I don’t remember a time when I didn’t read Barry Ritholtz’s “Big Picture Blog.” It’s been a must-read for me going back to 2006.
I remember reading multiple times a day during the financial crisis. Barry was one of the only voices of reason throughout 2007 and 2008, warning everyone of the coming collapse in stocks. He ultimately wrote the book “Bailout Nation” in 2009, one of my favorite books on that period.
Today Barry is chairman and chief investment officer of Ritholtz Wealth Management, the hottest firm in the world right now. You also may have read some of articles now on Bloomberg, or listened to his “Masters in Business” podcast, but he’ll always be known as the “Blogfather” to me.
Back in the late ‘90s, he spent 30 minutes writing a post and then almost two hours coding it in HTML on Yahoo! Geocities, before he was ultimately invited to beta-test a new content management platform.
Recently, I was fortunate enough to catch up with Barry for almost an hour to talk to him for my podcast. It was nice to turn the interview tables on him.
Barry’s focused more of his attention today on behaviorial finance, and I really enjoyed some of his examples about our flaws, as humans, and what we can do about them.
Below is an excerpt, on human behavior, from our conversation. I hope you enjoy it as much as I did, and click here to listen to the whole thing.
BR: … Why do we react immediately to an emotional response? Well, because if something is dangerous you want to get the hell out of there as soon as possible. The things that kept you alive long enough to procreate are the things became hard-wired into the way we operate.
Why do we see patterns? Why do we jump? It’s a potentially threatening animal in the tall grass… Take snakes, we didn’t know which ones were dangerous or safe. If you were afraid of snakes and didn’t like them, the odds of passing on those traits increased.
The entire field of behavioral economics exists because these traits were an enormous advantage in keeping us alive. But, now that we’re in a modern society, they’re not such an advantage, especially when you’re trying to balance risk and reward.
JC:We’re the most scared when we should be greedy, and we’re extremely greedy when we should be pulling back and be more fearful. We do the opposite when your stress levels our elevated.
And in investing, we’re not threatened by a pack of monkeys trying to kill us, but by losing money.
BR: You have a built in flight-or-flight response. Your blood pressure increases. Your heart rate increases. Adrenaline flows. Your muscles are ready to do what they have to do.
That’s really good in a dangerous situation, but when you’re in front of a computer screen and you have a 25-year time horizon before you need to have money compound so you can retire, what happens on any given Tuesday isn’t really all that relevant to what the S&P 500 is going to do over the next three decades.
To wise investing,