Last weekend, I got into — or more like watched — an interesting finance debate related to specific policies, websites, officials and analysts. All the usual suspects were covered. One person went on and on about central-bank planned economies, manipulated currencies, debasing of the dollar, gold,  HFT, etc.  “Its all a Ponzi scheme” he declared, evidencing a lack of understanding of precisely what that word means.

I listened politely and smiled.

It was over a dinner party consisting of a mix of finance and humanities people. Our lead instigator (whom I will shall refer to as Goatee boy), kept babbling on about these subjects (he apparently just discovered ZH). The rest of the group engaged in a heated and entertaining debate — which I sat out. Since I lost my voice 2 weeks ago, I have been very selective as to who and where I am going to waste it on. This turns out, as we shall see, to be a surprisingly effective and delightful strategy, one I may have to employ even after I get my voice back.

Eventually, one of our party notices my silence, and turns to me.

“Well, Ritholtz, you are unusually quiet — this is your roundhouse, what do you have to say?

I gesture to my throat, make a croaking sound, and then begin to speak very softly. Everyone leans in to hear what I say (I must remember this trick in the future). I say something like this:

“An enormous difference exists between debating policy and managing assets. They are two radically different activities. Hence, you folks may be talking at cross purposes.

Grad students can go to Cafe Reggio on MacDougal Street, smoke clove cigarettes, stroke their goatees and debate this philosophically all night. That’s fun, and its what you are supposed to do in grad school.

However, that is an indulgence of the student philosopher.

Anyone who toils in the markets professionally or manages money for other people (or even their own investments) does not get to enjoy such a lavish, self-indulgent luxury. Their job is not to opine on such matters, but rather, to manage cash in the environment that is — the world that exists presently, and is likely to exist in the near future. It is not their role to manage money based on the way things ought to be — rather than the way things are.

I think of myself as a Sailor, and my job is to navigate the seas on behalf of my clients/passengers.

Any good sailor knows the Seas, the prevailing tides and the lunar cycle, He understands the trade winds. He must know how to read charts, the weather, the sky & clouds. He anticipates the changing seasons. He can navigate by the stars.

A good sailor knows his boat inside and out, and can make repairs with whatever is at hand.

An experienced sailor knows when to ride out a storm, and when to turn around and head to the safety of port.

An old salt, a professional sailor, he knows when the sea is angry, when the storm gods are vengeful, where the sea monsters live.

The sailor that knows all of that, and is a little bit lucky, might return home to port alive. The rest don’t stand a chance.

You can discuss the sea and the storms and the serpents all you want, but all this chatter is mere spit in the ocean.

Stop talking, and start sailing.”

That was it. I stopped talking, and let my words register ont he surprised faces around the table.

That’s the takeaway: Learn the basics. Get the advanced concepts down. Even learn the myths and superstitions. Apply what you learn.

It never hurts to be lucky. And Always Know Where the Sea Monsters Live . . .



Category: Apprenticed Investor, Investing, Markets, Philosophy, 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.

57 Responses to “Where Sea Monsters Live”

  1. Conversation more or less verbatim.

  2. JasRas says:

    We’ve had this conversation in our Investment Committee numerous times! Seems like the name might state the purpose, but someone always wants to make it Policy Committee!

    Look, I’m sure someone in the 70′s was pounding the table on how the leaving the final vestiges of gold was going to accelerate the debasement of the dollar. THEY WERE RIGHT…. But missed on helluva run in the stock market if they had avoided dollar based investments…

    Policy takes years/decades to unfold. Managing money is measured in quarters and years if you’re lucky. Never forget what you do and why you do it. Whether it’s for yourself or for clients…

    The marginal crowd is buying bullets, gold and bunkers…sound familiar? How about the 1950′s? How’d that turn out for those people then? Well, they’ve got a nice storm shelter anyhow…

    Well said, Barry. It’s about time someone put it out there.

  3. constantnormal says:

    One of your BEST posts, BR.


  4. PeterR says:

    Ah, the sounds of silence . . .

    Reminds one of Bucky Fuller taking a year off from talking, to ponder the meaning of life.

    [ Silence ................................... ]

    PS — Notice the noisy voice in your head.

    Hah !!!

  5. dead hobo says:

    Barry Ritholtz Says:
    May 1st, 2012 at 7:09 am

    Conversation more or less verbatim.

