Ritholtz on the Challenges of Active Investing

In a Bloomberg article from earlier this month, columnist Barry Ritholtz outlines some of the benefits and challenges inherent in active investing. He cites the following “desirable goals” and some corresponding impediments to those goals: Alpha: outperformance versus a benchmark. “Of all the reasons to be an active investor,” writes Ritholtz, “alpha may be the most difficult to achieve.” He underscores the significant hurdle that both fund managers and individual investors face when attempting to choose benchmark-beating stocks. Expressive: investing toward a specific goal. An “unstated” desire of many investors is to “use their capital as an expression of their […]

Barry Ritholtz: Market Performance Isn’t Due to President

In a recent Bloomberg article, the co-founder and chief investment officer of Ritholtz Wealth Management debunks the notion that the stock market’s record performance is tied to hopes around the president’s policy agenda. Ritholtz argues, “First, there is the tendency of the markets to ignore the dysfunction in Washington—as they have for most of the past decade. If the markets are really rallying on expectations of good things from the government, then the inability to get anything done in the past few years should have thrown them into reverse.” He goes on to explain some other human brain tendencies, including […]

Finding Your Edge a Key to Investing Success

By John P. Reese The mathematician Ed Thorp figured out how to beat Las Vegas casinos at blackjack and baccarat and they didn’t like it. But the MIT and University of California Irvine professor didn’t get discouraged. He applied those same mathematical principles to the markets, and also won. Mr. Thorp knows that good ideas have limited runs. As more investors pile into a winning trade, the returns start to diminish and the idea can no longer outperform the market. During a recent Bloomberg interview with Barry Ritholtz, Mr. Thorp discusses this phenomenon in the context of Berkshire Hathaway, whose […]

Ritholtz Says Stock-Picking is Still Alive if Not Kicking

Active fund management has been losing followers but isn’t going away entirely, writes Barry Ritholtz in a recent Bloomberg article. While stock-picking has seen a host of changes, he offers several insights as to “how we got here” including the following: Beating the market is tougher than most people thought, a notion that Ritholtz says has become “widely accepted among both professional investors and individuals.” We have a much greater understanding of investor psychology, and this “makes the case for low-cost index investing even more compelling.” Quantitative studies, writes Ritholtz, suggest that much of active investing performance is attributable to […]

Barry Ritholtz on Bulls and Bears

Understanding how old a bull market is may very likely affect your expectations of future returns as well as your investment allocations and risk appetite, writes Bloomberg columnist Barry Ritholtz. With regard to what many are calling an eight-year-old bull market, Ritholtz argues, “Rather than saying that the bull market is celebrating its eighth birthday, what we really are observing is the eighth anniversary of bear-market lows.” The difference is in the details, says the head of Ritholtz Wealth Management. He explains his view that a bull market begins when “indexes surpass earlier highs,” not simply when it rises from […]

Ritholtz on the Foibles of Forecasting

Barry Ritholtz, columnist and founder of Ritholtz Wealth Management, offers insights on the “problems and investing risks of forecasting” in a recent Bloomberg View. He explains that, because people dislike uncertainty so much, they tend to believe in predictions to create an “illusion of control and stability, where often there is none. Order is created out of chaos; it is a comforting illusion.” For investors, Ritholtz points out that “one of the biggest risks is the unfortunate tendency to stay wedded to predictions.” He uses the example of a bullish or bearish investor who, instead of admitting an error when […]

Ritholtz Warns Against Buying Based on Media “Nice Lists”

Be wary of the media-hype around the “best stocks to own in 2017” says columnist Barry Ritholz, CIO of Ritholz Wealth Management, in a recent Washington Post article. The lists, Ritholz argues, “look slick and professional; they seem to be expertly assembled” with both high-profile and more obscure names. He explains, however, that after taking three of the “top ten” lists gathered from a simple Google search and checking on their performance over the past year, he found their performance to be “for the most part, pretty mediocre.” Most lists, in fact, tend to underperform the benchmark, he says, offering […]

