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Bloomberg At the Money: Career Changes with Bill Bernstein
Bloomberg At the Money: Career Changes with Bill Bernstein

Bloomberg

time07-05-2025

  • Business
  • Bloomberg

Bloomberg At the Money: Career Changes with Bill Bernstein

What does it take to undertake a significant career change? How can you shift from a safe but unsatisfying job into one that you love? William Bernstein, founder of Efficient Frontier Advisors, is both a neurologist and a professional investor. He is also the author of numerous books on investing and economic history, including 'The Four Pillars of Investing' and 'The Delusions of Crowds.' Each week, 'At the Money' discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work.

How investors can trick their 'big dumb lizard brain'
How investors can trick their 'big dumb lizard brain'

Yahoo

time30-03-2025

  • Business
  • Yahoo

How investors can trick their 'big dumb lizard brain'

A version of this post first appeared on Something I love about Barry Ritholtz's writing is how he often surprises you with unexpected insights. Sure, he advances well-known — but still underappreciated — wisdom like how index fund investing is hard to beat and why making short-term market forecasts is futile. But he offers much more than that. Take this excerpt on psychology from his new book, "How Not To Invest," which he shared in a recent piece for Bloomberg:Nobel laureate Paul Samuelson once said, "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." While the dopamine hit that comes from a risky stock bet paying off may be enjoyable, passive management is the better option for most investors looking to grow long-term wealth. The catch is that you must take steps to protect yourself from, well, yourself. To do so, set up a "mad-money account" — or a cowboy account, as it's sometimes called. Add less than 5% of your liquid capital, so maybe $5,000 if you're liquid enough to have $100,000 as a safety net. Now you can indulge your inner hedge fund manager without jeopardizing anything too material. If it works out, you're more likely to let those winners run because it's for fun and not your real money. If it's a debacle, appreciate the terrific lesson that should remind you that this is not your forte. In his book, Barry shares a little more on what he personally does: In my cowboy account, using 2% of my liquid net worth, I play the dumbest game possible: Market timing with out-of-the-money stock option calls… He discusses specific trades he's made. I'll let you buy the book if you really want the details. Here's his bottom line. Regardless of the results, it allows my inner junkie to leave my main portfolio alone. That is the true value of the cowboy account — my real money remains unmolested by me and my big dumb lizard brain. Like most of us, Barry is not a machine. He is a human with a brain. And when your brain is mismanaged, it can be your worst enemy. The idea of having a "cowboy account" is not without its issues. Some of you might say it could be a slippery slope towards costlier risk taking. This advice certainly isn't for everybody. But let's also not pretend like living in denial of your instincts and biases isn't risky either. As TKer subscribers know, my investing mostly consists of buying and holding passively managed index funds. But while I may have lost my taste for picking stocks and timing the market a long time ago, I haven't lost my appetite for risk. Personally, I've taken Samuelson's advice much more literally. Occasionally, I like to play craps live in a casino. That's the game where you often hear crowds of people cheer loudly as they engage in the mania of a "hot" table. I won't get into too much detail, but it's a game where I can lose enough that it's memorably painful but not so much that it's material to my finances. Importantly, it satiates my risk appetite, and it gives me renewed appreciation for my financial plan at relatively low cost. In some ways, investing is like dieting: For many people, attempting to cut out junk food entirely just doesn't work. If you want to learn more about how real people can better navigate the treacherous world of investing, buy Barry's book. He's got real world solutions for your real world challenges. Read more: Barry Ritholtz explains how not to make stupid investing mistakes I was shocked and humbled to learn that Barry mentioned me in "How NOT To Invest." I've been reading his blogs since before the financial crisis. He's had a huge impact on how I think and write about markets. If you like TKer, then you'll love Barry's writing. Catch up on his views by reading his book! I was on podcast on Thursday with Andrew Beer of Dynamic Beta Investments, the legendary Josh Brown, and the brilliant Michael Batnick. We covered a lot. Trump trade policy, stock market sentiment, credit, hedge funds, diversification, and more! Listen on Apple Podcasts, Spotify, YouTube, and beyond! There were several notable data points and macroeconomic developments since our last review: 🛍️ Consumer spending ticks up. According to BEA data, personal consumption expenditures increased 0.4% month over month in February to an annual rate of $20.4 