Breaking the Biggest Wealth-Destroying Habits

**Rebecca Chu-Kwan** (0:07)
The biggest driver of long-term wealth is often avoiding self-destructive behavior. And many times what investors should not do flies in the face of conventional wisdom. Welcome to Season 2 of Better Vantage by Vanguard, a podcast series hosted by custom content from WSJ and Vanguard.
I'm Rebecca Chu-Kwan from Vanguard's Investment Strategy Group. I'm filling in for Christine Kashkari of Custom Content from WSJ.
Today we are joined by Barry Ritholtz, co-founder and CIO of Ritholtz Wealth Management and host of the Masters in Business podcast. He's also the author of the book How Not to Invest, the ideas, numbers and behaviors that destroy wealth and how to avoid them. In part two of our conversation with Barry, we're going to discuss how advisors and investors can avoid self-destructive behavior. And if you missed it, be sure to check out part one of our conversation with Barry on some of the most common investor mistakes.

**SPEAKER_2** (0:59)
If I'm a listener saying, okay, Barry, I hear you, I want to get better, I know that I've made mistakes. So I'm asking this even personally. I've made mistakes in my portfolio, sometimes overconfidence, sometimes being too timid. What would you do then to say to get better in those driving skills?

**Barry Ritholtz** (1:14)
So first of all, read, read, read is a good start and there are plenty of books out there.
I said, there's tens of thousands of books and most people are mediocre investors. There's a dozen classics and we all know their names, but there are several books outside of finance that are about psychology. And when you realize your own limitations, when you figure out, hey, if I'm reacting emotionally to all this news flow, that's not going to have a good outcome in my portfolio. Warren Buffett said, hey, if you have 150 IQ points, you'd be better off selling 30 to someone else. You don't need more than 120 What you really need is the ability to control yourself to be disciplined. It's not just the smartest person wins, it's the person who's in most control of their reactions to all this firehose of input.
There was a shocking piece during the, I don't remember if it was the pandemic or 2022, about a young investor who said, you know, I'm just going to take a third of my portfolio off the table because I'm concerned about this. And my answer was, you're 30 years old. You have three or four decades before. Do you really think in 2060, what you did with your portfolio in terms of reducing your growth portion is going to be the right outcome? You have to think in terms of decades, not hours or days.

**Rebecca Chu-Kwan** (2:52)
And it's the same thing with timing the broad market. You have to be right twice when you get in and when you get out. And then too often, investors are wrong on both sides.

**Barry Ritholtz** (2:58)
So, you know, it's funny because the easier thing to do, and I have to caveat this up, the easier entry point or exit point to see is the bottom, because bottoms are these big event. Tops are a long process. Like, people gradually, all right, I have enough equities. They start throttling back, and other than the 401K, like, their enthusiasm slowly fades. But bottoms, capitulatory events, and the word capitulation literally means surrender, they're easy to see. However, every instinct in your body is telling you to run away, because we are very social species. We are primates, part of a tribe. In the book, I describe us as we have neither fang, nor claws, nor armor, we're soft, chewy, and delicious. And the only way the species was able to sustain and develop was cooperative. That long evolutionary bit of cooperation means that when everybody is doing one thing, you know, fear of missing out isn't just to the upside. Hey, I don't know what the hell is going on, but everybody is getting out of the market.
I'm not going to be the last idiot. I'm not going to be the gazelle that gets separated from the herd. So, every essence of your being wants to sell at the bottom. So even if you can see it, it is so hard to stick with it. And I've had conversations with people, hey, if you really think you want to buy Voo or VTI at the bottom, put in a good till cancel order, down 30% from here. I can't tell you how many people I have spoken to and said, oh, we were down 34% in the pandemic. You must have got filled.
Long pause. Yeah, I canceled that right before.

**Rebecca Chu-Kwan** (5:04)