Beating the Show-Offs

If you’ve ever met me in person, you might notice that I have a slightly crooked nose, there’s an ever so gentle slope toward one side of my face – you really have to be looking for it I guess. It’s a bit beyond just a deviated septum, but it causes me to snore and breathe through my mouth most of the time. I’ve lived with it since I was five.

What happened? I was playing pirates with my friends on a big wooden sailing ship playground at Point Lookout Beach on Long Island. I was jumping back and forth across the beams high up in a day and age before they started rubberizing the ground below. One daring move too many and I fell face-first 20 feet to the concrete.

The consequences are with me forever but so is the lesson: Don’t be a show-off.

I talk to a lot of potential investors about their portfolios and about some of the ways in which our managed assets might be of service to them. I’m not in the Greatest Trade Ever biz and you’ll never see VRNG or PCLN in one of our models. Upon explaining our approach, I’ll sometimes hear “That’s it?” I suppose there’s an assumption that because I’m on TV and stuff that I must manage money like a wannabe hedge fund manager or an aggressive trader.

(not my desk)

In reality, I run retirement assets in such a way that my wealthy clients will be able to make it through to the end without compromising on their quality of life. This requires discipline, of the behavioral and emotional sort, way more than it requires any kind of overly acrobatic equity disco.

A portfolio compounding at 7 percent will double in 10.5 years. Thus, if a client has 20 years of working, saving and investing in front of him (and our nemesis inflation compounds at just 2 to 4% a year) the reality is that we’ll be just fine (even if a bit envious at times of an Icarus trader’s good fortune and a bit smug when they inevitably crash back to earth). Dicking around with small cap Chinese coal miners just because “they move, bro” simply doesn’t enter into this goal-oriented approach. And once the goals become simple, the methodology ought to be every bit as simple. I tell people that if I ever start talking about delta hedging I’m probably high on something and they should fire me.

Erik Falkenstein, a quant and blogger with a phenomenal body of work on low volatility investing, is out with a book on the topic. It’s in my queue, but I wanted to share a really great post of his on this very topic:

It’s interesting to note that in games there’s a profound dichotomy between the optimal tactics for beginners and experts. For example, Simon Ramo notes that among the very best tennis players, to win you need good winning shots; to be a good average player, you need to merely lower your failure rate. In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: beginners should focus on avoiding mistakes, experts on making great moves.

Yet if the distinguishing characteristic of an expert investor is whether they are being aggressive, then any aspiring expert is forced to be aggressive because this signals to others that he truly is an expert, and finance is all about getting other people to give you money to manage. Thus it should come as no surprise that if you give people advise to invest is simple index funds or to focus on low volatility stocks because you can do little damage, and save a couple percent a year, far too many will dismiss this advice. The favorites of aspiring financial moguls are volatile, because one isn’t going to hit a ‘ten-bagger’ on Coca-Cola (vol of 15%), but rather Netflix (vol of 70%).

As a rookie, I thought I was supposed to be living (but more often dying) by the gun and playing in the hottest stocks I could find. But absent the tools and experience of a true professional short-term trader, I was essentially jumping around along the peaks of a big wooden playground, smashing my nose from time to time when gravity and probability asserted themselves. And after each successive spill, I’d simply hoist myself back up the latticework with a faint promise to myself that this time the results would be different.

They never were.

Aspiring Big Shots take note: Learning not to fall (or not to fall too far or too often) is of much greater benefit than learning to dance and prance atop the rigging. On a real ship, you’ll never see the captain doing that stuff.


Ego and the Low Vol Premium (Falkenblog)


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. bitcoin evolution review commented on Sep 28

    … [Trackback]

    […] Read More Information here on that Topic: […]

  2. Kimber Firearms for Sale commented on Oct 14

    … [Trackback]

    […] Find More Info here on that Topic: […]

  3. nam mo thay con ruoi commented on Nov 06

    … [Trackback]

    […] Find More here to that Topic: […]

  4. exotic weed for sale commented on Nov 21

    … [Trackback]

    […] Find More on that Topic: […]

  5. DevOps Solutions commented on Nov 23

    … [Trackback]

    […] Find More to that Topic: […]

  6. cvv2 pro commented on Nov 27

    … [Trackback]

    […] Info to that Topic: […]

  7. used cars for sale york commented on Dec 10

    … [Trackback]

    […] Read More Information here on that Topic: […]

  8. wigs for women commented on Dec 31

    … [Trackback]

    […] Information on that Topic: […]

  9. tag heuer replica commented on Dec 31

    … [Trackback]

    […] Information to that Topic: […]

  10. Regression Testing Services commented on Jan 16

    … [Trackback]

    […] Find More Information here to that Topic: […]