E61: How NOT to Invest with Barry Ritholtz

Foreign. This podcast is brought to you by Gensler Wealth. The information discussed today is meant to be general in nature and not tailored to your specific investing circumstances. This means that you should talk to your regular Gensler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation and past performance does not guarantee future returns. If you've come to this podcast seeking advice on how to invest, this episode will be a disappointment as it will only focus on how not to invest. Today on the Limited podcast we speak with Barry Ritholtz, co founder, CIO and Chairman of Ritholtz Wealth Management, host of Bloomberg Radio's Masters in Business podcast and recent author of the book how not to Invest. We'll discuss his path to investment management, why he started his own podcast cast, and why nobody knows anything. Let's go.

Foreign.

Welcome everybody to another episode of the Unlimited podcast. This one is investing focused for the most part. And as you know, I'm supposed to be talking about investing since we run an investment firm here, but we've got into some a whole variety of other guests. We've talked AI we've had some pretty well known folks in Canada here on but today we're going to focus on investing and today we actually have a well known person from the US which might be a first. So really excited to have Barry Ritholtz on today. Barry is the co founder, CIO and Chairman of Ritholtz Wealth Management, which is a US based investment advisory firm that oversees billions of dollars and has become a benchmark in the industry. He's the creator of the Big Picture Blog, one of the financial world's most followed. He's the host of Bloomberg's Masters in Business podcast, so a fellow podcaster, although he's unbelievably more well known than what we're doing here. And he's the author of Bailout Nation and his just released book how not to Invest, which is going to be a big focus of today's discussion. To provide some further context, Barry's written nearly a thousand columns on money and investing. He's published over 43,000 posts at the Big Picture. So this is a gentleman with some thoughts to share and Barry, really excited to hear some of those thoughts. So thanks for joining.

Well, thanks Brian. Thanks so much for having me.

I feel like I should just tell the story to listeners so they understand maybe a tiny bit about you and how this came about. As I said, Barry's very, very well known, very Famous in the US we were at a conference in California a few weeks back, early September. I'd never been there before. It was fantastic. And Barry and I believe it was Michael Batnik, another well known US commentator and podcaster, did a live podcast recording on stage. And during that podcast, Barry had said, yeah, you know, I started my podcast and sometimes it was hard to get some good guests at the beginning. And now Barry speaks to, you know, the who's who of business and finance in the US and so maybe half an hour later, I just so happen to be walking around eating pizza from the food truck, and I bump into Barry eating pizza from the food trucks out there. And I went up to Barry and I said, look, Barry, your podcast was great. You know, you don't know me from Adam. I also have a little podcast in Canada. It is also difficult sometimes to get some great guests. I loved your story, I loved your book. Any chance you'd be willing to do the podcast? And I'm telling you without a nanosecond of hesitation, Barry's never met me in my life. He said, I'd love to do it. Let's do it. Email me at gave me his email and we're sitting here today. So, Barry, I just thought it was important to tell people that because you are what they call in the Yiddish world, a mensch, a good person. You didn't have to do this, and you are doing it. And I sincerely, sincerely appreciate it. So there's a little bit of story about Barry and me.

Let me share a little context, a little flavor. You know, Bloomberg was recruiting me to write for them in 2013, so I started right after we launched the new firm. September 2013. I started with them October 2013, and I had pitched them. They, they said, you'll do a column for us. Are you interested in a TV show? And I was like, no. Financial television is awful. I don't, I don't want to do that every week, every day. No. What do you want to do? I want to host a podcast. I want to sit down with intelligent, accomplished, successful finance people and have a long form conversation about, hey, who are you? How'd you get that way? What can we learn from you? What's your investment philosophy? And the two questions I got. The first one was, what's a podcast? This was 12 years ago. And then the second question, like, what do you mean by long form? Like 10 minutes? Like, no, like two hours. And when everybody finished laughing, they said, tell you what, if you get us 32 minutes of good content, 32 minutes plus traffic, news, sports, weather, commercials. That's an hour of radio. What? We could take the rest and just put it up on the website and it'll be fine. So, so the first year of the podcast, like, it was a really tough sledding, getting anybody to come on, what's a podcast? Who's going to listen to this? Why do I want to waste an hour and a half of my time coming into Bloomberg and doing this? So I remember how awful that was. And like, my, my commitment was, hey, if I could just start getting some good guests. I will never say no to any legitimate podcaster who asks. So here I am.

