Brutally honest guide to not losing money in the market

Shaan Puri

"If you could tell me something in the next **15 minutes** that would make me a better investor, what's the **first thing** you would just hammer into my head?"

Barry Ritholtz

"Oh my God, put the phone down. **Stop trading.**"

Shaan Puri

So, I think the interesting place to start is we've had a few different people from the School of Investing Wisdom come on — sort of the value investing genealogy. Sam and I, although we are not investors, we're definitely entrepreneurs first, and investing is more of a hobby/sport-type thing for us. We're so attracted to it. We love the sort of investment wisdom, especially your version, which is the "aw-shucks, common-sense" version of investing. It's less about how to be super smart and do advanced things, and more about how to be less stupid than you already are — don't worry, you'll be fine. I'm excited to talk to you. You have a cool story. You started off really in the content and media game: blogging back on GeoCities early on, with podcasting, and built a large investment advisory shop named after yourself. I think you guys got to what...

Barry Ritholtz

That was a *placeholder*, by the way. That was not supposed to be permanent. Like, "let's just call it 'Ritz Hulks' for now," someone else said, "and we'll find a better name." Then we never found a better name.

Sam Parr

"Can we ask you to brag for a minute? I know — I think it's like an 8 billion AUM [assets under management] business."

Barry Ritholtz

So the weird thing about the financial services industry — but before I brag on the firm, the background is: go to law school, do really well, hate being a lawyer. A client was running a trading desk that was a predecessor shop to E*TRADE, and I started on that trading desk. I found it was just mayhem — random and volatile. I was more fascinated by why the people around me: some days they were killing it, some days they were getting killed. I kept asking, "What's going on with their process?" That sent me down the rabbit hole of *behavioral finance*. It was the only explanation I found as to why the same person could be doing really well one week and, while applying the same process, get shellacked the next week. It's **decision making**, it's **emotions**, it's **cognitive biases**.

Shaan Puri

"Can you explain your *Christmas tree* analogy for constructing a portfolio?"

Barry Ritholtz

Sure — that's really easy. So we know that historically, very few people beat the index on a regular basis. In any given year, less than half of active managers beat their index. You take that to 5 years, it's something like **21%**. You take it to 10 years, it's less than **10%** — one out of ten people.

Sam Parr

So that includes, like, *huge firms*.

Barry Ritholtz

It includes everybody — any active mutual fund, ETF, hedge fund, whatever. Go out 20 years and it's a handful of names: Peter Lynch, Warren Buffett, etc. If the core of your portfolio is a broad index, you can't get "alpha" (meaning outperformance) if you're not at least starting with "beta." When we say people don't beat their index, it means not only are they not getting what the market gives them — they're getting less than that. So forget beating what the market gets; they're not even getting what the market gets. Pick a number: 50, 60, 70 percent of your portfolio is that core. By core index I mean U.S. broad-based market indexes. Vanguard's VOO last week became the first ETF over $1 trillion, and that's just a super low-cost broad index. You want to own some overseas stocks? Overseas indexes — that's fine. Now the tree is the garland, the decoration, the lights, the tinsel — that's whatever thing of your own you want to put on your portfolio. So if you like momentum, great — add that. You want a little more tech? However you want to decorate it. We've looked at these assortments of different portfolios; they all more or less end up in a similar place. Some are a little better, some a little worse — they all end up trailing the index. If two-thirds of your money is in a broad index, well, at least you know you're starting with that basis.

Barry Ritholtz

"And hey, I think **Japan** is great. I'm gonna own **EWJ**. Or I think **India** is the next big *con country* after **Korea** [unclear: "con country"], so I'm gonna own that **ETF**. If you wanna have a little bit of decoration on the tree, that's fine. Just recognize you're aiming to outperform, and the odds are very much that you're gonna underperform."

Shaan Puri

So, is this a little bit like when you do a diet and they're like, "Yeah, we're going to do a *cheat meal* on Sunday"? It's not that the *cheat meal* is good for you; it's just that it's probably the only thing that's going to keep you on the guardrails — the other six days of the week being on track. Is that why you even have the decorations? Or would it just be better to be *100% in the passive index* and call it a day?

Barry Ritholtz

So, my cheat meal is the **"cowboy account."** We have clients—listen: what's more fun? What's sexier than talking about investing in startups, investing in the hot new publicly traded technology? You look at all the things that we talk about in the media—television, print, web—it's never about owning a broadly diversified portfolio of low-cost indexes, rebalancing every few years, and holding them for decades. Now, what do you do with the other 23 hours and 59 minutes a day if you have to fill it with content? All this sexy news, all this exciting stuff—that's 90% of the fire hose.

Sam Parr

"You see."

Shaan Puri

They just say, "**Be the best finance channel**," at the top of every hour, and then they just play *Home Alone* reruns for the next fifty-nine minutes. And actually, those investors would do way better than anybody watching. I... this NBC.