Ritholtz on Hindsight Bias

“Everyone knew Trump would win all along,” writes Barry Ritholtz in last week’s BloombergView, arguing that such hindsight bias “haunts investors constantly.” Specifically, he explains, the human brain creates “stories after the fact to conform with what we now know.” Ritholtz uses the examples of; (1) the financial crisis, and how many people claimed (after the fact) to have seen it coming, and (2) the throngs of folks who say they predicted the success of Amazon, Google, Facebook and Apple. “These folks are fooling themselves,” says Ritholtz. Why? He explains that the brain is wired to “make sense of a […]

Billionaire Advice Might Not Fit the Bill for All

Another round of advice on sticking to an investment plan might sound like our needle is stuck, but this time we’re coming at it from a slightly different angle. Bloomberg View columnist Barry Ritholtz shares perspective on comments made earlier this month by Convergex chief strategist Nick Colas. The gist of Colas’ view was that investors should heed the advice of billionaire investors such as George Soros, Jeff Gundlach and Bill Gross, all of whom seem to agree that that stock market isn’t the place to be right now. But according to Ritholtz, the problem with following the lead of […]

Remember Ritholtz’s Advice During Next Market Sell-Off

“Something bad happens somewhere, and markets are unhinged. Once the noise subsides and the markets settles down, everyone wonders what the heck just happened,” writes Barry Ritholtz, chief investment officer of Ritholtz Wealth Management and columnist for The Washington Post. He references the Brexit vote and why it, or other macro events, shouldn’t affect your investment plan. Ritholtz points out that “markets have on average swung 2 percent up or down once every 11 days since the year 2000”. Therefore, he asserts, the volatility in the wake of the Brexit vote should have come as no surprise. The columnist outlines […]

What Investors Can Learn From Baseball Great Ted Williams

“Hall of Famer Ted Williams approached batting not as something done on instinct, but rather as a methodical, evidence-based process,” says BloombergView columnist and founder of Ritholtz Wealth Management, Barry Ritholtz. Ritholtz recalled that Warren Buffett had recommended Williams’ book, “The Science of Hitting,” in the context of making better decisions. He writes that “Williams emphasized research, evaluated data and created specific rules for batting,” and that he “thought deeply about probability, made discipline a key part of the process and analyzed the strike zone mathematically.” Ritholtz then compares Williams’ quant-like approach with “the way in which many investors think […]

Lessons from Granville’s Error and the Risks of Market Timing

Barry Ritholtz, founder of Ritholtz Wealth Management and columnist for Bloomberg, briefly recounts the story of Joseph Granville to convey the risk of “1) try[ing] to time markets; 2) tak[ing] ourselves too seriously; and 3) refus[ing] to acknowledge our fallibility.” Granville rose to prominence in the 1970s and had a series of prescient calls by 1981, when 16,000 people were paying to subscribe to his advice and the Wall Street Journal described his newsletter as market-moving. On January 7, 1981, Granville told clients to “sell everything,” causing a 2.4% drop in the Dow Jones Industrial average on record volume. 1981 […]

A Flat 2015 is Not Predictive of Coming Bear or Bull Market

Barry Ritholtz, Bloomberg columnist and founder of Ritholtz Wealth Management, points out that 2015 has been essentially flat and, looking to history, concludes: “by itself, a flat market does not tell us very much of anything about the following years’ subsequent returns.” He notes that two opposing views are common in predicting markets after flat returns, one bearish (“flattening indicates that markets are setting up for a major correction or worse”) and the other bullish (“a sideways year is a ‘pause and refresh’”). He observes that either can seem compelling “depending on the subconscious bias you may be seeking to […]

Four Ways Barry Ritholtz Says Amateur Investor’s Can Jiujitsu Professional Investors

Earlier this month, Barry Ritholtz of Ritholtz Wealth Management suggested in his Washington Post column that amateurs may be able to beat professional investors. Countering Charles Ellis’ suggestion that amateur investors are seriously disadvantaged as amateur football players would be against the pros, Ritholz opines that amateur investors “have enormous advantages of their own.”  He says investors “can jiujitsu . . . benchmarks, costs and fees, size, and career risk” that restrict professional investors and, thereby, achieve better results on their own. Each point is highlighted below. Benchmarks:  Ritholtz notes that comparisons to benchmarks, as well as related marketing considerations, […]