Barry Ritholtz’s 12 Investing Tips

hank

Probably linked before. Worth a look as the year winds down.

LINK to Full Article

Summary -

1. Hold onto your winners and cut your losses short.

2. Avoid making predictions and forecasts.

3. Study crowd behavior.

4. Think like a contrarian.

5. Asset allocation is critical.

6. Indexing is a better bet..

7. Avoid cognitive and psychological errors.

8. Admit your mistakes.

9. Understand financial cycles.

10. Don’t settle in a comfort zone.

11. Reduce investing friction.

12. Remember that there is no free lunch.

Crash

Uncle Barry KNOWS. Thanks, @hank.

davidrmoran

article smarter than the tips summary (naturally)

bee

thanks @hank

I will reread and try to remember:

Investors who understand the behavior of crowds have an enormous advantage over those who don’t. Investing often involves figuring out where the crowd is going, even if it’s objectively ”wrong.” "Investing isn’t necessarily a process of picking the best asset class, sector or stock, but rather, selecting what the crowd is buying. Investors
sometimes forget that, most of the time, the crowd is the market. The psychology of crowd behavior is such that higher prices attract more buyers — and losses is even stronger," he says

and,

Ritholtz believes the crowd can be overly emotional, fickle or even irrational at times. So investors should be contrarian and learn to recognise when a crowd can turn into an undisciplined mob. When that happens, it’s time to stop betting with the herd, and start betting against the crowd.

bee

Barry discusses his investing mistakes:

ritholtz.com/my-annual-mea-culpas/

davidrmoran

Haha, that sure does cover it

hank

davidrmoran said:

article smarter than the tips summary (naturally)

LOL - For sure. I listed his ideas outside the article to make discussing particular points possible (by number) if folks care to. Personally, I manage to break quite a few of those - but always striving to correct the errors of my ways …

A lot of our discussions involve projections /outlooks / predictions of one sort or another. Guilty as charged!

davidrmoran

but so entirely, entirely fatuous ... avoid errors, understand cycles, admit mistakes

even the explanation of 'go with the crowd until you can recognize when not to' --- that one made me (literally) laugh out loud, as the abbreviation goes

hank

I don’t think @davidmoran likes the post. No problem. I agree Ritholtz’s “tips” are overly simplistic. Probably intended for a less educated and sophisticated audience than here. And I personally agree with some and disagree with others of his ideas.

Agree: Consider crowd behavior when making investments. Just because a fund or asset has appreciated rapidly isn’t in itself a reason to jump on the bandwagon. Consider the “crowd” (hot money) effect that might be in play before investing.

Agree Reduce investing friction.. Here, he’s talking about expenses. Yes, I’ve been making a conscious effort to move to ETFs having lower fees than some of the funds I previously owned.

Disagree : Avoid making predictions and forecasts. I can’t help myself from doing this, While I don’t go “all in” or “all out” on an investment based on prediction, I do try to “tilt” one way or another based on what I think is coming down the road. I’m currently cautious about the coming year. I’m guessing the Fed will have to back down somewhat on their path toward rate hikes due to market turmoil. Just a guess. Probably wrong.

Not sure: Hold on to your winners and cut your losses short. I see this working for many others. He’s right in a sense. Yet, I do find myself bailing early from winning positions and “locking in” gains. To be honest, the habit has not served me well. I’d be wealthier if I’d let more of the winners run longer.

Gosh. Fatuous is pretty harsh. Rather than take offense, I’m inclined to defer to the wisdom the longtime host of PBS’s Prairie Home Companion, Garrison Keillor.

“Whatever Floats Your Boat”

davidrmoran

>> Probably intended for a less educated and sophisticated audience than here.

no, just the uselessness

>> Consider crowd behavior when making investments.

what does that even mean ? your explanation is no help in practice.

it's all the worse for the less educated and less sophisticated

Level5

“ The best investors generate long-term returns by making rational, unemotional decisions, Ritholtz points out. Also, they do their homework, spend time and effort learning the basics as they are unemotional, intelligent and patient.”

Don’t know if there is such a place. I have found, and not just in investing, that I am often seduced to make decisions on emotion, and, when aware of it, rely on justifying or short circuiting them with logic. My heart goes one way, my head another. When they line up, boom! I’m a happy guy.

hank

@bee - Thanks for linking the list of Barry’s mistakes. Nice to see that 2016 was “apparently without any flaws”. I thought it interesting that he makes a big deal about his errant call on BREXIT and related matters. Kind of runs contrary to his stated aversion (Item #2) to making predictions.

I could write a book about all the things I’ve got wrong. Nearly killed the goose with an ill-advised bet on an Oppenheimer commodities fund couple decades ago. And, like some others here, I invested in HSGFX in its early years. Abandoned that one before too much damage was done. Just 2 of many missteps over a 50+ year investing history.
-

PS - I think the hardest lesson for me to learn is not to “double down” on a failing investment. Often that simply compounds the problem. A one-way street!

carew388

+1 hank Currently, I'm averaging down on my ASML purchase at Fidelity. Fortunately, Fido allows purchase of fractional shares, so my total investment is only at $2,000 now, or about 2-3 shares !