Barry Ritholtz

I tell the metaphor of this little gardening channel. They have a **tree cam**: they plant a tree and it’s very *bucolic* and relaxing. It’s just there and everybody is happy with it. Then the channel gets bought by **private equity**, and now they’ve got to sex it up. Everything becomes fake conflict: “That’s the wrong tree for this area,” “Too much water,” “You planted it too deep,” “No, it’s not deep enough,” “It’s not getting enough.” Meanwhile, the tree could not care less about what they’re saying. It just quietly grows. That is how I think of the media and the broad index. Say what you want: **Vanguard** and **BlackRock** have, between the two of them, about $25 trillion in assets because they’ve dominated low-cost indexing. I think the financial crisis was very much the last straw for mom-and-pop investors. Now you have a new generation on DraftKings and Robinhood, speculating. But everybody who’s over 40 kind of lived through this and said, “You know what? I’m going to take my ball and go home.” By “ball” I mean capital, and by “home” I mean BlackRock and Vanguard. Before 2008–2009, Vanguard had under $1 trillion. Now they’re around $11–$12 trillion and BlackRock is around $13–$14 trillion. These are giant, giant firms. That’s kind of what happened—that’s the base, the core—and the tree just keeps growing.

Sam Parr

"What's the biggest return one of your clients has had via their **Cowboy** account?"

Barry Ritholtz

So we've — we've had people that had some **Bitcoin** when it skyrocketed. We've had clients that had a lot of **Tesla**; in 2021 it exploded. Heading into the pandemic, people that had **Teladoc**, **Zoom**, and **Peloton** in their accounts — they just exploded. But what always happens: it's so hard to sell something. Most of us... I owned Apple when the iPod — not the iPhone — came out. It was $15 a share ($13 cash). There was no downside, and it tripled — it went up to $45 — and I thought I was a genius selling it. Then it proceeded to gain another 9,000%. One of my favorite stories in the book is the CEO of Peloton. He wasn't getting especially great advice. On paper he was worth, I don't know, $2 or $3 billion and just leveraged himself to the hilt — bought a whole bunch of stuff. Then, of course, as the pandemic winds down and the vaccine starts going around and we start to see the light at the end of the tunnel, **Peloton crashes**. He must have taken a whole bunch of stock loans against that capital, had a $60 million place in East Hampton, had to sell — he was just liquidating everything. It's always a shame when you see that. I mean, how many disasters do we have to live through before you realize any stock can go to zero? So anytime you're trading an individual name, the odds... Henrik Bessembinder at Arizona State Business School did a couple of studies and he basically found that the entire value in the market comes from between **12%** of stocks. So what are the odds — 50-to-one, 100-to-one — that the company you love so much, that's run up so much this year, is going to do it for another ten or twenty years?

Sam Parr

You wanna hear something *funny*, Sean? We—we did a podcast with Lloyd Blankfein the other day, you know... the

Barry Ritholtz

Yeah, he's got a book out.

Sam Parr

Yeah — it was a great book. He's, you know, for the listener, the former CEO of Goldman. He's a big shot, a great guy. He told me, "Go." I was like, "You're retired; what do you do now?" He's like, "I love to day trade." He said, "In fact, I knew I was gonna do this podcast for two hours and it kind of made me anxious because I'm always grabbing my phone to look at my stocks, so I had to put all my orders in advance in preparation because I'm not gonna be available." I—he's like, "Right now I want to look at my phone." Then after the podcast I asked, "Well, what are you gonna do now?" He's like, "Well, the market's closed, so I don't have anything else to do. I guess I'll walk home." I don't know his portfolio — he said *70% of his net worth*... I think he said that; *don't quote me* — but something like that is in his pickings. He said he's doing good. It was just so funny. What's interesting is that I'm sure he's doing great — if anyone's gonna do great, it's probably someone like him — but it's like even if you're a titan of industry, you're on top of the world, you know everybody, you're a who's who, there's probably a world where he's going to make every single mistake, the same mistake that an 18-year-old degenerate Robinhood trader is going to make. I find that interesting: we all still do these things.

Barry Ritholtz

"Lloyd, listen to me: put the phone down. Stop trading. Seventy percent of your net worth should be in muni bonds paying you a huge, tax-free yield. If you want to dick around with a few million dollars, knock yourself out. But if you're actively trading 70% of your net worth, which is a couple of billion dollars, I am disappointed to tell you that you are making the biggest risk-adjusted mistake of your career. And the schmuck that used to run Goldman Sachs should know better. **Stop day trading.**"

Sam Parr

Looks like I'm not invited—I'm not invited to *Shabbat* dinner anymore. So, thanks, **Barry**. Oh.

Shaan Puri

*My God... I—I—I...*

Barry Ritholtz

I hope your memory—your numbers—are wrong. So, here's the *fascinating behavioral side* of that.

Sam Parr

On this show, we have spent hours talking to some of the best investors alive. Well, lucky for you, the team at **HubSpot** has pulled out the principles that matter most and turned them into a very simple, easy-to-read wealth guide. It's **35 principles** from top investors — we're talking guests who have been on the pod like **Howard Marks**, **Manish Pabrai**, **Morgan Housel**, **Cathie Wood**, and a ton of others. These are all their frameworks, their mental models, their rules: basically how to play the long game and how to avoid ruin. You can get it in the link below.