Well, that's good. You're the first person to call us a legitimate podcaster too. So that's, that's great. Actually, no, we do have a nice listener base, and Spotify has ranked us in the past top 20 most followed and shared podcasts in the world. Although I, I, the secret is I think if you just do the same thing and keep doing it over and over without stopping, you gather some momentum. So I, I, you know, it's the.

Reps. You got to keep doing the reps. It's just, you'd be shocked how after 500 or a thousand of them, how much better you get.

Yeah, you got it. Well, listen, so I, I, I, I have listened to your podcast before, and as I'm listening to them, especially prepping for this, I'm realizing maybe I'm following a little bit of your lead because we often do the same thing you just described a little bit of background. How did you get to doing what you're doing, some key lessons, and of course, we want to talk about your book here, but I think that's the format we're likely gonna follow here. So, sure, you're, you're probably used to it, you're just used to asking the questions. But can you give our listeners a little bit of color on you, your background, how you got to what you're doing now? And then I'll fire a few more questions at you.

Sure. So, you know, most of the things I do come from a place of just annoyance or frustration with the way it's done elsewhere. My wife calls it infantilism. But essentially I started the blog back in 1998 because I was so annoyed at the coverage in the mainstream media about markets, and I just listen, nobody knows everything, but when you find this little niche that you're, you really have spent time and effort diving into and really know well. And then you see, just like Casual comments that are just wildly wrong. It's very frustrating. And I spent a lot of time answering questions of clients, of friends, of family, hey, I just saw this in the Wall Street Journal or I just heard this on Bloomberg or Fox or cnbc. And does this make any sense? And it's like, no, that makes no sense at all. Or sometimes it's like, I don't know, let me look up the data. I remember having a family member at a wedding say to me, you know, I know you're bullish on this market. This is, you know, 10 years ago, but New York's stock exchange margin debt is at all time highs. And that makes me nervous. And so I immediately said, I'm not familiar with that metric. What's its historical lead or lag? What do you mean? Well, is it a coincidental indicator? Does it go up when, when markets go up, does it peak in reverse before. And long story short, you can only use margin as a percentage of the value of your stock holdings. So it turns out the higher the stock market goes, the higher New York Stock Exchange margin debt goes, the lower the stock market goes, the lower. It tells you nothing other than when margin debt's at all time high, the stock market is at all time high. Which raises another question. What does it mean when stock markets at our all time highs? And again, you go to the data and the data says, well, all time highs beget more all time highs, except for the last one at the end. But historically, if you could invest only on days when markets make all time highs, or on all other days, actually investing on all time highs generates a somewhat better return than all other days. And, you know, most of what passes for commentary, analysis, whatever, is just opinion. These are, this is the data. The data says if you're a seller on all time highs, well, you're gonna leave a lot of money on the table, all right, Unless you're fortunate enough to sell on. There was something like 593 all time highs between 1980 and 2000, except for the last one. Every single one you bought made you money. What are the odds that you're gonna only sell on the last one? I just had a conversation with a friend earlier and I said, let me remind you, Greenspan's irrational exuberance speech was 1996. The market ran another four years. It doubled and then some. So, yeah, there's always a rational exuberance. And markets run, bull markets run further higher, longer than anyone expects.

And so, so how did you get to the point where you were, you Know, I mean, you talked a little bit about the impetus for wanting to do the podcast or, or the articles, but maybe a little bit of background on yourself. And what's your firm? Ritholtz Wealth Management. What do you do as a day job other than all the. Your commentary and whatnot, Just to give listeners a bit of your background.

