Name: The surprisingly simple rules most investors break | Barry Ritholtz
Uploaded: 2026-02-03T18:24:30.000Z
Duration: 21 min 41 s
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Basic passive voice

The odds are stacked against you being a successful stock picker.

Transition words & phrases

You know who Warren Buffett or Peter lynch is because they're such outliers.

The rest of us, we're playing the loser's game.

We don't pay attention to costs, we ignore taxes.

We make all of these mistakes that if only we avoided them, we would do so much better.

You're going up against every other investor and trader who similarly thinks that they can outsmart the markets.

History tells us we are simply terrible at playing that game.

I'm chairman and chief investment officer of Ritholtz Wealth Management.

The ideas, numbers and behaviors that destroy wealth and how to avoid them.

We want to put our money to work because 20, 30, 40 years from now we're going to stop working and retire.

And we're going to need something to pay our bills.

Most of us aren't going to be able to live on just Social Security.

And so we put our money to work so that it'll compound faster than the rate of inflation.

really it's your job as an investor to not interfere with your portfolio's ability to compound over that time.

The loser's game is a concept created by Charlie Ellis in a paper he wrote 30, 40 years ago.

Eventually it became a book called Winning the Losers Game and Ellis, legendary guy, chairman of the Yale Endowment, on the board of directors of the Vanguard Group.

Ellis noticed that investing and tennis were both very similar in that they're two games in one.

There's a winner's game and a loser's game.

Well, let's use tennis as Ellis's example.

The game the professionals play the top.01% of players.

And then there's the game the rest of us play.

Us 99.9% of of the world who are amateurs.

They do fancy drop shots, lots of topspin.

They keep the ball away from their opponent.

That's not how the losers game is played.

We double fault because we're trying to serve too hard.

We hit the ball long we hit it wide, we hit it into the net.

Instead of trying to play outside ourselves beyond our own ability, us amateur tennis players just return the ball, just keep it in play.

If you make fewer unforced errors and you let your opponent make those mistakes, you will win the loser's game by making less errors.

And so Ellis compared tennis to investing, and he found something really fascinating.

A handful of professionals, a tiny number of people, they can pick stocks and know when to sell them, that can identify which sector or country to invest in.

That's the 0.01% of people and their household names.

We're unfortunately underperforming because we're making all of these errors.

We get emotional, we over trade, we don't pay attention to costs, we ignore taxes.

That's why Ellis thought investing in tennis were so similar.

Most of us are playing the loser's game and playing it badly.

If we make fewer unforced errors, we would just be so much better off.

So a number of academic studies have found that a surprisingly few percentage of stocks are actually driving market returns.

Professor Hendrik Bessembeiner at Arizona State University did a study, and

he found that just 2% of stocks are responsible for all the returns that we've seen over the past 75 years.

Depending on the country you look at, maybe it's a little more, a little less, but.

Well, some stocks are up a little each year, some stocks are down a little each year, some stocks are flat.

That leaves very few stocks that are the giant winners that drive returns.

In the context of the losers game, where we want to make fewer mistakes, every decision we make is another opportunity for error.

And given how much the odds are stacked against us, if only 2% of stocks are driving most of the returns, what are the odds that we're going to pick that one in 50 stocks that's going to be a big winner?

First you have to identify a company that over the next 1, 3, 5, 10 years, is going to grow its revenue and its profits.

Secondly, you have to buy that stock at the right time and at the right price.

Overpaying for a stock isn't going to help you at all.

Third, you have to be willing to hold that through all the ups and downs that company is going to go through.

Economic cycles, missed revenue expectations, missed profits.

And sometimes when stocks pull back, it's just a temporary setback and eventually they recover.

Knowing when something is just pulling back temporarily or that its best days are behind it and it's on the way down permanently, that's a really difficult thing to do emotionally.

We have all these sunk costs in that stock.

We've researched it, we've investigated it.

We're loath to cut it loose because, hey, we're tied up.

It's very, very difficult to tell the difference between a Microsoft and an Intel.

Both added to the dow Jones Industrial 25 years ago.

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