Barry Ritholtz

We see this all the time. I mention clients asking, "Hey, do I buy a Ferrari or not?" The folks who — and I mean this in all seriousness, to Lloyd — people like him: a guy who works really hard his whole career, constantly striving, saving, investing, putting money away, accumulating stock options and going through all this. It is really difficult even for people who are, you know, *masters of the universe* — billionaires — to recognize and just stop and say, **"I won. Hey, I won. I don't have to put this much capital at risk."** Because over the decades I have just seen that story play out and end badly. Hey, I'm sure Lloyd will be fine; he doesn't have to take financial advice from little old me. But anybody who walks into the office with a giant portfolio — the challenge is: how do we convince you that you've won, and how do we make you create a portfolio that has the highest probability of reaching whatever your goals are? P.S. If your goal is just "more," well, then you're going to be disappointed both in your portfolio and your life.

Shaan Puri

You mentioned something about selling, and I thought there were two interesting things in your book about selling. One was about *panic selling* and the data around what happens with panic selling. The other was that there was some study about *hedge fund managers* where their buys were actually good but their sells were terrible. Can you explain those two ideas around selling?

Barry Ritholtz

So, again—there's a lot of behavioral finance research behind this. It turns out that people *panic-sell* into a market crash. Something like a third of them never return to equities. Let's use either the 2020 — a 34% pandemic sell-off — or, more likely, the '08 57% market crash. Imagine selling down 57% and not getting back into equities, then watching 15% a year compound over that entire period. It's *shocking*. So you take a million-dollar portfolio: you're out at, like, $450,000 net worth. If you never would have sold, it would be worth 10x today — it would be $4,500,000,000. And to be fair, you are getting a percent or two up until 2022; now you start to get 4% in a money market (3.7% today), but that doesn't compare to a 10x and it doesn't keep up with inflation. So that's the first data. That's shocking: *panic-sell* into a portfolio—**one in three** people never get back into equities.

Shaan Puri

The hedge fund: the **buys** are good, but the **sells** are worse than if they sold at random.

Barry Ritholtz

So I love this study. It's by Alex Amos, who is a University of Chicago professor. They did a study where they looked at all these buys. My explanation is the buys are rational, spreadsheet-based; the sells are always emotional. But the clever thing that Professor Amos did was ask: how can we tell how good these sells were? What if, instead of selling the company that the manager wanted to sell, we randomly picked something else that's in that manager's portfolio and then sold that instead? It turned out that the random sells outperformed the manager-selected sells by something like 150 to 200 basis points — maybe it was even more; it was some crazy amount. It makes sense that the buys are thoughtful and logical, but the sells very often are emotional and impatient. Sometimes the stock doesn't work out right away and people sell it even though the underlying thesis was correct. Sometimes something else bright and shiny comes along and you have to sell something so you have money to buy that. It's amazing data. And it just goes to show most of our decision-making is bad. So one solution: **make fewer decisions**.

Sam Parr

"Hey, can I—I'm gonna, I'm gonna pick a *friendly fight* with you."

Barry Ritholtz

Sure.

Sam Parr

So you say, "*buy low-cost index funds.*" I'm on board with you. Anyone who's listening to this pod [podcast] knows you're speaking my language. But why would I pay you a fee to do that?

Barry Ritholtz

You don't have to. Our whole business model from day one has been — we've been writing in public. Myself and my partners would say: > "Hey, you could do this yourself. You don't need anybody. You just need to put together a broad portfolio of low-cost index funds, manage your own behavior, stay out of your own way, and check in on it once or twice a year. That's it." There are a bunch of people who said, "I like the advice, but I have a little more complexity in my portfolio. I have tax issues, I have state issues, I have whatever — I need some help with this." We don't have minimums. We set up different levels. We have two digital platforms: one for under $250,000 and one for $250,000 to $1,000,000. But our whole line of — you know — bullshit has always been **do it yourself**: you don't need our help. It turned out something like 0.1% of our readers said, "I don't have the time, I don't have the discipline, I'm not interested in this crap. I pay someone to do my taxes, I pay someone to mow my yard — I'm going to pay you guys to manage our money." [percentage approximate] I did a post a couple of weeks ago about *organizational alpha*. If you beat the market by 50 basis points — or are below the market by 50 basis points — clients could not really care less about that. However, if you manage to quarterback their finances in a way that our tax team has done a great job minimizing capital gains taxes, we use a couple of complex products. I always think simple is better than complex unless it really solves a sticky problem, so **direct indexing really helps with that**.

Shaan Puri

Sam, do you *direct index*, or do you know what that is?

Sam Parr

Yeah, I know what it is. I don't do it. Sean's people make fun of me — Barry on the show — because I am *very strict* about this. It's a little bit like a 90/10 split: equities and bonds.</FormattedResponse>

Barry Ritholtz

I don't even think you need the 10. You got 30 years before you need the money. Why drag the portfolio down with bonds? Just... which?

Shaan Puri

By the way.

Barry Ritholtz

It is *somewhat* controversial.

Sam Parr

It's just helps. It's a... it's a mostly emotional decision. But yeah — **direct indexing** is summarized as: instead of buying an index fund, you have a program that basically buys the stocks of the components.

Barry Ritholtz

Right, the components of the index in the **same proportion**.

Sam Parr

It seems like—over the course of time, for example, the way my personal finances are set up: I don't intend to sell. I live off my income. I don't ever intend to sell my *direct* or my *index* portfolio. I guess I would sell only in an emergency. But why would I do *direct indexing* if I don't intend to sell it?