    Sailors work for a living in cold and wet surroundings. Many smell like fish.

    Next time, go for the Klingon Warrior of Asset Management approach. These are only kids. They won’t know the difference and, most likely, neither will a few that currently work on Wall Street. Way cooler. You might even get one or two admirers to put on a forehead. Good for a laugh.

  6. emaij says:

    Well put.

    You may be a sailor much of the time, but The Big Picture covers more than just the weather and currents. There may be less Cafe Reggio here today than a couple of years ago, but that in itself is an indicator of something.

  7. Petey Wheatstraw says:

    The sea captain might be a good analogy, but as you don’t set the course or otherwise command the ship, you, as a passenger, can, at best, only coordinate the activities of those passengers who choose to follow your lead in responding to those having steered the ship onto the shoals.

    You can go along to get along — knowing that eventually, you will be swimming for your life, or you can mutiny and risk being tossed into the brig to die as the ship is dashed on the rocks. The difference is which option you think affords you a better chance at survival. The third, seemingly more radical but actually more prudent option is to commandeer a lifeboat and abandon the larger vessel for a smaller one, and take as many as will come along with you — knowing that you might sail alone, but indeed, be the master of your fate.

    I also once made a watercraft analogy to one of the New Princes of homebuilding, shortly before the bubble burst. My analogy was:

    We are cruising down this river together in a canoe. So far, it has been very smooth and pleasant. However, lately, I have been seeing rocks in the water, and they are becoming more numerous and we are passing them at a greater speed than we were when I first noticed them. Now, I’m hearing a roaring sound, up ahead.

    Being that this is your canoe, and that I am only a paddler, I ask that we steer the canoe to the shore for a day or so, and scout up ahead, as I suspect that we are approaching a waterfall. If you decide not to do this, I hope you won’t hate me if I jump in and swim for the shore myself.

    (This recounting of our conversation is also as close to verbatim as I can make it without having recorded it).

    We went back and forth for quite a while about all of this, as we truly enjoyed each other’s company, and did not want to part ways.

    He denied the rocks and the roaring sound, and I bundled my provisions and bailed for shore.

    What has happened since then?

    We are both still alive, but he is stranded on a rock in the middle of the river and facing a rising water level and diminishing prospects. Those he didn’t throw overboard to lighten the load (many of whom were swept away), are stranded with him.

    (A year after this conversation, and our parting of ways, his wife, of all people, called me one morning and told me that on their morning drive to the now thinly-populated offices, the Prince had told her that I had been right about everything. That admission was no consolation, whatsoever, as it came far too late to help either of us).

    I, OTOH, am not high and dry, but I have more options. I look at him as suffering the harsh reality of the formerly self-deluded, he looks at me as being disloyal.

    Other than the recognition that in the end one is only the captain of one’s own destiny, I don’t know if there is a good lesson to be learned in any of this.


  8. adid says:

    Finance is a mere detail for a philosopher.

    That guy may have just discovered ZH but do not generalize.

  9. rktbrkr says:

    Bernanke is Neptune?!

  10. JimRino says:

    All you need to know about Zero Hedge.
    1) He says something truthful.
    2) Commenters jump all over him.
    3) He Backs Down.

    Zero Credibility.

  11. Petey Wheatstraw says:


    I wrote and submitted a rather lengthy response to your post, but it seems to have gone into the ether. If you could retrieve it and put it up, I would be grateful. If not, the gist is this:

    You are not the captain of the ship. You do not command it. It has already been steered into an iceberg, but still floats, for now. You are the head of a committee of passengers who trust you to keep their assets dry as the ship lists further and further on its side. it is not a good sign that the captain and officers have already manned lifeboats and shoved off.

    Do what you will, but I suggest you get your group ready to fight for a lifeboat.

    Once you are in the cold water, cling fast to your little dinghy. In the end, it’s all you have.


    BR: posted — got caught in filter

  12. ministerofsillywalks says:

    gotta disagree with the other posters, Barry – this story does not reflect well on you. It wouldn’t kill you to offer an opinion when asked at a dinner party. Instead you say, essentially, “opinions don’t help me do my day job.” And you couch it in high school-y metaphor about how you’re an old salt and everyone else is a landlubber. And then you brag about your condescending non-answer on your blog. Yuck.

