How NOT to Invest.

Feel free to reach out to PSG Wealth Manager  Patrick Duggan  directly.

“Most people who invest their capital focus on how or what to invest in, but the true key to success lies in knowing what not to do. ‘How NOT to Invest’ is a roadmap to smarter decisions, fewer regrets, and a better financial future.” “The counterintuitive truth: avoiding errors is much more important than scoring wins.” (Ritholtz 2025)

Ritholtz organises the book into our biggest impediments to investing success into three broad categories: “Bad Ideas,” “Bad Numbers,” and “Bad Behaviour.”

Here is a broad overview of each of the ten main sections, which can help you quickly grasp the key ideas in the book.

Bad Ideas:

1. Poor Advice: Why is there so much bad advice? The short answer is that we give too much credit to gurus who self-confidently predict the future despite overwhelming evidence that they cannot. We believe successful people in one sphere can easily transfer their skills to another – most of the time, they cannot. This is as true for professionals as it is for amateurs; it is also true in music, film, sports, television, and economic and market forecasting.

Two examples of Poor Advice include the following:

• The author of Rich Dad Poor Dad sold thirty-two million copies of his book. A huge success. He has spent the past two decades telling his online readership that crashes were coming, to exit stocks completely, to build a ‘bunkie’ and grow your own vegetables because the end of the world was coming (many times). It is the only way to survive (his words). Those who listened missed hundreds of percent of rate of return, crushing the growth of their wealth.
• The Big Short author got the 2008 market crash right – then got everything else wrong since, missing hundreds of percent of rate of return. His readers never got back into equities despite the market bottoming in March 2009.

2. Media Madness: Do we really need 24/7 financial advice for our investments we will not draw on for decades? Why are we constantly prodded to act now when the best course for our long-term financial health is to do nothing? What does the endless stream of news, social media, TikTok’s, Tweets, magazines, and television do to our ability to make good decisions? How can we re-engineer our media consumption to make it more useful to our needs?

A few examples of Media Madness include the following:

• Fortune Magazine on May 15th, 2000, published an article touting that everyone must own Cisco, then the world’s most valuable company. Shares were trading at an all-time high. Shares then plummeted 89% and have still not recovered to their March 2000 levels!
• Business Week, May 21, 2001, wrote ‘Why Apple stores won’t work’. Today, Apple stores generate sales of roughly $30 billion a year.
• Fortune Magazine in the summer of 2007 wrote “forget the iPhone…. Blackberry is the phone to beat.” The Blackberry became obsolete, the iPhone is one of the greatest, best-selling inventions in a century.

3. Sophistry: The Study of Bad Ideas: Investing is really the study of human decision-making. It is about the art of using imperfect information to make probabilistic assessments about an inherently unknowable future. This practice requires humility and the admission of how little we know about today and essentially nothing about tomorrow. Investing is simple but hard and that is our challenge.

Bad Numbers:

4. Economic Innumeracy: Some individuals experience math anxiety, but it only takes a bit of insight to navigate the many ways numbers can mislead us. It boils down to context. We are too often swayed by recent events. We overlook what is invisible yet significant. We struggle to grasp compounding – it is not instinctive. We evolved in an arithmetic world and are unprepared for the exponential math of finance.

5. Market Mayhem: As investors, we often rely on rules of thumb that fail us. We do not fully understand the importance of long-term societal trends. We view valuation as a snapshot in time instead of recognizing how it evolves over a cycle, driven primarily by changes in investor psychology. Markets possess a duality of rationality and emotion, which can be perplexing, however, once we understand this, volatility and drawdowns become easier to accept.

6. Stock Shocks: Academic research and data overwhelmingly reveal that stock selection and market timing do not work. Most market gains come from ~1% of all stocks. It is extremely difficult to identify these stocks in advance and even harder to avoid the other 99% of stocks. Some terrible trades are illustrative of this truth.

Bad Behaviour:

7. Avoidable Mistakes: Everyone makes investing mistakes, and the wealthy and ultra-wealthy make even bigger ones. We do not understand the relationship between risk and reward; we fail to see the benefits of diversification. Our unforced errors haunt our returns.

To illustrate this point further Ritholtz draws a compelling analogy between investing and tennis. This comparison is inspired by tennis legend Roger Federer’s insight that success often comes from avoiding mistakes, rather than achieving perfection.

In 2024 Federer delivered a commencement speech at Dartmouth University sharing a profound insight from his tennis career.

He mentioned that he played 1,526 singles matches during his career, winning nearly 80% of them. But then he posed a question to the graduating class:

“Now I have a question for all of you. What percentage of the points do you think I won in those matches?”

The answer? 54%.

Despite being one of the greatest tennis players ever, Federer won barely more than half the points available to him. The magic came from a small, consistent edge that compounded into something extraordinary over time.

Investing works much the same way.

Day-to-day market movements are unpredictable. Whether the stock market is positive or negative on any single day is a coin flip, with a modest edge to positive return days at 53% of the time.

That does not seem like much, but like Federer, this razor-thin edge can compound into something great. However, it requires discipline.

8. Emotional Decision-Making: We make spontaneous decisions for reasons unrelated to our portfolios. We mix politics with investing. We behave emotionally. We focus on outliers while ignoring the mundane. We exist in a happy little bubble of self-delusion, which is only popped in times of panic.

9. Cognitive Deficits: You are human – unfortunately, that hurts your portfolio. Our brains evolved to keep us alive on the savannah, not to make risk/reward decisions in the capital markets. We are not particularly good at metacognition—the self-evaluation of our own skills. We can be misled by individuals whose skills in one area do not transfer to another. We prefer narratives over data. When facts contradict our beliefs, we tend to ignore those facts and reinforce our ideology. Our brains simply were not designed for this.

Ritholtz then offers some distilled, time-tested principles that successful investors follow in the section ‘Good Advice.’

10. Good Advice:

Have a Plan — and Stick to It

• Create a well-thought-out investment plan based on your goals, time horizon, and risk tolerance.
• Resist the urge to change your strategy based on short-term news or market swings.

Diversify Broadly

• Diversification reduces risk — not just across stocks, but across asset classes, geographies, and sectors.
• Avoid concentration in any single investment or theme, no matter how compelling it seems.

Avoid Market Timing

• You cannot consistently predict market highs and lows.
• Stay invested, and do not try to “get in and out” of the market based on predictions.

Automate and Ignore the Noise

• Automate contributions and rebalancing to remove emotion from decisions.
• Tune out financial media hype and short-term market noise.

Understand Your Limitations

• Know what you do not know. Most people are not equipped to outperform professional investors.
• Avoid overconfidence — it is one of the most dangerous investor biases.

Behaviour Matters More Than Brilliance

• Successful investing is more about discipline and consistency than genius.
• Avoid emotional decisions — fear and greed are destructive.

Do not Chase Performance

• Past winners do not always keep winning. Chasing returns is a recipe for buying high and selling low.
• Stick to your allocation rather than chasing fads or “hot” sectors.

Rebalance Periodically

• Regular rebalancing enforces discipline by selling high and buying low.
• It also helps keep your portfolio aligned with your original risk level.

Stay Humble, Stay the Course

Conclusion

Nobody Knows Anything

What investors need is a rational, repeatable process. It is not sexy. At times, it feels like it does not work. It takes longer to work at times than we would all like. But it does work.

In the end, all we have is the ability to control what we can control, focus on the evidence that we have indeed been here before and things worked out.

Thus, and as Charlie Munger so bluntly put it in the quote below…

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

If we can just do that, then we should have a better than average chance of being successful investors.