Barry Ritholtz Shares Strategies for Smarter Investing

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Barry Ritholtz is the chairman and chief investment officer of Ritholtz Wealth Management, creator of The Big Picture blog and host of the Masters in Business podcast. His new book is How Not to Invest: The Ideas, Numbers, and Behaviors that Destroy Wealth – and How to Avoid Them(Harriman House, 2025).

Read on as we ask Ritholtz about the bad information we all should be watching out for, his take on active management vs stock picking, and unforced errors in investing.

In your book you list a host of sources of bad ideas, including experts, forecasters, Wall Street strategists, analysts and the media. What should investors watch out for? It all comes back to the advice your mom gave you: Don’t take candy from strangers. You don’t know who they are, what their motivation is or what’s in the candy.

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Who’s the stranger on TV telling you what to do with your money? And it’s not just the media, it’s pundits, fund managers, forecasters – everybody is selling something. None of them know who you are, what your tax bracket is, how much money you’ve saved.

If they don’t know any of those things about you, why would you imagine their advice is good for you? It fits everybody, therefore it fits nobody.

There’s a firehose of nonsense out there, especially on algorithmic social media. Why would you take candy from those strangers?

You note that some of the ways numbers are used in the investing world can be misleading. How can investors ensure they don’t suffer from what you call investing or economic innumeracy (a lack of understanding about numerical concepts)? I wanted to show how easy it is for people to use numbers to deceive us.

An example is denominator blindness. A fraction has a top number and a bottom number. Think of it as a percentage. The top number is the thing that changed, the bottom number is the data set.

When you see news that the market dropped 500 points, or that company XYZ laid off 10,000 people, you need some context to understand what that means.

Is that 500 points on the Dow Jones Industrial Average? That’s a fraction of a percent, a rounding error. Or is it the S&P 500? That’s an 8% drop.

When you see a headline that a company has laid off 5,000 to 10,000 people, if it’s a 20,000-person company, that’s giant. If it’s Walmart (WMT) , that’s meaningless; that’s just normal churn. Understand the frame of reference.

Anytime you see an outrageous number, without context, it’s usually a sign that someone’s trying to put one over on you.

Every year around Christmas, the Home Alone meme resurfaces, and it’s incredibly misleading.

If you remember the 1990 movie, Kevin McCallister goes to the supermarket and buys a bag of groceries for $19. That same bag of groceries in 2025 is $72. Look how much the value of the dollar has fallen!

But how much has the median wage gone up? More than the median cost of groceries – in other words, that bag of groceries in 2025 costs less than it did in 1990. The Home Alone meme sharers don’t understand the simple power of compounding.

The dollar is not supposed to be a storehouse of value; you want to get dollars out of your hands as fast as possible. Their value comes when they’re in motion – investing in your 401(k), your business, yourself, your education, your life experience.

You’re a big fan of indexing. Should investors also incorporate active management or stock picking into their portfolios? More than half of fund managers underperform their benchmark. Take that out to 20 years, and the vast majority of fund managers, net of fees and taxes, don’t earn their keep. Before you go chasing outperformance, make sure you’re at least getting market performance.

Start with a core of a broad index fund. Then, if 50%, 60%, 70% of your portfolio is in a broad index fund and you want to try a bit of active management, have at it. Whatever your particular preference is – momentum investing, Japan, India, small-cap value – there’s a fund for that.

Think of the core as chicken stock. If you want to chop up some vegetables and throw in some seasoning, great. The most important thing is not to interfere with the market’s genius ability to compound returns over time. Try not to interrupt it by chasing the shiny new object.

Not only does the average investor underperform the market, they underperform their own investments.

That sounds impossible until you realize that it just means that people are buying high and selling low, even in their favorite funds. The biggest problem is investors’ own behavior, not their fund selection.

Our investment success depends on how we respond to challenges and opportunities in the market, and you quote Marcus Aurelius to make the point that this is something we can control – at least somewhat.

Can you say more? The vast majority of what you see on TV, in newspapers or on social media is completely out of your control. Who’s elected, Fed rate cuts – you can’t control that. What’s going to happen in the Middle East – completely outside your control. Unemployment, inflation, corporate earnings.

What’s in your control? A lot. How much time you spend doomscrolling online. Your asset allocation. How your portfolio is set up. (Too much risk? Not enough?) How often you harvest tax losses. How often you rebalance. All of that is in your control.

You’d be shocked at how many people don’t even have a financial plan. Are you maxing out your 401(k), or at least contributing enough to get an employer match? If not, what part of free money do you not like? Think about what you’re saving, and stop spending mental energy on things wholly out of your control.

You talk a lot about unforced errors in investing. What are the big ones? Imagining we can do the things that history, academic studies and data tell us we’re not good at: market timing, stock selection, manager selection.

We think that public information can somehow give us an edge. In reality, if you read it in mass media, it’s already in the stock or fund price.

We’re unaware of costs. We’re too active. We’re unaware of taxes. We all tend to get suckered into pitches for high returns.

Mixing politics with investing is another bad thing we do. Most importantly, I think you have to be humble and recognize that investing is hard and nobody knows the future.

Fortunately, your book ends with a section on how to avoid bad ideas, misleading numbers and poor behavior to achieve better outcomes. What are some of the most important steps? First, you’ve gotta have a plan. People spend more time planning a vacation or shopping for a fridge than planning for their futures.

Make sure that if you’re going to work with someone, they are a fiduciary, legally required to put your needs first.

Invest in a core index fund around which you build everything else. Start with getting what the market gives you, then worry about trying to beat the market.

This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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