This Trait Makes You a Better Investor: Barry Ritholtz

The future is unknowable, and investors would be wise to stay humble and avoid those who claim to know for sure what will happen next, says expert investor Barry Ritholtz.

“Recognizing how little you actually know is a superpower. If we were less certain of ourselves and possessed more humility, we could all become better investors,” the Ritholtz Wealth Management founder and chief investment officer wrote in his The Big Picture blog today.

He cited a Forbes magazine headline from exactly 15 years ago about Nokia’s then-CEO that asked: “Can anyone catch the cell phone king/?”

But “ Nokia was unwilling to cannibalize its already very successful handset business,” perhaps failing to recognize the shift toward more powerful smartphones, or maybe “unable to make the turn,” Ritholtz wrote.

Apple introduced the iPhone that year, Nokia’s mobile phone business soon started its decline, and in 2013, Nokia sold all of its phone operations to Microsoft, Ritholtz noted.

Nokia’s fate is “yet another reminder of what we tend to overlook,” he wrote, highlighting five key truths that investors need to come to terms with:

“The future is unknown and unknowable,” and investors should “ignore anyone who pretends they know with certainty what is coming next — they don’t, because they can’t.” It’s better to think about what’s more or less likely to happen, which will lead to smaller mistakes and allow more flexible thinking, Ritholtz said.

“This too shall pass.” Companies can crash and burn from great success for many reasons, Ritholtz wrote. It’s easy to forget this and assume dominant companies will remain in that position. “BlackBerry, Lucent, Nokia, NT were the dominant telecom players in the 1990s/200s, and soon faded. Which dominant companies in the 2020s will suffer similar fates/?”

“We fail to properly evaluate content we consume,” he wrote, adding, “Everything you read, listen to or watch should to [sic] be analyzed for its integrity and accuracy. … Investors cannot simply accept or reject something because it’s in a magazine or on television.” They should know the source’s track record, he said.

“We underappreciate cycles” and have trouble looking beyond the present. Trends feel permanent, he wrote, but even as “Nokia looked unbeatable in 2007 … the seeds of its destruction were planted years prior.”

“Change is constant.” While people are experts in how the world used to be, the universe is always in flux, Ritholtz wrote. “ This means we must constantly check our own knowledge base as it ages out of currency and decays over time,” he explained.

To drive home his points, Ritholtz linked to a 2021 blog post in which he cited a 2001 Business Week article predicting that Apple stores would flop.

“Numerous armchair pontificators freely shared their uninformed opinions as to why this concept was destined to fail,” Ritholtz wrote last year.

“We can be challenged by novelty, and sometimes are made uncomfortable by what is different and unfamiliar. Once something is a success, we have a hard time recalling how life was before that product existed,” he noted.