Sure. So. So the commentary is really very much a function of what clients are asking. Most of what I'm writing about, I have something I'm going to drop later this week on crypto and on Bitcoin and AI, but it often comes from what clients are saying, what, what people are asking, what's making people either FOMO and excited or nervous and trepidatious. This goes back, you know, 25, 30 years where so we run what I call just a plain vanilla boring form of investing. The core of our investing are just simple indexes. We kind of decorate the core function. So let's, let's call it 50, 60, 70% broad indexes and then we'll put other things around that. So a developed X us which this year is doing really well for the past 10 years, it did really poor compared to the US a moment of sleeve A. We have a tactical portfolio that's really designed to be a behavioral fix so that when markets start rolling over, clients don't panic. It's designed to move into bonds whenever markets roll over. And it's just purely rule driven. There's no subjective, I'm not doing this. And then we bounce into it. And it's a pretty simple formula, but usually around the point when a client would call up and be panicking, hey, I'm 70, 30 stocks and bonds and we're down 18%. I'm really not happy. It's like, you're not 70, 30, you're 50, 50. The tactical portion moved into bonds. Oh, okay. And it's, you know, there's this bias towards action. And by the way, our benchmark in that is in the s and P500. You know, we more or less hit. We rarely outperform it. We more or less hit it. But the point isn't to outperform the s and P500. The point is, hey, leave the rest of your real money alone and just let it compound. And so that's the other thing. We also have a variety of other services that clients ask for. Tax, insurance, help with trust in estates, things like that. We do all of that and we have a variety of different. We have no minimum. We set up a digital platform, not a Robo advisor, but a digital platform with a live person for accounts under $1 million. The four of us, the co founders, myself and my three co founding partners, you know, we're all middle class kids from Long island we didn't grow up with. I have a buddy who runs now he's retired, but he ran a, a firm where was a $25 million minimum. And I'm like, that's just, I can't imagine that. Yeah, we have billionaire clients, we have 50 and 100 million dollar clients, but you know, we all grew up pretty solidly middle class. I just couldn't imagine only doing that. So we just were added to the Baron's top 100 list this year. Very proud of that accomplishment. And you know, we get pretty good feedback from clients about not just managing their assets, but keeping them informed as to what's going on. Making sure that if they want a little bit of information, we give them a little. If they want a ton, we'll give them a ton. What we don't want to do is just let them find all the noisy nonsense that's out there. I talk about a lot of that in the book, of course, that Noisy nonsense. That's the working title of the next book, Noisy Nonsense. That's the stuff that really derails investors from their best laid plans.

Yeah. Okay, we're going to talk about your book in a second. One thing I noticed again, we've only interacted with each other in the last month or two, but when I've emailed you and you're out of the office, you've got this irreverent quality to you. Your out of office email says I'm off doing X and Y, whatever it is. In case of dire emergency, contact Scott Besant at. And you have contact information or Jerome Powell at. I don't even know if those are real numbers or not, but that's funny.

They are all real numbers. You call up that number. I don't know what happens today with the government close, but you call up Jerome Powell's number and you will get. You've reached the Federal Reserve. For Janet Yellen, press 1. For Jerome Powell, press 2.

So that's just funny. How do you clients and firm react to this irreverent nature of yours? Because I love it.

I think they recognize that it's sincere and they recognize that, hey, this guy absolutely isn't faking it. But I don't pretend to be anything other than I am. And I think they very much appreciate it when you turn around and Say to people, hey, I'm in Maine fishing and at this time my auto reply is auto replying. Don't expect a callback. I mean, it's not so much that it's. That out of office message is so inherently rude, but it's brusque at the very least. So if I have the opportunity to just add a little bit of humor to it and make people stay a little better, why the hell not? The problem with so many fields is that they're just so formal and they just don't have a sense of humor. And I gotta tell you, I, I've had over 550 guests on the podcast and many of my favorite are the folks that have like a sly sense of humor, like they appreciate the absurdity of everything. So coming up next week I have Richard Thaler, who I've had on three or four times. I'm interviewing him at the Economic Club of New York as well. And he's just one of these guys, he's got such an impish, mischievous sense of humor. When he won the Nobel Prize and someone said, how are you for, for his work on behavioral economics and why people aren't rational profit maximizing agents, someone said, how are you going to spend the Nobel Prize money? And he said, as irrationally as possible. Like you have to love, love a guy like that. And so, and I've always had a sense of humor and appreciated funny people. So you know, if I can make someone smile without too much effort, once I kind of, and I stole parts of that from other people, but I turned it into the out of office message that I think is kind of unique.

Yeah, that's funny. No, look, I agree with you, I. In particular, I think our industry, investment advisory, investment management, wealth management, tends to be a little boring, Stuffy maybe. Stuffy. So I'm trying to similarly have a little bit of a personality or some humor.

You can't be too flippant because hey, this is people's money, this is their retirement, it's their savings. So you gotta know when you could be a little, a little out there. And you have to know when, hey, this is really serious. You gotta focus and straighten up and fly right. But a little bit of snark, a little bit of sarcasm, just a little bit. You know, I don't know who I'm stealing this from. Someone said it's like paprika, just a little bit in a dish is good. Too much and you ruin the dish.

Right? Okay, well then let's get serious here. You know, I want to switch to your book, which I've read cover to cover and I really like. And again, for listeners, the book is called how not to Invest. And this thing is thick. This is a big book. Maybe describe sort of how you came to the idea of how not to invest. Any big mistakes maybe you made over the years that you said, I got to get this into some sort of book here and went from there.