Barry Ritholtz

I love that question. You guys have both sold startups and ended up with substantial capital gains. In any given year—even when the markets are up—there are some 20%, 30%, 40% of stocks that are down. Of that group, some are down substantially. If you hold VOO [the Vanguard S&P 500 ETF], I think it has about 700 or 800 positions, whereas the S&P 500 index itself has 500. If you look at the bottom decile—the bottom 10% of stocks—one of those might be a small-cap biotech down 40%. I might sell it and replace it with something very similar—another small-cap biotech in the same space. I *harvest that loss*. The portfolio value and overall sector exposure don't change, but I realize the tax loss. If you do that every year, you could pick up about 75–85 basis points. In Q1 of 2020, when the market was down 34%, O'Shaughnessy did a research study on direct indexing. Their study found 400+ basis points of losses harvested and replaced with very similar companies. When the recovery happened, it matched the performance of the index because, effectively, it was the same exposure. This technique is useful for concentrated positions—founder stock, IPO stock, sale of a business, inheritance, or any high-concentration holding. For example, someone might come in with a $10,000,000 portfolio and say, “I’ve owned Apple for fifteen years and now it’s 90% of my portfolio—how do you get me out of that position without paying a giant capital gains tax?” Direct indexing with tax-loss harvesting can be a very effective way to do that. That said, **it’s not for everybody**. It adds complexity and a bit of cost—not much, but some. It’s definitely useful in those concentrated cases, but for most people I don’t think it’s necessary.

Sam Parr

"Can I ask you a bunch of stories?" "Sure. I want to do a *story time* thing because the cool thing about you is you've been doing the content game for so long, and I know you've met some incredibly interesting people. I want to do a little *rapid-fire* bit of all the people you've had on the podcast, or interviewed at conferences, or through work. Who's the person who you think our listeners should research, and someone you admire?"

Barry Ritholtz

So you mentioned Ray Dalio and Howard Marks — those are obvious. I'll give you a couple of really interesting names. **Richard Barton** is a former Microsoft employee who founded Expedia and Zillow, and just one crazy company after another.

Sam Parr

He's got this *crazy framework*. I think Sean and I have talked about it. I'm summarizing this correctly, Sean: I think he said his whole career is taking messy data and organizing it, or I think he even said, "I free the data."

Shaan Puri

Yes. He calls it **"give the power to the people."** It's basically taking data that exists—data that's not transparently or easily structured and available—and making it transparent, easily structured, and accessible. If you look at what he did with housing (the housing data—that's the MLS data), he made it easier to access through Zillow. They did it with Expedia; he did it with Glassdoor. It's the same thesis; he's just played it out in, like, four different companies.

Barry Ritholtz

I'll give you a couple other names that are *a little below the radar*, even though they're all kinda known to the industry. I think **David Rubenstein** of the **Carlyle Group** could be the *best human being I've ever met in my life*. That guy's awesome.

Sam Parr

Have you seen the show, Sean?

Shaan Puri

Yeah, of course. I've just seen this — I didn't know he was such a *legend*. I just thought he was an interviewer because I'd only ever seen him doing interviews. I didn't realize he was the founder of *Carlyle*, which is his job.

Sam Parr

He's... I knew him as a historian. He has these amazing books. I'm reading one of his books on **Washington and Lincoln** and the rest of the presidents. I don't even think of him as a money guy.</FormattedResponse>

Barry Ritholtz

So he started out in the D.C. area when Carlyle started. He would put together these *off-the-record* conversations with experts in spaces that were being debated by Congress. Then he would invite a whole bunch of congressmen, senators, and staffers from both sides. The idea was: "**This isn't partisan; this isn't political. This is just a way for you guys to hear from an expert who you may not come across.**"

Sam Parr

And why did he do that? Was he... was he in politics?</FormattedResponse>

Barry Ritholtz

No. He just wanted the Congress of the country he lived in to be better informed and more knowledgeable.

Sam Parr

But was he a *big shot* when he did that?</FormattedResponse>

Barry Ritholtz

No — Carlyle was a tiny little company that specialized in telecom, and that's why they were based in D.C. It eventually expanded into everything else. Later in his career, he becomes super wealthy. The Washington Monument starts falling apart — the cement starts cracking. It's a couple hundred years old, and with Congress being paralyzed and incompetent, "he's an idiot and a congressman, but I repeat myself" — *[this is the Mark Twain quote the speaker referenced]*. "They couldn't get their shit together," so he steps in and says to Congress, "Hey, I'm going to fix this. See if you idiots can get around to passing legislation. I'm just going to patch it up; see if you can do a permanent fix, and I'd appreciate it if you pay me back one of these days, okay?" He basically guilted them into fixing all the national monuments. This was in the 1980s and 1990s. He was a kid who grew up in Baltimore — a city that was having a hard time. He buys the Baltimore Orioles and promises the city that it will not move over the next 20 years. He said, "I'm going to keep the beer and hot dog cost the same for the next 10 years." Not what you think of when you think of his private equity.

Sam Parr

What personality attributes do you think made him great as a business person? He sounds like a *warm and lovely* guy, but he's in PE [private equity], which is not particularly a warm and lovely industry. </FormattedResponse>

Barry Ritholtz

He is really, really good at finding a space that is being ignored by the rest of the market — and not just ignored, but **undervalued**. So telecom wasn't sexy in the 1980s; there was some post‑Reagan deregulation and it kind of got ignored for a while. And not just the big names, but the block‑and‑tackle, all of the fundamental pieces. It's not even about "seeing around corners" so much as identifying a spot that the markets have missed.

