The paperback release of Barry Ritholtz’s book, ‘How NOT to Invest,’ this week serves as a timely reminder of a fundamental childhood lesson: ‘Never take candy from strangers.’ This adage, Ritholtz argues, is as pertinent on Wall Street as it is on the playground, especially in the digital age where unsolicited financial advice floods various platforms.
Echoes of a Bygone Era
Ritholtz, reflecting on his upbringing as a ‘latchkey kid’ in the 1960s, 70s, and 80s, recalls a set of simple, yet crucial, rules instilled by parents: know where you’re going, be home for dinner by 6 p.m., and never take candy from strangers. While technology has rendered the first two rules largely obsolete through tracking apps and instant communication, the third remains remarkably relevant.
The author posits that the core principle behind this warning—distrusting offerings from unknown entities—is directly applicable to navigating the complex world of investments. In an era saturated with financial content, from television personalities to social media influencers, the temptation to accept advice from unfamiliar sources can be significant.
The ‘Stranger’ on Wall Street
Ritholtz draws a direct parallel between a stranger offering candy and a stranger offering investment advice. He urges consumers to critically evaluate the source of any financial guidance they receive. Key questions to consider include: ‘Who are they? What do they want? Do they have your best interests at heart? What’s in it for them?’
The underlying motive behind much of this unsolicited advice, Ritholtz suggests, is often commercial. Whether it’s a paid newsletter, a speculative trading scheme, or a cryptocurrency promotion promising unrealistic returns (such as ‘Just make 1% per day to turn $100 into millions’), the offer is rarely altruistic.
Even when not directly selling a product, these sources are vying for something of immense value: your time and attention. Collectively, this attention is a commodity worth billions to media conglomerates and technology firms. Ritholtz dedicates a significant portion of ‘How NOT to Invest,’ specifically ‘at least 10 chapters,’ to these critical topics.
The Unsolicited Pitch
The author highlights the ubiquity of financial advice disseminated through various channels, including TikTok, weblogs, and traditional media. He questions the efficacy of advice from individuals who do not understand your personal financial circumstances, such as your zip code or tax bracket. ‘Of course it is not,’ Ritholtz states, ‘It’s selling something, be it advertisements, investment products, newsletters, or God knows what else.’
He acknowledges that not all such pitches are ‘nefarious’ but emphasizes their pervasive nature, leading to an unconscious acceptance of their messages. While tuning out all external information is unrealistic, Ritholtz proposes three actionable suggestions for consumers of financial content:
- Understand what media you are consuming.
- Make intelligent, well-informed choices.
- Prioritize quality over quantity.
A Call for Discernment
Ritholtz recounts his early career in the finance industry, admitting to being an ‘easy mark’ for every salesman and fund manager, readily accepting their pronouncements. It was only through ‘some expensive losses’ that he learned to critically assess advice. His mother’s simple warning, he concludes, remains a powerful guide for investors today.
Taking investment advice from unknown individuals across various media platforms, Ritholtz asserts, is fundamentally no different than accepting candy from strangers. He advises evaluating potential advisors based on their track record, temperament, and experience through market cycles. The core message is to approach financial guidance with a healthy dose of skepticism and a commitment to due diligence, rather than naive acceptance.
