There's a section in the book where I discussed the guy who tracked all her investors some crazy amount, like 90% of them are underwater for a fund that did as well as that did in 2020. It's kind of crazy.
Steve Chen (01:05:46):
They piled in late. So yeah, when you look forward, I mean that resonates a lot. Every company will be an AI company, but by
Barry Ritholtz (01:05:52):
The way, are you a telephone company? Yes. We all use the telephone, whether it's a cell phone or a landline. We're all telephone companies, we're all internet companies. We'll all eventually be AI companies,
Steve Chen (01:06:05):
Companies. Right. So does it affect your strategy? Where do you think it feels like you're really in your moment right now in terms of, I mean obviously you've had a great career and you've been doing all this stuff, A lot of things are coming together. Great team. The kind of content media thing has come together. What do you think it looks like in five years? In 10 years,
Barry Ritholtz (01:06:24):
I would love to be able to say that I'm a mad evil genius and this is all working out according to my plan. But let's be honest, the reality is you throw a lot of stuff up against the wall, you see what sticks and you do more of it. And I mean, it's not quite that crude and blunt. So when Alexa first came out, we rolled out this voice powered Alexa content, and we read all our blog posts and we create all of these things. Nobody cared. Nobody paid attention.
(01:06:55):
So since you start as a stock trader, everything you do is how do I measure success? How do I determine failure? What are the metrics I'm tracking? What's my stop loss? Where do I say this isn't working? Fold up tents, move on to something else. If you approach the same thing with Futureproof, do a whole event outdoors. What are you guys crazy? Either it works or it doesn't. And if it doesn't work well, you pick yourself up, you try something else. So I honestly don't know what the next five years will look like for us or the industry.
(01:07:34):
I assume one thing is constant. I could quote Heus, we could talk about no man steps into the same river twice for he is not the same man and the river is not the same river, but change is ever present. That is the nature of what we do. And so I think we're going to continue growing the way we've been growing, attracting clients who, like our philosophy, find us through our footprint, attracting advisors who advisor want to work in a place where they don't have to smile and dial. Where not only is the guy whose name is on the door and his co-founders are equity shareholders, but everybody who's here for a long enough period of time who's in either a CFP or an advisor or a tech, everybody will get eventually to participate in the equity side of it. And we just want to keep doing what works, keep growing the way we've been growing. Me personally, I'm thrilled with how our tax practice has built out. We brought in somebody to run our family office that's expanding nicely, very happy with direct indexing and Canvas. On a related note, we're investors in a direct indexing muni bond platform run by a smart guy out of Fidelity, Eric Golden called Canopy. So we want to keep looking at the technologies that let us be more efficient, more productive, provide more services, provide a higher quality level of services to our clients, and just more of the same.
Steve Chen (01:09:18):
That sounds good. Yeah. Any big last question? Any big bets? I know it feels like maybe future proof wasn't a big bet, but
Barry Ritholtz (01:09:25):
Oh no. It was a giant bet at the time. And I have vivid recollections of having conversations with people and thinking, I think these guys are rooting for us to fall on our face here. And God bless Vanguard and BlackRock. I had interviewed enough of their senior people, like Guys, have I ever steered you wrong? I'm not telling you to buy a million dollar booth, just give it a shot. The worst case scenario, you'll have wasted one conference out of the hundred conferences you either sponsor or attend. But if it works out, you are an anchor tenant.
Speaker 3 (01:10:04):
And
Barry Ritholtz (01:10:04):
Thank goodness it was Morningstar, BlackRock, Schwab, Vanguard was the first big one, but that was a big swing. A lot of people were like, Hey man, you could be really embarrassed. I like, I'm sorry, but if you're not failing, you're not trying hard enough.
Steve Chen (01:10:22):
A hundred percent. That's awesome. Okay, cool. Well, Barry, appreciate you coming on the show and we'll definitely link to how not to invest for our audience and
Barry Ritholtz (01:10:32):
Hold it up. I'm not terribly No,
Steve Chen (01:10:35):
It's good.
Barry Ritholtz (01:10:35):
But with this book, I've just been constantly LinkedIn, Twitter, blue Sky, the blog, every couple of days there's something out about it. And this book was such a joy to write versus the slog that was Bailout Nation. I'm really having fun with
Steve Chen (01:10:54):
It. Was it quicker? So I saw Morgan Household also ripped out another book and it felt like boom, that was faster. Was it quicker for you to write this with technology and everything?
Barry Ritholtz (01:11:04):
I don't think it was the problem with Bailout Nation. It was originally McGraw Hill, and I did a version of that that took like a year. And there was a chapter that was highly critical of the bond rating agencies, of which McGraw Hill owned one called S&p. But I was fortunate enough to have negotiated final cut, full edit. So when they said, no, we're not going to publish this with that chapter, let me try to rewrite it and make it a little less hair on fire. And it turned out that the more data and the more third parties I quote, and the less histrionic I made it, the more devastating it was to s and p. So they're like, Nope. And I'm like, okay, well I'll go publish it elsewhere. Wait, what? No, no, you can't do that. We own it. Yeah, you should go read the contract.
(01:11:53):
You don't own shit. And so Wiley published it and that was another suit. So that was like a long ordeal. This I love the folks I work with at Harriman house, and I don't know if it comes across in the tone of the book, but it's a little, I tried to bring in a lot more stuff from outside of the world to finance, music, tv, film, sports, all these different things. And I just wanted it to be kind of a light fun read with really short chapters. The book is deceptive, it's got some heft, but the chapters are one and a half, two, two and a half pages. It goes by pretty quickly. And it was really a lot of fun to write.
Steve Chen (01:12:36):
That's awesome. Alright, well Barry, thanks again for coming on. And for our listeners, thanks for taking the time to learn with us and all feedback is welcome all. Hopefully you check out Barry's book, how How Not to Invest, go check out his firm, Ritholtz and come visit us at Boldin. All reviews and feedback on this podcast are welcome. So thanks again.
Barry Ritholtz (01:12:55):
Thank you so much, Steven for having me.