Initially, I didn't want to write another book. I wrote Bailout Nation. It was just a cathartic. I had to get that off of my, you know, atomy. I was just so incensed by what happened during the financial crisis. And that book was a slog to write. Every month a different company would blow up. Now I gotta go rewrite a whole chapter. And then September 08, when Lehman and AIG blow up, great. Now I don't even have an ending. I need a whole new third of the book. It was just a pain. A number of publishers had reached out about writing a follow up and you know, my attitude was kind of, there's been a million how to invest books and let's be honest, most people are still pretty mediocre investments. Telling people what to do, how to invest, how to allocate capital, how to pick stocks, blah, blah, blah. Doesn't really seem to work because you could do everything right and make one or two little mistakes and that's it, you lose the game. Use a football example, you could be ahead. You fumble, someone else picks up the ball and runs to the other end zone and you're pretty much done. I'm friendly with Morgan Housel and he's been kind of nudging me to do another book for a long time. And one December I kind of just sat down and said, let me think about this. I normally am very digital. I do everything with software, everything online. But I wanted to touch and feel it. So I started writing chapter titles on this and then posting them on my giant bulletin board. I must have put up 200 chapter titles. And I went through it. I ended up cutting it in half. And then started organizing them and son of a gun, if they didn't self organize. Bad ideas, bad numbers, bad behavior. And I started to recognize, gee, you spend a lot of time telling people what not to do. Maybe that's a book. And so I, I started looking for how not to invest, how not to allocate capital, how not to buy stocks. And there was nothing out there like that. It's kind of shocking. So my publishers are very proper British editors, and I'M like, you know, I spend a lot of time debunking investment bullshit. Is that a, a viable title? And they said, you know, the first book called On Bull sold really well. And then after that, every other book, it was just an imitator. It was just, you know, an attempt to be outrageous to drive sales. We're not in favor. I'm like, all right, so let me think about this. And I eventually came up with how not to invest. There was a funny debate. Listen, you're never supposed to put a negative in a cover. You don't say, don't do this, stop doing that. People reject that. So the way I sold the idea was, hey, what happens if we make the COVID look like how to invest in one color, but then puts the knot in a different pipe face and in the same color of the stock line crashing? And I just kind of laid that out. And I'm not an artist, but I described it. And they gave me a version of this that was so dead on, I'm like, that's awesome. So we tried a whole bunch of colors. White, blue, and black. Worked great. We kind of invert the blue and the black for the paperback comes out next year. But where this is blue, that's black, and where this is black, that's blue. So it's the same thing, only inverted. And I think it's really a sexy, A sexy thing. I love, I love the way they.

The way they did that. Okay, awesome. So, you know, you, you start off the book and you talk about two Charlies, Charlie Munger and Charlie Ellis. And that name, Charlie Ellis, might be familiar to our listeners as we did a podcast with one of my old finance professors a few months ago, maybe a year ago, Stephen Forrester, who talked about Charlie Ellis as well. But can you explain to folks what were the sort of big learnings, I guess, from these two famous Charlie's? Maybe Charlie Munger more famous than Charlie Ellis?