trillion. (Source: BEA via FRED) Adjusted for inflation, real personal consumption expenditures increased by 0.1%. (Source: BEA via FRED) For more on consumer spending, read: 🛍️ and 📉 🎈 Inflation heats up. The personal consumption expenditures (PCE) price index in February was up 2.5% from a year ago. The core PCE price index — the Federal Reserve's preferred measure of inflation — was up 2.8% during the month, up from January's 2.7% rate. While it's above the Fed's 2% target, it remains near its lowest level since March 2021. (Source: BEA via FRED) On a month over month basis, the core PCE price index was up 0.38%. If you annualized the rolling three-month and six-month figures, the core PCE price index was up 3.5% and 3.1%, respectively. (Source: Nick Timiraos) The recent uptick in inflation rates is an unwelcome development, especially as other economic trend cool. For more on inflation and the outlook for monetary policy, read: ✂️ and 🧐 💼 Unemployment claims tick lower. Initial claims for unemployment benefits declined to 224,000 during the week ending March 22, down from 225,000 the week prior. This metric continues to be at levels historically associated with economic growth. (Source: DoL via FRED) For more context, read: 🏛️ and 💼 👎 Consumer vibes deteriorate. From the University of Michigan's March Surveys of Consumers: "Consumer sentiment confirmed its early month reading and fell for the third straight month, plummeting 12% from February. The expectations index plunged a precipitous 18% and has now lost more than 30% since November 2024. This month's decline reflects a clear consensus across all demographic and political affiliations; Republicans joined independents and Democrats in expressing worsening expectations since February for their personal finances, business conditions, unemployment, and inflation. Consumers continue to worry about the potential for pain amid ongoing economic policy developments. Notably, two-thirds of consumers expect unemployment to rise in the year ahead, the highest reading since 2009. This trend reveals a key vulnerability for consumers, given that strong labor markets and incomes have been the primary source of strength supporting consumer spending in recent years." The Conference Board's Consumer Confidence Index ticked lower in March. From the firm's Stephanie Guichard: "Of the Index's five components, only consumers' assessment of present labor market conditions improved, albeit slightly. Views of current business conditions weakened to close to neutral. Consumers' expectations were especially gloomy, with pessimism about future business conditions deepening and confidence about future employment prospects falling to a 12-year low. Meanwhile, consumers' optimism about future income—which had held up quite strongly in the past few months—largely vanished, suggesting worries about the economy and labor market have started to spread into consumers' assessments of their personal situations." Relatively weak consumer sentiment readings appear to contradict resilient consumer spending data. For more on this contradiction, read: 🙊 and 🛫 👍 Consumers feel a little better about the labor market. From The Conference Board's March Consumer Confidence survey: "Consumers' views of the labor market improved slightly in March. 33.6% of consumers said jobs were 'plentiful,' unchanged from February. 15.7% of consumers said jobs were 'hard to get,' down from 16.0%." Many economists monitor the spread between these two percentages (a.k.a., the labor market differential), and it's generally been reflecting a cooling labor market. (Source: Nick Timiraos) For more on the labor market, read: 💼 💳 Card spending data is holding up. From JPMorgan: "As of 18 Mar 2025, our Chase Consumer Card spending data (unadjusted) was 1.8% above the same day last year. Based on the Chase Consumer Card data through 18 Mar 2025, our estimate of the US Census March control measure of retail sales m/m is 0.46%." (Source: JPMorgan) From BofA: "Total card spending per HH was up 1.5% y/y in the week ending Mar 22, according to BAC aggregated credit & debit card data. Entertainment spending growth has been weak since late Feb. The recent partial recovery has been led by the Midwest & South. Total card spending growth in the DC area remains weaker than the rest of the country, likely due to the impact of DOGE cuts." (Source: BofA) For more on the consumer, read: 🛍️ ⛽️ Gas prices tick higher. From AAA: "With Spring Break in full swing, drivers are paying more at the pump compared to last week. The national average for a gallon of gas went up 3 cents since last Thursday to $3.15. Gas prices typically start going up this time of year and peak during summer. But the national average is still about 40 cents lower than last year, due to tepid gasoline demand and weak crude oil prices. " (Source: AAA) For more on energy prices, read: 🛢️ 🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.65% from 6.67% last week. From Freddie Mac: "The 30-year fixed-rate mortgage ticked down by two basis points this week. Recent mortgage rate stability continues to benefit potential buyers this spring, as reflected in the uptick in purchase applications." There are 147 million housing