Sam Parr

Was he prolific in his extracurricular activities during the upswing of the business, or was this more of a post-wealth thing?

Barry Ritholtz

I think... I think they were on *parallel tracks*. I don't know how one does that.

Sam Parr

So, I just set up Carlisle. By the way, Carlisle has $500 billion AUM [assets under management]. How does someone build...

Barry Ritholtz

One day—they'll get there someday.

Sam Parr

*How—how—how* does one do that? Like, did you know when he was younger... how on earth do... </FormattedResponse>

Barry Ritholtz

You do all these amazing... I met him. I met someone who worked for him and I said, "Hey, tell your boss he's stealing my gig at **Bloomberg**. What the hell? I've been doing this podcast since 2013." You know, he comes in and *bigfoots* in and takes the video version of it. I was joking — it got back to him and I got an email. I said, "Why don't you come on the show? Let's talk about your career." So he did.

Shaan Puri

But what about the other end of the spectrum? **Finance and money** attract a lot of people who will say things that are inaccurate or bad advice — maybe self-interested advice. Who do you think has done some damage to the space, put a lot of bad advice out there, or promoted a philosophy that someone should not follow, even if it is popular or visible?

Barry Ritholtz

So those people don't get the invites to show up on the podcast. I've been having an ongoing fight with *Zero Hedge*.

Sam Parr

**Zero Hedge** — is that a blog, or is that a community? I don't...

Barry Ritholtz

It's sort of a cross between Reddit and a blog. It has a lot of contributors. Eventually they tapped into Bitcoin and into gold, and that was their argument. There's a Theodore Sturgeon quote in the book. Sturgeon was a science fiction writer in the 1950s and he used to get the question: how come so much of science fiction is not good? His answer was: > "Ninety percent of everything is crap." That has become **Sturgeon's Law**. So most of the stuff you see in print, on television, on social media, on Substack — most of this stuff isn't worth the time or effort to consume. People send me subscriptions to stuff all the time: "Hey, I signed you up for my Substack." You unsubscribe me. Block me. I didn't ask you to do that — stop sending me your digital shit. The reason for that is simple: my mom taught me, "Never take candy from strangers," and that includes research, writing, commentary, and opinion. Before I read something from somebody I'm not familiar with, it's a bit of research to decide: is this person worth the time, effort, energy? What's their track record? What's their process? Did they just get lucky once, or do they have a defensible approach? Have they lived through a few cycles? Have they seen ups and downs? Do they have a good temperament? Or, every day — like on a Friday when the Nasdaq is down 4% — do they run around with their hair on fire? This is the big one: if they have that sort of attitude, I don't have room for them.

Shaan Puri

I... I think you would probably, Jesse, have an opinion—either positive or negative—on the, what's his name, the *Rich Dad Poor Dad* guy. I forgot what his name is.

Barry Ritholtz

Oh my God, Kiyosaki — he's a chapter in the book, and I never read the book. I didn't know anything about him. My colleague Ben Carlson did a post about some of this, like ten years ago, about some of his tweets. They're terrible: "sell, sell equity, sell this, sell that" — just super bearish the whole 2010s. My favorite tweet of his, which I reference in a chapter in the book on him, was in 2018: > "Get out of US housing. US single-family home market. The financial crisis was the warning shot. Sell housing." Ironically, there has never been a better time in recent history to buy single-family homes in the US. Someone asked me, "Well, how could he have known the pandemic was going to happen and all these things happening in housing?" That's right — he couldn't have known. What are you telling me? You're defending his shitty forecast by saying he couldn't know the future. That's why you don't make forecasts; you don't know the future. The takeaway is that all of Wall Street, all of finance, has a **humility problem**. I say this: I have a lot of my biggest mistakes in the book. I famously — or infamously — passed on Robinhood in 2014 at an $80,000,000 valuation. An app that lets millennials trade for free. That was the dumbest idea I've ever heard in my life. Aside from the fact that it's totally off-brand with the indexing thing — "millennials don't even have money" — what is it? If this is, you know, payment for order flow, the dumbest idea I've ever heard. My buddy Howard Lindsay made $100,000,000 on that investment. I'm an investor in other things Howard has done, and I was just like, "ugh, so stupid." So I'm not just saying everybody is dumb and I'm smart. I'm as dumb as everybody else, but at least I'm kind of aware of it. I'm starting from the place that we all need a little humility because we don't know what's going to happen. We barely know what's happening today. Our recollection of what happened yesterday is always tinged with a little glow of rosy nostalgia. Our expectations for the future are mostly hopes and wishful thinking. The whole human condition requires a little more humbleness in admitting how little we know about what's going on.

Sam Parr

Help me a little bit here. I love—like, you have this post that I love; it's called **"Nobody Knows Anything."** You basically, like, say this one's about **SpaceX**. The premise of a lot of your posts is: **Goldman**, whatever—the big shots—make these predictions, and the truth is it's just so hard to forecast. You said that **90% of the information out there is garbage**, right? What's your **10%**? Who can I read right now and get my information from—whether it be news or evergreen stuff—that is the 10%, in your opinion?