Sure. So Charlie Munger, Warren Buffett's partner in Berkshire Hathaway, and someone reached out to him and asked, you know, they're always open to questions at either Berkshire Hathaway annual event or other speaking gigs he used to do. And someone said, hey, has Berkshire Hathaway been so successful? Because you and Warren are just so much smarter than everybody else and really the most Munger like, answer possible. He scratches his chin and he says, it's not so much that we're smarter than everybody else. Our skill set is that we're just less stupid than everybody else. And those turn out to be two very different things. So that's Charlie Munger. Charlie Ellis is who I've now, by the way, I've never met him or Warren. I've never had either of them on the podcast, although I would love to. Well, too late for Charlie, but at least Warren is still around. Charlie Ellis, I've had on the podcast three or four times. Ellis is an investor's investor. I don't think the lay public really knows who Charlie Ellis is, but he is an ongoing rock star. So he ran Greenwich Associates, which was an institutional consultant. He was on the board of directors of the Vanguard Group. He was chairman of the Yale Endowment with David Swensen. I mean, Legend Guy's written a number of books in the. I want to say this was the 1970s and then became a book in the 1980s or 90s, and it was called called Winning the Losers Game. And he talks about tennis, and I started playing tennis in my 50s. But he talks about tennis as a very specific type of sport, different than a lot of other sports. Tennis is really two games in one. There's the professional game and the amateur's game. What's the difference? Well, the.01% of people who.0.001% who earn a living playing tennis, the professionals, they win by scoring points. They serve with power and accuracy. They serve aces, they kiss the line, they hit the corner. They use all sorts of fancy spin and drop shots. They put the ball where the opponent isn't. They win scoring points. And. And that sounds kind of obvious. Well, isn't that what you're supposed to do if you're an amateur? That's not how you win in playing tennis. You win by making fewer unforced errors. What do you mean? Well, go to any tennis bubble, any tennis court, anywhere. Watch a bunch of amateurs play. Who wins? The person who doesn't hit it into the net, doesn't double fault on the serve, doesn't hit it long, doesn't hit it wide, doesn't hit it right to their opponent's sweet spot. They just return the ball and get it over the net. They don't try and play outside of their own ability. Right. I'm a car guy. If you ever take a high performance driving class. Well, the dirty little secret is they're really defensive driving classes in disguise with nicer cars on tracks. But everything they teach you is how do you stay within your own ability, your own skill set the performance envelope of the car. So if you set a course record on the straight, straightaway of the course but you're going too fast to make the turn, and you crash into the wall, it doesn't count. You have to be able to start, slow down, and make the turn. So anyone could just put their pedal down and hit a wall. You have to know exactly when to slow down, when to apply the brakes, when to turn. And you know, all these endeavors could be driving, could be playing tennis, could be investing. It's all about staying within your own ability, your own skill set. So what Charlie Ellis taught us is investing is very much like tennis. You're not a professional. You're not on the trading desk at Jane Street. You're not an institutional trader for Goldman Sachs. You don't have that ability, that capital, that technology. Rather than try and play that game, try to play a different game, which is stay within yourself. Make fewer errors, and you'll be much better off. And it turns out that when you start listing the errors that investors make, and a lot of my worst errors are in here. I could have been an angel investor into robinhood or round one. I tripled my money in Apple, left another 10,000% on the table. On and on it goes. Where I started out as a prop trader on a desk. And, you know, the transition to investor was full of fits and starts. And Apple was a perfect example. I had all the brokers in my firm buy it at 15. When the newfangled ipod came out. That's an ipod, not an iPhone. And it went from 15 to 20. And they all sold it. I'm like, I'll teach these guys. I held it to 43. So I like tripled my money. And then it proceeded to split, adjusted. I bought it at like a dollar and a quarter. Now it's 200. So selling it at 40, 45 is like selling it at $3. How is that for a great trade? But there was a reason that was a mistake. And that mistake was I thought I was a trader. Instead of thinking I'm an investor. And I go over all these errors. It's not like if you make these mistakes, you should feel stupid. It's that we're human. We all make these mistakes. None of us were built to engage in risk reward, decision making in capital markets. We were built, we have evolved to adapt on the hostile savannah where everything out there wants to make us their lunch. And why do we engage in so much pattern recognition? Pattern recognition kept. Go back a few hundred generations, kept your great, great, great, great, great ancestors alive. If you jump when you see something in the grass that looks like a snake, and it just turns out to be a vine. Well, no harm, no foul. But if you don't jump when it's actually a poisonous snake, well, you don't get to pass those genes along. You're removed from the gene pool. So it would make sense that something like pattern recognition. And by the way, this is admittedly pop psychology, pop evolutionary history. But as you see in the endless, endless endnotes and footnotes, all of this is based on real academic research, real literature and findings that explain why we make the sort of decisions we do that are bad and what we can do to avoid them.

Yeah, and you talk about some of these traps that we fall into. One of them, I guess, is listening to experts or listening to others or trying to make predictions. And you really start the book right at the beginning, which I think is sort of the theme of. I think there's two themes to the whole book. I'll leave the second one to later. But theme number one that I absolutely love is Nobody knows Anything. That's a big quote and a big focus of your book. Nobody knows anything. You know, and that's like an affront to all experts in every category of the world. So can you explain what that means? And obviously, especially relating to investing. But, you know, I love that quote.

