Loss aversion and tolerating drawdowns

“Let me walk you through the biggest traps that you should be aware of that are a danger to your financial wellbeing.” You probably think investing is about markets and strategy, but Barry Rithotz argues that it’s actually about biology. Our brains evolved to spot danger, not to manage portfolios, and the instincts that once kept us alive now push us towards panic and greed. That same wiring that told our ancestors to run from predators now tells modern investors to sell at the bottom. 0:00 Why your brain makes you a bad investor 2:28 Using our brains in ways they weren’t built for 3:57 Cognitive biases that derail investing 6:52 Emotional Bias 8:22 Gamestop and speculative bets 10:22 Narrative fallacy 12:01 Overconfidence bias and the Dunning-Kruger effect and 12:44 Confirmation bias 14:56 Conformity bias 16:25 Loss aversion 17:47 Anchoring 18:41 Tribal bias 20:19 Recency bias 23:51 Investing is a loser’s game. Here’s how to win 24:28 “The Loser’s Game” 27:28 2% of stocks are responsible for all returns 30:21 The odds against you picking successful stocks 31:52 Maximizing your ability to compound 32:02 Automate 33:03 Diversification 34:23 Costs 37:48 Rebalancing 39:54 Ignoring forecasts 42:15 Market timing 44:29 How financial media sets investors up for failure 46:06 The attention economy 46:55 What is margin debt? 48:03 How negative media influences our investments 50:30 Denominator blindness 54:07 Key qualities in financial media 56:35 Social media and investing ---------------------------------------------------------------------------------- About Barry Ritholtz: Barry L. Ritholtz is co-founder, chairman, and chief investment officer of Ritholtz Wealth Management LLC. Launched in 2013, RWM is a financial planning and asset management firm, with over $6.4 billion dollars in assets under management. RWM was named ETF Advisor of the Year, is on the Financial Times Top 300 Advisors in the US, and is the 4th fastest-growing RIA in America. His career history is filled with cutting-edge innovation and influential new ideas: He was one of the earliest traders to embrace behavioral economics, he created one of the first and most popular market blogs; his podcast was groundbreaking and among the earliest in the investment spaces. Named one of the “15 Most Important Economic Journalists” in the United States, he has been called one of the 25 Most Dangerous People in Financial Media. He writes a weekly column for Bloomberg Opinion (2013- 2021) and wrote a twice-monthly column on Personal Finance and Investing for The Washington Post (2011-2016). His latest book, “How Not To Invest: The ideas, numbers, and behaviors that destroy wealth – and how to avoid them” was published on March 18, 2025.

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