Barry Ritholtz

Sure. I'll give you my list, but the **caveat** is that the process of you figuring out who should be on your list is very helpful. Go through the process—think about it: *What do I need? What do I need help for?* So, let me throw out a bunch of names.

Sam Parr

We want the *whole information diet*, yeah.

Barry Ritholtz

And by the way, obviously my whole team is a big part of this: **Josh Brown, Michael Batnick, Nick Maggiulli, Ben Carlson, Blair Dukasney** — go through the whole list. There's a lot of us writing, so I don't want to just talk about my group. It's a little too self-promotional. Let me talk about others. So let me start with just broad economic analysis. It's hard to do better than **Ed Yardeni**. He is very thoughtful, very data-driven. He's been very constructive and bullish during this market. He very constructively said, "Hey, you know, the U.S. has had a great run; we're starting to see signs of overseas doing better." He's just been a solid, solid guy. He's been doing it for 40 years. He started at Deutsche Bank — really solid.

Sam Parr

It looks like Ed Yardeni's paid, right? That's not a free one.

Barry Ritholtz

Yeah, **Ed Yardeni** is paid. If I want to look at market dynamics and structure, that's **Sam Rowe**. You could do the free version or the full version, which is a little more expensive. On the behavioral finance side, it's tough to beat **Morgan Housel**—he's a great storyteller and really gives a lot of insight. For real estate, it's **Jonathan Miller**. I've been tracking Jonathan forever; I'm friends with him personally. He really understands what's happening with both residential real estate and the state of prices in the industry as you go further into the weeds. For all things short selling, **Jim Chanos**. For all things Wall Street culture and psychology, **Michael Lewis**. He has a new book coming out in the fall on Doge—I'm really looking forward to it. By the way, Michael Lewis is one of those guys: you think you have an idea of who he is from his books, and then you hear him speak—he is just hilarious. **Richard Thaler** (of Chicago) is the other one for the real, hardcore research on behavioral finance. There are so many people—I'm leaving so many out.

Sam Parr

*Autism Capital* — the Twitter handle — hasn't made the list.

Barry Ritholtz

Yet so far, there's actually some **academic research** that has found **neuro-atypicals** do better at **market timing**. They are not subject to the same social pressure and emotional trading.

Shaan Puri

Speaking of SpaceX, have you read the story in his biography of Elon's quick foray into finance—his internship? [unclear who “his” refers to]

Sam Parr

"No, what happened?"

Shaan Puri

This is a great story. He was in school in **Canada** and started cold-calling to get an internship or a job. He called, for example, the CEO of some investment bank and managed to get a position. While he was supposed to be doing whatever his job entailed, he began digging really deep into some South American oil companies — situations with political issues — and saw almost a *Buffett-style* opportunity. He thought, “They’ve completely mispriced these assets. They’re trading at the wrong levels because even in the worst-case scenario you’re safe, and there’s all the upside if things open up.” He pitched that analysis to his boss. The boss said, “Okay, go find out what we can do.” So he called a trading desk or broker and asked, “Hey, I’m Elon Musk, and I would like to place an order or a trade. How much volume can I do?” They told him he could do whatever he wanted. He asked, “So I could buy $5,000,000 of this right now?” They replied, “Son, you could buy $50,000,000 of this if you want.” He went back and told the CEO, “I think we should make this huge trade.” The proposal got shot down — not for a logical reason, but because they were risk-averse. Seeing that a completely logical argument had been rejected for illogical reasons, he decided the whole situation was stupid. He resolved he would never work for other people again. Instead of doing financial engineering, he decided he should build things — do actual engineering. He left and never, never came back.

Barry Ritholtz

He was a failed retail stockbroker — is that what you told me? There was no financial engineering, he had no track record; he was a rookie. Why would anyone listen to him? That's the *amazing* thing. You look back at **Warren Buffett** in 1967. I think half the people who heard his pitch would be like, "Why do I wanna listen to this guy?" I started out as a math and science student at **Stony Brook** undergraduate. The outgoing mathematics department chair was this guy named **Jim Simons**. He left to form **Renaissance Technologies**, the most successful hedge fund in all of history. If you would have met this guy in 1979, you would say, "Why — this guy looks homeless."

Sam Parr

"Yeah, I saw him. He looked like a messy student, and he was smoking cigarettes all the time. He kind of looked like a *filthy animal*." </FormattedResponse>

Barry Ritholtz

You would think, "This guy... I'm *not* giving this guy my money — he's gonna smoke it."

Sam Parr

Sean, what are you pulling up here? You're breaking out the *textbook*.

Shaan Puri

I got the story. Alright, this is about Latin American debt. Banks had made billions in loans to countries such as Brazil and Mexico that could not be repaid. The secretary, **Nicholas Brady**, had packaged those debt obligations in something known as **Brady bonds**. Yes, exactly. They were backed by the U.S. government. Musk believed they would always be worth at least 50¢ on the dollar, but some were selling as low as 20¢. He figured that Scotiabank could make billions if they bought these at a cheap price. So he called the trading desk and he asked, you know, if the stuff... He thought to himself, "Jackpot. This is a no-lose proposition. I run and I tell Peter, the CEO, about it." The bank ended up rejecting the idea. They said they already had too much Latin American debt. He said, "Wow, this is insane. This is how big banks think." He goes, "It was a good thing. It gave me a healthy disrespect for the financial industry, and that gave me the audacity to eventually start what became **PayPal**."

