January is halfway over, so it is once again time to look at the various errors, mistakes and wrong headedness that I succumbed to (damn human!) working in the asset management business in 2010. My mea culpas for 2009 can be found here.

Assessing the performance figures in 2010, there were plenty of things to be pleased with: The Macro calls and stock selection were both on target. We avoided most of the April to July downturn, caught most of the August to December rally.

However, in terms of managing assets, and the business of managing assets, there is lots of room for improvement. Even though these are two very different skill sets, they closely related.

Let’s have at it:

1. Running an Asset Management Business vs Running Assets: This may seem obvious, but it is far more complex than you might imagine. Running an asset management  business involves personnel decisions, marketing, raising assets, organization, scheduling, communications, accounting, legal, planning, follow through. I know plenty of great asset managers who are terrible business people, and terrible asset managers who are great business people, lots who are awful at both — and very few who excel at each.

Think about Morgan Stanley or Merrill Lynch — what do they do better, market or run money?

Possible solution: Be more proactive. Defer more of the nitty gritty operational decisions to our COO. Work on Time Management, delegation, and  division of tasks by expertise.

2. Too Much Cash:  Once again, we ran with too much cash on the books. Despite making the right calls in May (Sell!) and August (Buy), we continued to run too much cash all year. While we beat the benchmarks and had excellent risk adjusted returns, we could have handily outperformed with only 15% or 20% cash.

What I saw happen occasionally was it took a while to find stocks we really liked when we became bullish. Perhaps indecision was at play as well.

Possible solution: We could use ETFs more to increase exposure quickly so we carry less cash sooner and raise exposure more quickly; Better to own positions with tight stops, or to own half positions, than none at all;

3. Great Calls did not make enough money:  We picked some terrific stocks on the Institutional side. BWA, TDC, ISLN, RAX — But we did not own these aggressively in managed accounts. While some of this is a function of risk management — small volatile tech names are not suitable for everyone — we surely could have owned some of these..

Possible solution: Put together a basket of the most aggeressive names for managed account ownership. 8 or 10 names comprising a 5 or even a 10 percent position might be appropriate for many investors.

4. Time Management:  There simply aren’t enough hours in the day to do everything I want to accomplish. Between research, writing, conference calls, reading, media, etc. the day just doesn’t have enough hours.

Possible solutionPrioritize: Do less of what matters least; TTD: Work on a daily check list, to make sure things get finished;  Focus.

5. Cynicism: Last year, I noted the downside of Undue Influence; This year, it is the opposite. There are plenty of very smart people who have outstanding ideas — the trick is knowing who to consider and who to dismiss. Indeed, even some of my least favorite strategists, economists and analysts have value to offer. The trick is knowing who to pay attention to (e.g., Jeremy Grantham) and who to read very selectively.

Possible solution: Don’t be so quick to dismiss others; the world is filled with many smart and accomplished people, be more circumspect and less quick to dismiss/judge others.

This is certainly not an exhaustive list — there are many other areas I hope to improve upon in 2011; Trust me when I tell you my list gets longer every year. However, it is what I have been thinking about over the past few months.

As always, ideas, suggestions, and hints for improving are always welcome!

Category: Apprenticed Investor, Investing, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

29 Responses to “2010 Investing Mea Culpas”

  1. Expat says:

    I just finished E-Conned after reading your book, so I am not sure what No. 5 means. Do you need to more or less cynical? Because it seems to me that there are two solutions to Wall Street. You can become completely cynical and morally corrupt and play the game, making money thanks to the bent system. Or you can drop out, be less rich and more fulfilled perhaps.

    Your job is to manage money and make it multiply. Okay, it’s not saving lives or building railroads, but it’s not like you are a drunken thief or a Senator (but I repeat myself). But you obviously know how the system works and where the money comes from. So while you know the Emporer has no clothes, you remain one of the Royal Tailors.

    So, after a bit of thought, I will go with 5. Cynicism: Need lots more of it.