  13. My lecture was aimed less at Goatee Boy and more at the pros at the table.

    I pass along the truth I it’s unvarnished fashion. Makeofit what you will.

  14. cognitive dissonance says:

    I have to totally agree with ministerofsillywalks. WTF?

    People read this blog because of your broad industry knowledge and ability to synthesize the noise into what counts. And sometimes you just put up really cool stuff and have a good sense of humor. It may generate business for your money management gig but no one comes here for specific investment ideas. Please don’t turn into a pompous d-ck. That slot is over subscribed.

    If you want to ZH bash — go for it. I for one would love to read the counter point to Tyler’s prolific work. And he/they do a great job.

  15. counter point to Tyler’s prolific work:

    Missing the single greatest equity rally in a generation. EOM

  16. whskyjack says:

    Ah, I love Metyfours

    Here is mine

    I need to get across an ocean full of storms and icebergs, So do I buy a ticket on the Titanic with all those experienced sailors, or one on the rusty freighter who’s captain assures me” he has done it a thousand times, no problem” or do I get in my little row boat and paddle like hell?


  17. FMT says:

    You had me at “Goatee boy”.
    And again at “just discovered ZH”.

  18. Moe says:

    Well put. I forwarded to several financial advisor friends.

  19. super_trooper says:

    @BR, you miss my point. Any service providor should act as a sailor/captain/guide for its clients no matter what the profession is. Blogging is not your primary job.

  20. Mark Down says:

    Typical BR … I’am right your wrong.. Now go and get me a Blue Moon 2 oranges slices!

  21. Greg0658 says:

    I like the story .. hits a few nerves and memories .. good May Day story

    day jobs and night times / how they interact .. as an artist it’s my job to get thru to you all and BR the cash runner is correct – till that happens (if ever) – you best play the game that is running / as best a possible

    Simon & Garfunkel – Red Rubber Ball
    tho this is not my memory (never heard it till today) it points to mymem with more info to boot

    oh ah interact ahoy in this shakedown cruise – Submit Com (& I approve this message)

  22. Moe says:

    “Finance is a mere detail for a philosopher.”

    It is easier to merely declare and not be bothered or hindered by the consequences of your declarations…as opposed to those who have a dog in the fight and are accountable to others for their words – the difference is huge.

  23. Expat says:

    While I understand your point, I still maintain that your role is not quite as innocent as you make it out to be. You, more than most, are in a position to influence the seas and change the regulations on who can sail them and with what kind of ships. You more or less defend your industry, which is natural but obviously open to an accusation of bias.

    Wall Street (writ large) has a role to play in the economy, but when that role becomes one of maximum blood-sucking and mind-boggling bailouts, I would like to believe that someone as rational and fair-minded as you would agree that major changes need to be made. You have spoken and written openly about the abuses and distortions, so I think your dinner table croakings were just arrogance and annoyance.


    BR: That’s my evening and weekend job

  24. DaveLee says:

    Money system is engineered by nature whether the medium is paper, electronic or gold. Debating and complaining that the money system is manipulated misses the point because the money system is always manipulated one way or another from its birth on . Unless you’re in a position to have impact on the monetary policy, your energy and time will be better spent if you focus on choosing asset class current money system favors rather than trying to change the money system to favor asset class you’re holding.

  25. Note that those who manage OPM have a fiduciary obligation to the clients — not to policy makers or electorates.

  26. lalaland says:

    … a 3 hour tour, a 3 hour tour

  27. lalaland says:

    I’d also like to point out that Professional Money Managers are indeed known to “get to enjoy such a lavish, self-indulgent luxury” – you hear them on MSNBC, CNN, Bloomberg daily.

  28. That is an exceptionally good quote Barry, thanks.

  29. Christopher says:

    “I don’t drink beer very often….but when I do…..”

  30. jlj says:

    “and don’t forget to be lucky.” There is my problem. In the famous words of Steve Martin, “I Forgot!”

  31. DeDude says:

    It sounds like they were having a financial policy debate not an investment debate. Or maybe they had something that was a bit of a mixture, not realizing the huge difference between the two. From what I have read here you are fully capable of participating in both types of debates.

