Quote · My First Million
Brutally honest guide to not losing money in the market
Where this was said
Sam picks a fight
At 18:15 · chapter starts 16:56
This chapter delivers the episode's most memorable statistical one-two punch. First, Ritholtz cites behavioral research showing roughly one-third of investors who panic-sold during a major market crash — he uses the 2008-09 57% decline as the reference — never re-entered equities. [1] — Barry Ritholtz "About one-third of investors who panic-sold during the 2008-09 market crash never returned to equities. A $1 million portfolio sold at the …" 13:57 The arithmetic is brutal: a million-dollar portfolio sold at the bottom exits at around $450K; the same portfolio held through the recovery would be worth roughly $4.5 million today. No money market rate comes close to competing with that compounding. Then Shaan Puri raises the hedge fund study, and Ritholtz goes deep on the Alex Imas University of Chicago research that randomized sell decisions. [2] — Barry Ritholtz "A University of Chicago study randomized hedge fund sell decisions and found random selling outperformed manager-selected selling by 150–20…" 15:05 The finding: randomly selling anything else in the portfolio outperformed the manager's deliberate choice by 150–200 basis points. The explanation is elegant — buys are spreadsheet-driven and rational; sells are always emotional. The solution, Ritholtz concludes, is not to get smarter about selling, but to make fewer decisions altogether.
Direct indexing — buying the individual components of an index in proportion — lets you harvest tax losses from the 20–40% of stocks that are always down in any given year. In Q1 2020 alone, O'Shaughnessy found it harvested 400+ basis points of losses.