  2. I am sometimes too quick to dismiss outside ideas or analysts.

    #5 was an attempt to be less hair triggered when it came to dismissing outside sources of good ideas or analyses

  3. Fitzie says:

    Good stuff. Most people don’t bother with this as a process, but I can see you put some real thought into this . . .

  4. Bokolis says:

    2. I had to kind of wonder about so much cash while we’re all sitting around goofing on the Fed for keeping the spigot on full blast. It does seem that your approach is to return low-beta (say) 20%. I’d have to think that the infrastructure is in place for you to throw the ball downfield once in a while.

    4. I find myself bemoaning the same thing, except my endeavors aren’t quite as noble. Sleep when your dead, but you’ll have to increase your gym-to-Syosset-steakhouse ratio before you can put that kind of strain on your ticker. Somewhat more pragmatically, how do you NOT have a crash pad in the city (rhetorical question)?

    Happily, you get to lament small mistakes.

  5. dad29 says:

    Be more proactive. Defer more of the nitty gritty operational decisions to our COO. Work on Time Management, delegation, and division of tasks by expertise.

    Generally speaking from my experience, the entrepreneur hires very good people and then commences “failure to delegate,” which frustrates the people and (usually) ends with a business which fails to grow. Actually, you have a choice: you can run a very successful business without delegating much–and it will remain relatively small–OR you can do the ‘sales/marketing’ thing, restricting your other activity to ‘policy-level’ ONLY, and continue to hire excellent people.

    Either way, good luck! I enjoy the blog.

  6. ToNYC says:

    My suggestion to you is to pay more attention to yourself and much more beware being consumed by media than the reverse. Short sellers that are selling themselves and buy time to focus on anti-ADD strategies. The truth doesn’t sell so you can better ignore the noise listening not to what prognosticators are saying but rather ask what they did not say about their book.

  7. Terry says:

    Re #1: Your problem is very much like those of any CEO of a small, but rapidly growing company. And being the creator makes it even more difficult to share your baby with others. But do give more responsibility to others so you can focus on the strategic.

    Re #2 & #3: Of course it’s easy to second-guess with the benefit of certainty in hindsight. The investment environment last year was FULL of risk, volatility, and uncertainty. You were probably wise to keep “too much” cash and not try to maximize your profits. And this year doesn’t look like it will have much less risk, volatility, or uncertainty. Keep some of your powder dry!

    Re #5: The right issue to consider is WHAT the idea is, not WHO offered it. Do not get caught up in personalities; focus on ideas. Otherwise, you are certain to shoot yourself in the foot.

  8. Petey Wheatstraw says:

    . . . And this above all else: to thine own self, be true.

  9. Find out what you are strong at and hire the best people for the job at other positions. It sounds like you need a good sales person, a good accountant and a good office manager. Those things can be business killers if you don’t have the talent for them so bring talent to those positions then build a firewall between you and their delegated authority. Give out autonomy and strong accountability. Remember to pay the sales guy a healthy commission for what he does and if you want a healthy glow over the whole operation put in a generous profit sharing program for the entire business that does not play favorites. That will build a team atmosphere, give everyone an ownership attitude and take care of a lot of intangibles

  10. mbelardes says:

    I would say maybe take the view that “A rising tide lifts all boats … even the shitty ones.”

    Your Arch Coal call was great but I remember you were short Patriot Coal. Your short was timed right as I remember PCX got crushed in the time frame you were short. But then PCX reversed and road the wave with the rest of the coal stocks, essentially doubling in value.

    A similar move happened with Century Aluminum. Really got beat down. I liked Alcoa but when things turned around, I went in on CENX and road a quick wave.

    I guess I would file PCX/CENX under “trades” and AA and ACI under “investments” so maybe the wisdom is “When making a great call on an investment, don’t forget to spot a few good trades.”

  11. alnval says:

    The comments are right on. dad29 says it especially well. Just a thought but unless you can delegate your ability and desire to make sure that everything is done well may not be an asset when it comes to growing the company.