Barry Ritholtz

He didn't really start **PayPal**. He started a competitive product, and eventually it was merged into **PayPal**. Let's not let that get in the way of the story. Alright—so he had a good idea.

Sam Parr

"You do?" "You have a lot of enemies?" "A few."

Barry Ritholtz

I don't... I have no choice. I can't help.

Sam Parr

You just came here **spitting fire**, man. You don't hold back.

Barry Ritholtz

**That's bullshit.** I can't help it. I know *"discretion is the better part of valor,"* but when people are out there saying stuff that is nonsense — that ultimately leads people to lose money.

Sam Parr

"Do you think you ever have to get security?"

Barry Ritholtz

"No, listen. If someone wants to be *dead*, I would have been *dead* a long time ago. That's... that's not a... And who wants to live their life that way?"

Shaan Puri

Wait, what did he say that makes you think you need security? From who — *Guy Kawasaki*?

Sam Parr

No, man. No — I'm not *that* nerd. But I'm just saying that when you deal with **big numbers**, and you have a **big audience**, and you're dealing with people's money and stuff, I'd sometimes think about the *risk–reward* of having someone with you when you go to the city.

Barry Ritholtz

**Nobody cares.** I—I got bad news for you: nobody cares that much about me. I'm not... I'm not that important. And look, here's the reality: yeah. </FormattedResponse>

Sam Parr

"I've got the 8 billion. I mean, that is impressive. But it's... what's— I mean, do you have a— you have a microphone? You have an audience?"

Barry Ritholtz

Yeah. So in the modern world it's a cacophony of voices — no one voice is dominant. Elon Musk bought Twitter, so his voice is amplified. When you look at the value he's created over the years — whatever the PayPal merger ended up being, and then Tesla, and now SpaceX — he doesn't have to exaggerate. This guy has changed the world. Tesla completely changed the automobile industry. SpaceX completely changed a number of industries: aerospace, the concept of getting anything into Earth orbit, satellite deployment. He's had such a giant impact that you don't need to polish the hagiography — *his accomplishments speak for themselves.* I have to burnish my crappy undergraduate and graduate career; I don't have that much to brag about from then. When I see a guy like that — he didn't found Tesla, he joined Tesla later — his genius was recognizing, "Oh no, what you need to do is sell a car that's just miles away from everybody else and don't think like a traditional car company. This is a technology appliance, not an internal combustion engine." I give him credit for the stuff he's done that's moved the needle. I'm not a fan of the SpaceX IPO, but I sure as hell don't want to bet against him. He's just proven himself time and time again. You know, he's a tough guy to be on the opposite side of the trade.

Sam Parr

Can we— I want to go back to the **"bragging question."** I want to, because I know you've been doing this forever. I've listened to your podcast and read your blog, but I still want to know: as an entrepreneur, about the business. Can you give a short answer with some of the numbers—just how big the firm is?

Barry Ritholtz

So, the last ADV update we did with the **SEC** was December 31. That was **$7,600,000,000**. When we launched in 2013, that was the start of the third-best 15-year run in history.

Sam Parr

Does that mean, *like*, it's a $50 million-a-year company?

Barry Ritholtz

We're private, so we don't disclose our revenue and stuff. But, you know, we average somewhere around **70 basis points** in terms of our fees (about **0.70%**). When we were a billion dollars [in assets], we had like 35 people. The typical billion-dollar group at a big-bracket firm is two salespeople, a sales assistant, and someone helping on portfolio — so that would be four people. We were almost **10x** that. So we've always been building as if our growth rate is going to continue, and we've been growing about **30% a year** since we launched.

Shaan Puri

So, you said you **famously called the housing crisis**, and, from what I understand, there's an interesting story there.

Barry Ritholtz

So first — and this is so dumb — my mom was a real estate agent. In 2003, 2004, 2005 we were having all these conversations about how weird the real estate market was. The normal cycle is: come out of recession, the economy begins to expand. When I looked at all that data pre–financial crisis, nothing lined up with what you typically see. It was very much a backwards, real-estate-driven economy. In other words, instead of real estate being the beneficiary of an expanding economy — more hires, better income — it was the opposite. Anytime you bought a house you could refinance a few years later at a lower rate, and some people were doing home-equity lines of credit and taking cash to subsidize their lifestyle. In the mid-2000s, middle-class workers hadn't really seen raises above inflation for decades, so people were spending the equity in their homes. I started hunting for data and academic research, and in 2006 **Reinhart and Rogoff** did a white paper that eventually became the book **"This Time Is Different: Eight Centuries of Financial Folly."** The white paper said when you have a bubble driven by credit, on average we see real estate dropping 32%, and I used that as a leaping-off point.

Barry Ritholtz

To say, "Alright, I'm too lazy to do all 500 S&P stocks, but let's look at the 30 Dow stocks — what does a 32% drop in real estate mean to their business, to their revenue?" Long story short, I kinda *spitball* a price of 6,800... How contrarian of a

Sam Parr

Belief was that all the stuff I...