I wrote a Bloomberg column about that in 2014 or 2015, so I named the blog the Big Picture. So I started out on geocities, where you really didn't have a name for a blog. And in 03, when I moved it to TypePad, and then eventually WordPress, you have to come up with a name. And so a friend had given me the book Adventures in the Screen Trade, which is William Goldman's autobiography. And I don't know, like 10 years later, 98, 99, he comes out with a new collection of columns. By the way, Goldman wrote the screenplay to the Princess Bride. He Marathon man wrote that book. He wrote the screenplay, won an Oscar for All the President's Men, wrote the screenplay for Butch Cassidy and the Sundance Kid, another Oscar. He wrote the screenplay for Misery. Kathleen Bates won an Oscar for that. So he's legendary. And in the book, he talks about adventures in the screen trade. He talks about all the studios wanted nothing to do with Star Wars. They passed on Raiders of the Lost Ark like a number of studios passed on ET oh, we have another Alien movie this year. Just on and on. The examples just are endless. And when you think about what a studio executive is doing when they greenlight a film, they're more or less making a guess. What is the audience's taste going to be in five years when I say yes today? All right, now they have to cast the film and they have to get a new screenplay and they have to do location scouting and they have to start shooting and has to go through editing and then it goes into the release list and from today saying yes, we won't see this in theaters for five years. Maybe Netflix can stream it in two years today, but still you're making a guess as to what the audience's taste is going to be. And it turns out that it's a crapshoot. You throw in darts. And I use a number of examples about these so called experts. So Squid Games got turned down for 10 years. The only reason the number one streaming thing by a long shot is Squid Games, the only reason Netflix ended up with it is they were buying South Korean contents by a net full that just happened to be something in there. And right behind you is a picture of the Beatles. My friend Bob Seawright wrote this whole thing about how the Beatles first appearance on the Ed Sullivan show in 1964. I don't know if you were even alive then. I, I don't remember, I was too young. I was not now, I was an infant. But it was wildly panned. You know, no one's going to remember these guys in a few years and besides they'll be bald by then. And you know the reviews of various albums like Revolver and Rubber Soul and the white album and Sgt. Peppers and Abbey Road, there are some career ending terrible reviews. Because the Paul Graham quote I love is all experts are experts in the way the world used to be. And if you stop and think about it, you go to school, you study something. What are you studying? You're not studying the future, it hasn't happened. You're studying what happened in the past. And to assume an expert has expertise is kind of building in the assumption that the future is going to look like the past. It's why every backtest of any new fund portfolio ETF always looks great and why most forward returns underperform. Because inherent in the back test is based on what happened before. Here's what we can expect. Well, should we expect the future to be exactly like the past? It turns out not so much. So wherever you look, I use the example of John Wick is just amazing that that couldn't get made. It's a E of the hottest action star. One of the hottest action stars. He's coming off a speed and the Matrix, giant franchises, everything he touches turns the Gold couldn't get that movie made. It turned out that he helped finance the rest of it, as did Ava Longoria. And it's now a $2 billion franchise. He probably has made more money from. From John Wick than all his other films. I mean, none of this is public, so I'm guessing, but I don't know. But it's possible that he's made more money from John Wick than. Than the rest of his filmography combined. That's just shocking.

Yeah. So nobody knows anything, by the way.

Not that that prevents them from opining as if they do. If you fake it till you make it is really common on Wall street and in the media. And it's catnip to investors, even though history tells us this is a terrible approach.

Yeah. And again, throughout the book, there's a few big phrases that pop out for me. And on that theme of listening to folks, you always. Or you say, you should always ask, what are they selling? So explain. Explain that mode of thinking for investors.

So really very straightforward. When I was young, I'm kind of incredulous. I tend to believe people when they say something. And I used to very much. I had to stop listening to quarterly calls. Cause when the CEO of a company tells me, hey, listen, we had a bad quarter because of this, this, and this, but that's behind us, and we're all set. I would go out and believe it. I would buy the stock, thinking, oh, my God, this is awesome. And a. Everybody's hearing the same call, so there's no information advantage. It's either in the stock or thoroughly discounted by the price already. And then, second, he's selling the company himself. The stock price. It doesn't matter. Are they a fund manager? Are they a CEO? Are they an institutional salesperson? You know, I love the commercial. I think it was by Schwab a couple of years ago, where they're showing a boiler room and a brokerage house boiler room. Here's the stock. Here's the bonus incentive. Anyone who sells a lot of this, where the winner gets a trip to the Bahamas, let's put some lipstick on this pig. And it resonated because it's so true. It's just such an awesome reveal about what's going on. And obviously, Schwab, as a discount broker, it's just right up their alley.

Amazing. I want to hit on a couple things because I actually. I can't believe we're going to run out of time pretty soon here. For investors, you talk a little bit, and you actually Mentioned it at the beginning a little bit. When your colleague or friend said to you, you know, margin on the New York Stock Exchange is high or whatever. When it comes to numbers and the number side of investing, you use this term called denominator blindness. So what do investors have to look out for when someone's quoting numbers to them and what might they be blind to?