    I also seem to remember your telling us why early in your career you moved from one job to another. Some of it had to do with the failure of management to use your talents as well as management’s general difficulty in incorporating feedback from subordinates.

    Regardless of the accuracy of my memory, you’ve got a rich history with a palette full of decisions to guide you as move in to 2011.

  12. ben22 says:

    great post Barry, I could learn a lot from several of these, dealt with a lot of the same issues last year.


  13. ronald says:

    #4 try to limit multi-tasking to the absolute minimum

    #5 Information is data in Context, you got the Context which does not mean you got all the Information

    Context has a past,present and future try to evaluate data with that mind set. Rational thinking takes time and handles out of sequence data, otherwise you get into action reaction like a boolean computer. Which is the equivalent of sub-consciousness, or no thinking involved.

  14. [...] Barry Ritholtz’s 2010 investing mea culpas.  (Big Picture) [...]

  15. Brett Tibbitts says:

    Being less judgmental is something we all need to work on day in and day out – especially in this “hyperactivally” judgmental society.

    I don’t know if you will dismiss this comment out of hand and throw it straight in the erase bucket, but I have found your sight to be increasingly judgmental from the earlier days. Perhaps this is due to success of the site.

    I find a lot of the comments way over the top. Yet I am on “moderation”. I assume this is because a lot of my perspective is from the conservative side, which I “think” you have little tolerance for. Yet I am constantly amazed at how dismissive and insulting many of the comments on the site are, especially when I compare them to comments I am trying to make “subject to your moderation.”

    Not complaining, just trying to make an observation….it is what it is…..but each one of us can always do a much better job on being less judgmental. Our efforts would be far better spent on judging ourselves and working out our own salvation.

  16. Brett

    The site has always been opinionated and judgmental, but it is the process driven opinion based on data and facts.

    I don’t have issues with people’s political beliefs — I find most partisan politics to be time wasting nonsense — but once the Pols spill over into investing/economic analysis/macro theory, I draw the line.

    Commenters seem to get moderated for:

    1) Trolling and starting flame wars
    2) Making misleading comments or false statements
    3) repeating talking points or other nonsense.
    4) Misquoting yours truly

    I have no idea why you were dinged;


    UPDATE: I just checked WordPress and Akismet Discussion Settings — neither your email address nor your user name on either the moderated or blacklists — that means your IP address might be an issue.

    This has come up before with some zombie campus PCs that dinged an entire school

  17. NormanB says:

    Suggestion: Your fixation with real estate credit crisis went on too long and in too much depth. This was not a money making focus. So, it robbed you of the actual and psychological time needed to concentrate on investment decisions.

    As a shot in the dark, I’d think that your deep knowledge of this area made you into THE TELLER OF TRUTH.

    Unless your book sales went through the roof or if the publicity brought in tons of money (which I think it did) it wasn’t worth it. It had to hurt performance.

    Plus, delving into this area gave you a negative bias. From experience I can tell you that even though a problem exists for a long time there comes a time withing that period that the stock market doesn’t give a shit about it even though it is still a problem For the real estate issues, it stopped being a market problem over one year ago.

  18. Brett Tibbitts says:

    Thank you Barry….yet another reason to be less judgmental.

  19. I find the RE stuff quite fascinating — and I believe that most analysts/media still get it wrong (It was a CREDIT bubble, not a HOUSING bubble).

    And, I think it will be a key economic headwind going forward. But it hasn’t stopped us from buying (and as of today, selling) Citigroup.

    In terms of negative bias, we certianly have been more bullish than most during the run up — but perhaps the bias impacted the cash

  20. Bruman says:

    Barry, I agree that it was credit rather than housing, but the two are so closely intertwined because housing is the only place where the ordinary consumer can get 5x or 10x or 20x leverage.

    Overall, I like your year end mea culpas. It’s important to be able to identify where to do better.

    I would not get too upset about not loading up enough on your big hits. Risk controls are ultimately more important, and if you’ve beaten your benchmarks, you should be happy enough. When you start to ignore your risk controls, it becomes a slippery slope, or an additction, and then one day you pay the piper, big.

