Financial advice is everywhere. You'll find money tips on the internet, TikTok and Instagram. And don't forget about the talking heads on TV spouting off opinions on how to invest with President Donald Trump in office.
But there's one thing missing from the fire-hose flow of advice. How do you avoid self-inflicted investment errors? These mistakes often wipe out chunks of money made in markets, says Barry Ritholtz, chairman and chief investment officer at Ritholtz Wealth Management.
To help investors avoid sabotaging their own portfolios, Ritholtz wrote a new book, "How Not to Invest: The Ideas, Numbers. and Behaviors That Destroy Wealth — and How to Avoid Them."
How To Invest With Fewer Mistakes
The key to investment success, says Ritholtz, is to minimize self-inflicted mistakes like selling in a panic. Other mistakes are thinking you can predict the future, blindly following predictions of pundits, or liquidating everything when doomsayers warn of an impending crash.
Ritholtz says investors can take a page from the winning strategies of champion tennis players, as espoused by Charles Ellis in the late-1990s book, "Winning the Loser's Game." Investors need to be more like Roger Federer and Rafael Nadal.
What does a tennis match have to do with the Dow Jones Industrial Average or long-term investment returns? Investors can boost their performance and their net worth simply by reducing the number of unforced errors in their investing game, says Ritholtz.
"The fewer errors you make, the more money you make," said Ritholtz.
How To Invest Your Way
The tennis analogy is powerful.
Ritholtz notes that the top tennis players win by hitting with power and accuracy, serving aces, hitting the ball on the line, keeping the ball away from their opponent, and occasionally adding a clever drop shot to win a point. What they don't do is beat themselves.
That isn't so with an amateur or less-experienced player, he stresses.
"(Most people) lose through unforced errors," Ritholtz told IBD. "We try to operate outside our skill set, and that's where we get into trouble."
That's how investors get into trouble, too.
How To Invest: Don't Try To Predict The Future
Wall Street pundits make portfolio moves and buy and sell assets based on what they think will happen in the future. If you want to be a successful investor, don't try to predict the future. Nobody's very good at it, after all, not even so-called experts, says Ritholtz.
Avoid the so-called halo effect, or making the mistake of thinking experts in one field have the acumen to predict things outside their purview, says Ritholtz.
Real-life anecdotes shared in the book show that successful, allegedly in-the-know people get it wrong. Ritholtz recalls a "recession in the next 12 months" call in December 2015 by legendary real estate mogul Sam Zell. Of course, few knew when to buy or sell real estate better than Zell, dubbed the "Grave Dancer" in the 1970s for his opportunistic buys of distressed real estate.
"But as (an economic) forecaster, he was no better than anyone else," Ritholtz writes in his new book. Zell's recession call was off by five years, according to Ritholtz.
Mind The Source
Here's the problem: "When a viewer sees a guy like Sam Zell who's wildly successful in real estate, they have a tendency to believe him," Ritholtz said. "But he doesn't have a track record predicting recessions or market crashes."
The takeaway: An investment strategy that relies on peering into a crystal ball is a losing one, says Ritholtz.
"The future is inherently unknowable, and random events interfere with even our best forecasts," Ritholtz said. "It becomes really obvious that if your investment success requires you to successfully predict the future, you're in trouble."
Winning Investment Tip: Don't Trade On Headlines
Are sizzling financial headlines tradable information? Nope, Ritholtz says. The reason: Chances are this public information has already been priced into asset prices in milliseconds.
"By the time it's a headline, it's already in the market," said Ritholtz.
And beware the "100-year-storm" market calls by prognosticators who got it right once before.
"If a forecaster had one giant outlier success, the more the home watcher is likely to believe them, and that forecaster is even more likely to be wrong," said Ritholtz. "If you're constantly making these outlier market calls, these once-in-100-year flood calls, you're going to be wrong a lot."
Follow The Winners
Investors are better off checking into a pundit's record and keeping track of what the more accurate forecasters are talking about, says Ritholtz. You can't assume that every prognosticator, website or podcast is really providing info that's best for retirement accounts. Stick with time-tested rules for growth investing. In a world of clicks and eyeballs, everybody is selling something, says Ritholtz.
"Create your own all-star team of writers, podcasters, media people and Wall Street types who have a dependable investment process and that are consistent over time," said Ritholtz. "Those are the people that you should pay closer attention to."
Why Listening To Perma-Bears Is Bad For Your Financial Health
Sure, it's 2025. But that doesn't mean people have evolved to deal with threats differently than they did thousands of years ago. Humans still react to stress, threats and scary news.
"From an evolutionary perspective, bad news, negative declarations, just generally things that are frightening, apocalyptic and doomsday get your attention because we're wired to see existential threats," said Ritholtz.
Key To Investment Success: Control What You Can Control
You can't control everything around you. But you can control how you react to stressors, says Ritholtz.
"I have no control over whether or not there are tariffs," said Ritholtz. "I have no control over how many people in the federal government get fired or when the Federal Reserve will cut rates next. And I can't control the war in Ukraine. What I can control is how much risk I'm taking in my portfolio by the amount of stocks and bonds I hold. I can control how often I trade, and how often I think about markets."
And it makes sense to look at market history to know when to buy stocks.
It's important to plan ahead, figure out how a big sell-off might feel, and decide on an investment course of action ahead of time.
How To Invest Safely
Using an airplane analogy, Ritholtz said: "The time to read the safety card in front of you is not at 30,000 feet when one of the engines flames out. The time to read that and figure out where the emergency exits are is when you are calm and on the ground and thinking rationally. I like the concept of pre-mortem. Say to yourself, 'How am I going to feel when the market is down 10%, 15% or 20%?' History shows the market recovers and starts running away before investors get back in."
So, what's an investor to do? Eliminate mistakes by focusing on a core portfolio with most of your assets invested in a low-cost diversified index fund or ETF, such as one that tracks the S&P 500 or the total U.S. stock market, says Ritholtz. If you want to shoot for bigger returns, limit those assets to a sliver of your portfolio.
"You can have a trading account to indulge your inner hedge fund manager," said Ritholtz. "If it crashes and burns you can say, 'Hey, thank goodness it's just 3% of my portfolio and not the other 97%.'"
The strategies to minimize investing mistakes are just the basics, says Ritholtz. Have a plan and stick to it. Use low-cost diversified index funds. Sell big winners periodically by rebalancing your portfolio. Own bonds to provide income and downside protection if stocks wobble.
The goal? Don't drag down your portfolio by committing to the Wall Street version of unforced errors.
