Barry Ritholtz thinks investors are too worried they will be attacked by sharks and not concerned about death by running into a deer. The Chairman and Chief Investment Officer at Ritholtz Wealth Management, and creator of Bloomberg’s “Masters in Business” podcast, thinks retail investors are overly concerned with market crashes and not focused on what really detracts from performance. In a keynote speech at the Morningstar ETF Conference, he advises Financial Planners to focus their client’s attention on what really matters — high fees, excessive portfolio turnover, emotional decision making and a lack of discipline — and not being concerned about statistical outliers.
Focus on the deer, not the sharks
More people die taking selfies or by running into deer on the road than are killed by sharks, Ritholtz noted. But fear of shark attacks and other gruesome outcomes that are perpetuated through popular culture are the popular concern.
“Anything big, visceral and emotional attracts attention,” he noted, pointing to terrorism as capturing the headlines but only resulting in a handful of killings in the US in 2016. On a relative basis, people shooting other people in everyday situations resulted in 11,737 deaths. “More people died falling out of bed than they did at the hands of Islamic terrorists.”
The reality is that despite all the negative news, "right now we are living in a peak period for humanity," he said, pointing to generally low crime rates burgeoning prosperity.
Ritholtz said that, likewise, investors’ fears tend to focus on a market crash rather than relatively mundane issues that impact performance such as high fees and portfolio turnover. It’s not going to be a monetary collapse or a stock market disaster that has the most potential to erode an investment portfolio. The daily erosion of returns due to more mundane factors is what needs to be addressed.
Rihotlz advises Financial Planners not to panic as market crashes happen throughout history
Market crashes are inevitable throughout history. The only thing more consistent than a market crash occurring at the end of an economic cycle is bearish market pundits being consistently wrong about making such predictions.
Pointing directly at bearish pundit Marc Faber, who has been predicting a market crash from the point the last stock market crash occurred, Ritholtz advises financial planners to get their clients focused on what really matters to performance.
“Faber has been calling for the collapse of the US dollar, but when it comes to paying for his newsletter (Gloom Boom & Doom), he only accepts US dollars,“ Ritholtz quipped.
“A market crash is a good time to pick up stocks cheap,” he added.
ValueWalk readers can download presentation slides here.