Anytime you hear a number, you have to ask yourself, what does this number mean? Is this significant or is this minor? And the media very famously likes to give you the numerate. So any data point is here's the change and here's the whole data set, right? Meaning any example. All right, so you, you bowled 150. 150. Did you bowl 10, 10 frames? That's 150 out of 300. But the example I use in the book is on, hey, do a 10,000 layoffs at Company XYZ, the market dropped 500 points today. All right, what are the 10,000 layoffs? That sounds like a lot. Is it a regional company with 30,000 employees and a third of their workers are getting laid off? That's a giant thing. Is it Walmart with two and a half, 3 million employees, 10,000 workers, that's like one person. Every fifth store, they lose that before 9am every day. Their turnover is immense. So when you have 2,3 million workers, you're constantly replacing people. It's a certain churn when we. We're told the market dropped 500 points. Is it the S&P? 500? That's 8%. That's giant. Is it the Dow? It's. It's 1%. It's just a noisy daily movement. The media is in the. I love asking this question of audiences whenever I speak in front of a group. What does radio and television sell? And the answer almost always comes back advertising. No, you guys have it backwards. Advertise are the buyers. They sell you. They sell your time and attention. Anything you get for free, you are the product. And so when you go to radio, you're not, except for subscription services, you're not paying for it. The advertiser is. They're not the seller, they're the buyer. And what radio is selling to the advertiser is this audience. And so even media has a tendency to become a little more hyperbolic, a little more clickbaity, and that's just traditional mainstream media. And then you start going to substacks and Instagram and LinkedIn and I still call it Twitter X. But Most of all, TikTok, like, these are people you don't know who they are. You don't know what their track record is. But you do know they're fantastic at grabbing attention. And as it turns out, not only is their advice bad, sometimes it's horrific. In fact, TikTok advice about taxes is so wrong that the IRS had a release of 42 point. And I mentioned this in the book a 42 point primer saying, these are all the things we found on TikTok that are wrong. Some of these will cost you some interest, some of these will cost you some penalties. A few of these will get you thrown in jail. Don't get your tax advice from TikTok. Go speak to an accountant. And the same is true when it comes to investing. Speak to somebody who's a fiduciary who's legally obligated to put your best interests ahead of everything else. That's where you get good advice from. You know, I had three rules growing up. You be home for dinner at 6:30 with your hands washed at the table. If you're staying out or staying at a friend, let us know where you'll be. And don't take candy from strangers. I mean, it seems really basic, but that's just the truth. Not taking candy from strangers is exactly what you're doing when you listen to people, hey, what's this person's temperament? What's their track record? Have they seen a few cycles? Have they been a whole lot more right than wrong? Did they just get lucky once? Or are they consistently have a process that's defendable until you know those things, why are you taking candy from strangers? It's really just shocking to me. And yet that's how so many people behave.

Right? Okay, so if nobody knows anything, you can't really trust or listen to what folks are saying online. Again, if no one knows anything, you can't predict the future just based on the past. And so you say in your book, you know, recognizing how little you know is a superpower. And you say the three most important words in investing are I don't know. And both of us are in the business of advising fiduciary as you described it, advising clients. And yet your suggestion is saying I don't know is the most powerful words, which I agree with, by the way. But how do you do that in a world where folks are looking to you and me and us to provide advice and often about the future?

