The Costliest Mistakes Even Experienced Investors Make

**Rebecca Chu-Kwan** (0:07)
Most investing advice focuses on what to do, but the biggest drag on returns is often self-inflicted. From chasing performance to overconfidence, misguided investor behavior can destroy long-term wealth. 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. With me is my co-host, Joe Davis, Global Chief Economist at Vanguard. And 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 one of our conversation with Barry, we're going to dig into the root causes of investor misbehavior. Barry, thanks for joining us.

**Barry Ritholtz** (1:03)
Well, thank you, Rebecca and Joe, for having me.

**Joe Davis** (1:05)
So if you're a professional investor, Rebecca, as you know, Barry, you've become a household name. I don't want to embarrass you, but I'm really excited today of like, how do we go from being good investors to great investors, right? We may be doing the basics, important basics, saving, trying to keep costs down, but how do I get to the next level? So Barry, really, thanks for taking time.

**Barry Ritholtz** (1:25)
My pleasure, and I'll just throw out the first step to becoming a great investor is don't be a bad investor, right? You got to at least start with decent, you know, it's the old Jack Bogle argument, you'll never get alpha if you're not at least getting beta. You're not going to beat the market if you don't at least start with what the market is giving you.

**Rebecca Chu-Kwan** (1:46)
Well, most investment books tell you what exactly you should do, but you took a very different tact and you were focused on basically why very smart people make some dumb mistakes. Why did you do that?

**Barry Ritholtz** (1:55)
Bailout Nation came out in 2009 about the financial crisis and I had a bunch of publishers chasing me to write another book.
Every time I sat down to think about a book, you look at the thousands and thousands of finance and investing books that are published every year, literally hundreds of thousands over the past century. So I kept saying, we don't need another book telling people what to do, there are plenty. Then during the pandemic, all right, I have all this extra time, I'm working from home five days a week, and I started putting ideas up on a big bulletin board. Eventually, it's kind of the light went off. Oh, I don't want to tell people what to do, too much of that. How about let's stop shooting ourselves in the foot, let's stop making all of these unforced errors. If you avoid all of these mistakes, you're better off than 95% of your peers.

**Joe Davis** (2:56)
So let's go there, Barry. I think in your book, you talk of that early on, you have sections on bad ideas, bad numbers, bad behavior. So what are some of the things that rise to the occasion? If I'm an athlete, what are the penalties that I'm making, right? That sets my portfolio back.

**Barry Ritholtz** (3:12)
The genesis of this came from having read a quote by Charlie Allison, Charlie Munger on the same day.
Someone asked Munger if, hey, has Berkshire Hathaway been so successful because you and Warren are so much smarter than everybody else? And Munger's answer was, we're not smarter than everybody else. We're just less stupid. And that phrase kind of stayed with me. The odds are very much against. You're not going to be the next Warren Buffett or Peter Lynch as a stock picker. You're not going to be a market timer. You're not going to be able to rotate sectors. And so the parallels became really clear what are the big mistakes we all make? How do we avoid them? And that was the genesis of the book.

**Rebecca Chu-Kwan** (3:53)
Well, some of us know that we don't know enough to be the next Charlie Munger. But then we listen to experts who tell us how we should invest. But you say there's a flaw in that approach as well.

**Barry Ritholtz** (4:03)
So I don't say we should completely ignore people who have insight and an opinion. My advice from the book is you have to be really selective. Just because some 24-year-old French literature producer booked this guest on TV, doesn't mean that they're speaking the biblical truth. They're out selling something. That's the next step to ask yourself, what is this person selling and is this something I need to buy?