    On Time Management, I struggle with this too. Two things that I have found help a lot (when I am disciplined enough to do them) are :

    1) Write down what you need to work on tomorrow just before you leave the office (or go to sleep), so you remember where you left off quickly, and

    2) plan out your priorities for the day BEFORE opening the email or your newspaper. You can reorganize your priorities later when you see the news, but if you don’t prioritize other stuff first, you will spend way too much of your time putting out fires or reacting to small bits of info rather than the big picture.

    I find #2 is way harder to do than #1, especially with email on phones these days.

  21. louis says:

    “Your fixation with real estate credit crisis went on too long and in too much depth” – WRONG

  22. Lariat1 says:

    My business partner has same issue, learning how to delegate. It’s been his baby for a long time, but that baby has to grow up.

  23. gibbswtr says:

    I have been doing this for nearly 40 years and the list of laments you outline has been repeated almost without change over all those years. There are very few real solutions to them. We all thought in the distant past that technology in the form of Lotus Notes or Excel or Word and Outlook would foster better time management but they made it worse. Rather than manage time more effectively a nd concentrating on fewer issues we added more things to do.

    I have never found cynicism to be in short supply on Wall Street what is in short supply is cynicism about the right things. I view being a cynic as a filter of sorts that keeps stupid stuff away from me.

    In the end I guess out of fatigue or age or whatever that to gain control you have to do less and you have to be willing to miss some the opportunities in order to do well with those things you understand. Investment concepts are like good friends you will never have very many but the ones you have will treat you well over time.

  24. 2. Too Much Cash:

    Make more/better Use of Futures & Options..

    I’ve, long, found Martin Zweig’s approach to be sensical, and effective..

    In Sum: “Hold high levels of Liquidity, take Exposure through Derivatives..”

    really, how many “Stocks” are there, that you Really want Own?

    past that, this:

    ben22 Says: January 18th, 2011 at 12:24 pm

    great post Barry, I could learn a lot from several of these, dealt with a lot of the same issues last year.



  25. Jörn says:

    Hi Barry,

    Some quick thoughts on your mea culpa.

    Cynicism: What to read/who to listen to:

    I am very passionate about markets (but not crazy). For example: I ordered and partly read 20 books of those that you recently highlighted in your reading list. Still I wonder: Who to listen to? You mentioned one should do so selectively. But finding the best research of the right people is also expensive! I am still in the process of finding out. Perhaps you can help me with some brief comment/bullet points.

    Which researcher can you recommend?I noticed you included macroman and M.Maneker recently in your blog. The ECRI had great calls in 2010 for example.

    3. Calls in 2010: How could you be sure about QE2.0 so early? Other example: How could you be sure that the short-term impact of foreclosuregate was so muted, despite opposing opinions of well-known experts like Chris Whalen?

    4. What’s your opinion of the King Report?In the past you posted some daily comments of it, recently not?I have been a subscriber but I am disappointed by the lack of
    good market timing and biased reporting of general data(it reminds me of zero hedge a lot). Also, the daily calls on stock market behaviour(difficult anyways) had a very bad track record in 2010

    5. Whats your opinion of zero hedge. I read your last blog comment on it. Why is Tyler Durden a perma bear and blogging this way(so negatively biased). On the positive site, the variety of relevant market topics and knowledge about it and associated experts is of quality in this blog.

    Hope you will find some time, good start into 2011!



  26. [...] – Some great investing mea culpas. [...]

  27. kenny powers says:

    Good post! Mirrors many of myown problems in 2010…and I certainly agree with the points on running an asset management business…very, very different from just investing your own money (if I had enough, I would stick to that!).

  28. [...] is a great article from Barry Ritholtz, a Wall Street money manager, in his The Big Picture blog about his investing ‘mea culpas’ for [...]

  29. Chris says:


    As always great info on your part! This was an impressive and open minded piece.