First of all, I never like to give yes, no, up, down date and price forecasts. I would rather say so in the beginning of the year. I'll just explain this evolution. Beginning of the year, I said, hey, the new president is coming in. And as I've said many times before, whether you like the president or dislike him, that's no way to invest. But we have a robust economy. Stocks are making new all time highs, profits continue to grow, and I don't see any signs of a recession. You know, maybe there's, this is a little weak and that's a little weak, a 10 to 20% chance of recession. Then a couple of things happen, like Doge and this and that. And it's like, all right, so again, maybe we've increased the possibility of a recession. I think it's 20%, this guy thinks it's 40%, that guy thinks it's 15%. So the odds of recession tick up. Anytime there's a policy departure or radical change in White House policy, foreign policy, central bank policy, you raise the odds of an unintended consequence happen. Doesn't matter. Republican, Democrat, monetarist, fiscal stimulus, it doesn't matter. All these policies increase the chance that something untoward happens. And then we had liberation day. Hey, I don't know what the ultimate end result of this is going to be, but the odds of a recession just ticked up again and we're still way below 50%. You know, the old joke amongst economists is you always forecast 40% if it happens. You could see, I told you it was almost a 50, 50 chance. And if it doesn't happens, well, it was only 40%. But when I do a quarterly call for clients, it's like 40 charts in 30 minutes. And I say, here's the best case scenario for the tariffs. Here's the worst case scenario. You know, we rarely end up at the extremes. The odds are we're somewhere in the middle. The worst case scenario, the end of Pax Americana. The end of the dollar is reserve currency. Just awful cats and dogs living together, just terrible. And then the upside is, hey, maybe this is just an attempt, but we know China's a bad actor. Maybe there's a chance that we get a better deal with them. And the odds are we're somewhere in the middle. So it's never a recession is about to happen, or rarely, you know, heading into 08, December 08, it's like, hey, this has gone on as long as it can and everything I see is now screaming recession. Brace yourself, this is going to get a lot worse. But that's once in, you know, 20 years I get to say something like that. So now it's like the odds of recession have ticked up. So nobody knows anything. From a forecasting perspective is instead of saying, this is what's going to happen, say, here's the odds of this, here's the odds of that, here's the odds of the other. In terms of investing, well, we know from and again, there's a lot of research and a lot of academic data in the book. We know from Hendrik Bessembinder of Arizona State University, 2% of all stocks are what drives all the returns.

Right.

Most stocks are up a little, down a little flat or crash and burn. I love the chart of showing how few stocks are still in The Dow from 10, 20, 30, 40 years ago. But the odds are that you're gonna to be a stock picker, you have to find the Nvidias, the apples, the Amazons, the Googles, et cetera. And the odds are very much against you finding those and just those. So you can do a negative screen and try and eliminate all the stocks that aren't those, or you could do a positive screen, which was Jack Bogle's insight. Just don't look for a needle in the haystack. Buy the whole haystack. And so really, when you think about it, indexing is a humble admission that I don't know what comes next. I don't know what stocks are going to be the big winners in five years, 10 years. It didn't make it into the book. But my favorite example is the Dow index. The Dow Jones Industrial editors, they added Microsoft and Intel at the same time. Intel was just a disaster and Microsoft was a home run. And, you know, that seems about right because it was 50 50. It's not even as good as a coin toss. In that case, it was a coin toss. And so it's just a reminder of how little anybody knows about these things.

Okay, so we are coming up on time because I know you have to jump shortly. I think what we'll do probably is we'll put links to where people can find you, in particular, your book as well. And there's lots and lots of stories about how not to invest in there. My last question for you then, before we go. This is a Gensler Wealth Unlimited podcast question. You know, our theme here is unlimited. Your Wealth Unlimited, sort of like your firm. You know, we help families with a whole variety of things. Investing. We also have a family office group like you do as well. We'll really, you know, we can look and invest in anything anywhere. And so unlimited is the key word. So I always say to my guests, or ask my guests. The world is unlimited. You could have done anything. You could do anything. You might not be sitting here owning your firm, running your firm and doing everything you do. Anything else in the world you'd be doing if you weren't doing what you're doing now.

I've always been kind of fascinated by astrophysics, and it's really astonishing in my lifetime how much more we understand about the universe than we did previously. And a buddy just bought one and it's shocking how cheap the technology has become. For about 5, 500 bucks, you can buy one of these deep field space telescopes. They're about this big, they're digital, you don't look through them. It takes photos over the course of a night and it automatically adjusts for the rotation of the earth. And the sort of pictures you get from this for 500 bucks 20 years ago required, you know, a 50 million or maybe a hundred million dollar giant telescope. And it's just amazing. So I don't have the physics chops to be in astrophysics. I know just enough to follow the latest and greatest information, but it's endlessly fascinating, I think. I don't know if that ever would have been a career for me, but it's certainly something I'm really intrigued by.

Amazing. Okay, well, you're helping to talk about unlimited.

Just the universe, right?

Just the universe. Well, look, you're aligning the stars for investors and others with the work you do. Anyways, so you're an astro investor. I guess. I don't know. Look, Barry, thank you so much for your time for willing to do this.

My pleasure. I told you, I spent the first year begging people to come on, so I feel obligated to pay it forward.

Amazing. All right, sir, well, look, thanks, all the best. And look forward to bumping into you at the next conference. Maybe in Miami if you're going to be there.

That's right. March. Absolutely.

Okay, thank you.

My pleasure.

The Unlimited podcast is hosted and produced by Brian Gensler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on social media@dimslerwealth.com thanks for listening and see you next time.