Barry Ritholtz

I had been writing about housing, subprime, and derivatives. It was all up on the blog — it was all very public. I spent about a year being the **dumbest man on Wall Street**, which was kind of fun. All of 2007 it was like, "you're obviously an idiot." Even the piece that talked about *6,800* said, "Look: the market is in an uptrend; we continue to see multiple expansion. You don't put on a short — you don't get out of stocks if you're an institutional trader — until that trend line breaks." That trend line didn't break for a solid year and change, so I spent a year being pretty much the **dumbest person on Wall Street**. Starting in January, February, March of 2008, Kudlow started having me on every week, then twice a week, and it just got to be mayhem, because very few people saw it coming. I recall being on CNBC with Peter Buchvar, and when we talked about the potential downside — I want to say this was late 2007 — they literally laughed at us. I remember walking to our offices — we're not that far — and thinking, "either we're really right or we're really wrong, but there's nowhere in between."

Sam Parr

Do you guys remember the book *The Snowball* about Warren Buffett?

Barry Ritholtz

Sure, absolutely.</FormattedResponse>

Sam Parr

Just started reading it, and the very first scene is basically Warren Buffett at the Allen & Company conference, which is the who's who. It's always the hottest new kids plus the old guard in the room together. At this time it was all the best dot‑com companies; they're all there thinking they're the hot shit—sort of like how AI companies are now. They think they're the best. Warren has this famous line: "Only criticize a category; never criticize a particular name." He says he tries to compliment particular names and tries to be really polite about it, but he basically says the dot‑com thing is going to be bad. If you look at car companies in the 1920s, you would have thought that cars were the place to be—"We gotta start a car company." But of the 2,000 car companies that launched when the boom was happening, basically three still exist and most went out of business. He basically said this is what's going to happen with dot‑coms. He tried to do it respectfully, but it was still very insulting to the audience because they were there. I think he even made a bunch of jokes—he was like, "You guys... I think you all even have mistresses right now," or something like that. You think you're the best, but it's going to come. It's sort of interesting to figure out what's inside someone's head when they see one bit of data and make this very contrarian bet. Even Warren Buffett was quite nervous about that. He goes, "I know I'm going to be right, but if I'm not right soon then I'm really going to look stupid here." That behavior—making that call—is actually quite fascinating.

Barry Ritholtz

There's a famous technical trader from the 1910s and 1920s called Richard Wyckoff. He wrote a book, *How I Trade and Invest in Stocks and Bonds*. If you go back and read that book, everything he talks about still applies today. Just substitute "AI" for [the internet or Telegram], and "coms" [communications] for railroads — it could have been written last year. It's over 100 years old and it's as fresh as ever. Nothing ever changes; there's nothing new under the sun. Yeah, the technology is different.

Sam Parr

But what's the *takeaway*? It's that "new stuff can get overhyped." </FormattedResponse>

Barry Ritholtz

Not cannnot — get overhyped. It always will get overhyped, which isn't, by the way, a bad thing — that's a **feature, not a bug**. There’s a great book called **"Pop! Why Bubbles Are Great for the Economy."** Think about the dot-com era. Think about all of the fiber that was laid — Global Crossing and Metromedia Fiber — hundreds of millions, even billions of dollars in fiber laid at one time. I want to say it was like over $1,000 a mile. When the dot-com collapse comes, all these companies go belly up, and then the legacy cable companies and the legacy phone companies buy it up for pennies per mile. Because it was so cheap to own at that point, all the things that came afterwards — YouTube, Facebook, Instagram — all of the bandwidth-intensive technology, well, they wouldn't have been viable if it had cost $1,000 a mile to lay fat pipes. But for pennies a mile out of bankruptcy, they were possible. I'm not predicting this is going to happen with AI, but it happened with railroads, it happened with television, it happened with radio, with internet electronics companies, semiconductors, mobile — cars — go down the list. Every new technology that comes along seems to go through this process. Every new technology is innovative; things that are not stuck with all the sunk costs and all the legacy platforms get to move forward faster, cheaper, better. I don't know who the winners in AI are going to be, but when we look back twenty years from now, look at the computer industry — HP, Gateway — go down the list of companies that had billion-dollar valuations and effectively went down to zero. It could do the same thing with mobile phones. How's that Ericsson phone? Are you going to replace it with the new Nokia? Oh wait — nobody buys that shit anymore. Even Motorola's gone, because between the iPhone and Android, everything else has been replaced.

Sam Parr

It's nice to talk to someone, **Barry**, who *doesn't hold back*. I think... we thoroughly enjoy that. And, you know, **Sean** and I have been senior staff for years. We're happy we're able to talk.

Shaan Puri

Appreciate you coming on. *Shout out the book.*</FormattedResponse>

Barry Ritholtz

Sure. *How Not to Invest* — right over there: hardcover, paperback. You know, the last book, *Bailout Nation*, was 15 years ago. I just... it was a slog. It was tough to write. This book was just a joy. It was so much fun to go back over all these conversations I've had and all this research I've done over the years, and publish it when no one knew who the hell I was.

Sam Parr

You're a *gem of a guy*, man. We appreciate you so much.

Barry Ritholtz

"Well, thanks so much for having me. I *really* enjoy this sort of stuff—it's what keeps me going every day."

Sam Parr

Alright. That's it — that's a pod.