units in the U.S., of which 86.6 million are owner-occupied and 34 million (or nearly 40%) of which are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates. For more on mortgages and home prices, read: 😖 🏠 Home prices rise. According to the S&P CoreLogic Case-Shiller index, home prices rose 0.6% month-over-month in January. From S&P Dow Jones Indices' Nicholas Godec: "Rising mortgage rates throughout the year elevated monthly payment burdens, which, combined with already high home prices, pushed affordability to multi-decade lows in many regions. This likely contributed to subdued activity in the back half of the year, with both buyers and sellers exercising caution. Inventory constraints also remain a challenge, particularly in legacy metro areas, where limited new construction continues to restrict supply." 🏘️ New home sales rise. Sales of newly built homes increased 1.8% in February to an annualized rate of 676,000 units. (Source: Census) 🏢 Offices remain relatively empty. From Kastle Systems: "Peak day office occupancy was 63.1% on Tuesday last week, up two tenths of a point from the previous week. In Austin, the South by Southwest conference and festival led to lower daily occupancy nearly every day. And in Houston, CERAWeek 2025 resulted in significantly lower occupancy last Thursday and Friday before rebounding after the conference, peaking at 71.2% on Tuesday. The 10-city average low was on Friday at 34.3%, down 2.1 points from last week." (Source: Kastle) For more on office occupancy, read: 🏢 🏭 Business investment activity ticks lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — declined 0.3% to $74.99 billion in February. (Source: Census via FRED) Core capex orders are a leading indicator, meaning they foretell economic activity down the road. The growth rate had leveled off a bit, but they've perked up in recent months. For more on core capex, read: ↯ and 📉 👍 Activity survey signals growth. From S&P Global's March Flash U.S. PMI: "A welcome upturn in service sector activity in March has helped propel stronger economic growth at the end of the first quarter. However, the survey data are indicative of the economy growing at an annualized 1.9% rate in March and just 1.5% over the quarter as a whole, pointing to a slowing of GDP growth compared to the end of 2024. Near-term risks also seem tilted to the downside. Growth is concentrated in the service sector as manufacturing fell back into decline after the frontrunning of tariffs had temporarily boosted factory output in the first two months of the year. Similarly, some of the March upturn in services was reportedly due to business picking up after adverse weather conditions had dampened activity across many states in January and February, which could prove a temporary bounce." (Source: S&P Global) At the same time inflationary pressures appear to be building. From the report: "A key concern over tariffs is the impact on inflation, with the March survey indicating a further sharp rise in costs as suppliers pass tariff-related price hikes on to US companies. Firms' costs are now rising at the steepest rate for nearly two years, with factories increasingly passing these higher costs onto customers. Thankfully, from the Federal Reserve's perspective, services inflation remains relatively subdued, but this reflects the need to keep prices low amid weak demand, which will harm profits." (Source: S&P Global) Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data. For more on this, read: 🙊 📉 Near-term GDP growth estimates are tracking negative. The Atlanta Fed's GDPNow model sees real GDP growth declining at a 2.8% rate in Q1. Adjusted for the impact of gold imports and exports, they see GDP falling at a 0.5% rate. (Source: Atlanta Fed) For more on the economy, read: 📉 Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices. Demand is positive: Demand for goods and services remains positive, supported by strong consumer and business balance sheets. Job creation, while cooling, also remains positive, and the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market. But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less "coiled" these days as major tailwinds like excess job openings have faded. It has become harder to argue that growth is destiny. Actions speak louder than words: We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor's perspective, what matters is that the hard economic data continues to hold up. Stocks look better than the economy: Analysts expect the U.S. stock market could outperform the U.S. economy, thanks largely due to positive operating leverage. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth. Mind the ever-present risks: Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, etc. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets. Investing is never a smooth ride: There's also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened. Think long term: For now, there's no reason to believe there'll be a challenge that the economy and the markets won't be able to overcome over time. The long game remains undefeated, and it's a streak long-term investors can expect to continue. A version of this post first appeared on Sign in to access your portfolio

Barry Ritholtz explains how not to make 'stupid investing mistakes'
Barry Ritholtz explains how not to make 'stupid investing mistakes'

Yahoo

time23-03-2025

  • Business
  • Yahoo

Barry Ritholtz explains how not to make 'stupid investing mistakes'

Barry Ritholtz, co-founder and chief investment officer of Ritholtz Wealth Management and a longtime adviser, digs into the things that have made him 'less stupid' in his latest book. "How Not to Invest: The Ideas, Numbers, and Behaviors That Destroy Wealth — and How to Avoid Them" isn't a navel-gazing reveal of his savvy investing philosophy, but rather a playbook on the theme that steering clear of errors is much more important than scoring wins. I asked Barry to share the mistakes that trip most of us up and what we can do about it. Below are excerpts of our conversation, edited for length and clarity. Kerry Hannon: Why are most of us better off sticking to a simple investing strategy? Barry Ritholtz: Historically, simple beats complex. If you're going to make something more complicated, there has to be an absolutely compelling reason. The more complicated things are, there are more things to break. Think about how much money has been attracted to Vanguard and Blackstone's core indexing because it's simple and it works. What are some of the pitfalls of building long-term wealth? The biggest single pitfall is our tendency to interfere with the markets' compounding. When I ask people, what is a thousand dollars invested a century ago worth today? They say, oh, a million dollars, $2 million. When you tell them it's $32 million, their heads explode. It's shocking to people. But that's the power of compounding. Please try not to get in the way of your own money compounding. It's the single best thing you can do. What are other common mistakes investors make? The more active you are, the more transactions you engage in, and the worse you tend to do because you're just creating more opportunities to be wrong. And we believe a lot of nonsense. Some of it is just myths that get repeated from generation to generation or ping around trading desks. I always laugh whenever I flip on TV and the market is down 2% and someone says, markets hate uncertainty. Do they really? Because there's got to be a buyer and a seller. That means that there's a disagreement as to the value of that asset. We are wildly overconfident in our abilities to do things that the professionals can't do. You know, no one would say to themselves, yeah, I could play Michael Jordan one-on-one in basketball. Nobody thinks that way. But when you step into the marketplace, you imagine that you're going to beat the house, that you're going to beat Michael Jordan. But trust me, you're not. Something like half of all the trades are done by institutions — highly qualified, deeply motivated with the latest, greatest, fastest tools. To imagine that you're going to step in and beat them on their home fields is just another mistake. It's also a mistake to not be selective when you dip into the fire hose of media that comes out about investing. You have to be a little discerning and discriminating. Curate viciously. You have to create your own team of people who you either watch or listen to or read. I don't mean you literally have to hire them, but hey, these are the people who have a defendable process. They've lived through a few cycles. They have a good track record. And it's not just dumb luck. On my all-star team are Morgan Housel, Jason Zweig, and Sam Ro. They have just consistently added value and been more right than wrong. They don't run around with their hair on fire when we're in the midst of a huge volatility spike. Read more: How to start investing: A 6-step guide By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy What are some questions we can ask to avoid a lot of investment mistakes? Always ask yourself, what are the risks of this trade? Is this tailored to me, or is this for a general audience? What's this going to cost — not just the outright costs, but fees, taxes, and, of course, lost opportunities. And who is giving me this advice? What's their track record and do they have a conflict of interest? Do they have a fiduciary interest to zealously represent you and to perform their duties with diligence? They can't guarantee you what the market or the economy's going to do in the future, but can they say to you, this is a reasonable portfolio that is defendable and rational and increases the odds that you'll have a successful outcome down the road? You quote John Bogle, founder of Vanguard, as saying, 'just buy the haystack.' In other words, stick with index funds. Why is that still a great philosophy? In any given year, a majority of active fund managers underperform their benchmark, say, the S&P 500. Go 10 years and you're in the single digits of managers who earn their keep and outperform the benchmark. Take it to 20 years, and it's virtually nobody. You end up with a handful of outlier names and they become household names because they're unicorns — Warren Buffett, Peter Lynch, Bill Miller. With the indexes, you get diversification especially if you invest in a bunch of different indexes. You are guaranteed to find the Nvidias, the Apples, the Amazons, whatever are the biggest winners. And you get them in increasing stakes as they do better and better. You say this is the golden age for investors. What do you mean by that? You can move money around effortlessly. You can trade for free. You can buy anything. Back in the old days, if you wanted to own international stocks, it was expensive. To say nothing of the power of walking around with this stuff in your phone, it's really amazing. Software and technology give investors tools that are just so simple and so inexpensive and so effective. That's why I call this the golden age of investing. We can do things people dreamed about 25 years ago. Everybody gets second-by-second, tick-by-tick updates. You want to see how you're doing today, this week, month, year to date, the past 12 months — it's all right there. It's instantaneous. But please don't look at your portfolio tick by tick. It'll make you is the importance of having a financial plan and working with an adviser? There are ways to improve your life satisfaction with money. But a lot of people don't go about it that way. One of the ways that helps to get away from the money chase is that when you put a financial plan together, one of the things that ends up coming out of that process is the answer to: What is this money going to? Why do you want to put money in the market? Maybe you're saving for your kids' college, buying a house, or retirement. Now we know how much risk to take in order to achieve your goals. That draws down stress. When you put a financial plan together, you take as much risk as necessary, but not more, to achieve your goals. You're working with intentionality, you're working toward a purpose. If you're not saving toward a goal, you end up taking on too much risk. That's how people lose sleep at night. Having someone to talk you off the ledge and keep you focused on your plan is worth about 2% to 3% a year. That's a huge amount of returns that simply comes about because someone is preventing you from shooting yourself in the foot. And we, as investors, are our own worst enemies. If we can stop our bad behaviors, we're all so much better off. Read more: What is a financial adviser, and what do they do? Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including "In Control at 50+: How to Succeed in the New World of Work" and "Never Too Old to Get Rich." Follow her on Bluesky. Sign up for the Mind Your Money newsletter Sign in to access your portfolio

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