    It sounds to me like you were invited into the debate but punted and refused to get into it with some overconfident fool who had a lot more opinion than knowledge (and had little ability to process facts). I can fully understand that since huge amounts of time can be wasted on this type of person. But to some extend you did let down the person who basically asked you to use your knowledge to pull that clown apart.

    I am not sure I would agree with the sailing metaphor. People do have a much better chance at influencing the political winds and waves than they have at influencing real winds and waves. That is why people who have deep knowledge and the gift of being able to explain complicated matter in simple and straight forward ways, have some level of duty to do that. However, if they one evening are a little tired and out of voice, then its OK to punt.

  32. AHodge says:

    its a good line,
    shucks i ve got enough on my hands just tryin to understand markets
    it will serve you well big guy with all the political types on both sides you deal with
    especially this season of their political menstral cycle

  33. lunartop says:

    Not that I get invited to dinner parties – but from watching them on TV aren’t they exactly the place to spout on about stuff like this. My suggestion stop taking your work home.

  34. romerjt says:

    We’re all George Jones wannabees trying to lay down “The Cold Hard Truth” . . maybe best country song ever

    You Don’t know who I am
    But I know all about you
    I’ve come to talk to you tonight
    About the things I’ve seen you do.

    I’ve come to set the record straight
    I’ve come to shine the light on you
    Let me introduce myself
    I’m the cold hard truth.

  35. machinehead says:

    “Its all a Ponzi scheme” he declared.

    Ponzi schemes on a global scale take a long time to play out. This one has been underway since at least 1971, when the dollar’s last link to gold was severed. Or 1935, in the case of Social Security. Or the 1890s, in the case of the prototypical European welfare state.

    The Big Bang which ends it all could still be years away. As the current euro crisis demonstrates, rising interest rates will signal when a state is sliding into acute crisis. In the meantime, safe harbors for capital which can still borrow dirt cheap — e.g. Germany, Japan, and the U.S. — are not going to blow up right now, regardless of how poor their long-term prognosis may be. For better or worse, they can still borrow without limit, even as their future dims.

    As long as there’s a safe harbor somewhere, one can still manage a multi-asset portfolio to earn a profit the old-fashioned way — from interest, dividends and capital gains. Assuredly, real assets are an essential portfolio component, owing to their valuable uncorrelation with financial assets.

    But it’s still too early in the long Ponzi End Game to dump all financial assets and hunker down in a bunker stocked with gold, guns and grub. It might be prudent to have one. But allocating all of one’s assets to a bet on a low-probability (for now) extreme event is not likely to work out well.

    My best guess is that we’ve still got at least two or three more rising-inflation business cycles ahead, before the bozos in charge actually drive this bus off the cliff. Meanwhile, there’s still money to be made at the long-running poker game in the smoky back seats. Deal!

  36. formerlawyer says:

    Hmmm, where do you stand on ethical investing then? Some studies have shown, and no I don’t have them to hand, that an ethical portfolio can outperform mixed bag. I would suggest that your “sailor metaphor” is inaccurate – captain may be accurate – you choose where to go, you choose your destination (and if you are lucky OPM follows) – you choose your methods ie moving averages etc. I think you are understating the link between your thinking and actions.


    BR: it doesn’t really work — remember when BP was green? Walmart was evil, then good, then evil again. Do you invest in biotech research working on a cure for cancer? Oops, thalidomide! What of generics?

    Investing is hard enough without making it artificially more difficult

  37. Petey Wheatstraw says:


    Thanks. You are the man.

  38. kcowan says:

    Is it possible to blog softly?

    It seems that your loyal followers have to hear the debates about the problems with your metaphor. Must be the nature of the medium.

    Anyway, it is nice to hear your voice of reason regularly. Thanks. Keith

  39. blackvegetable says:


  40. louiswi says:

    Great post today Barry!

  41. Interesting split between the yeas and the nays

    I suspect it’s a pro/amateur divide

  42. Pantmaker says:

    Barry this is an example of the quality of thinking that separates the boys from the men in this business. You put this one deep into the happy flailing arms of the bleachers. Nice post.

  43. Sunny129 says:

    Got to agree. It is one of the BEST from BR!

    Having in fairly neck deep in investing my own portfolios – taxable and tax deferred, since 1982, this is one of the most personal ( emotions) pitfalls to admit and to be aware and remind myself every time, when Mr. Market didn’t agree with me. as BR has said many a time – Do you want to be right or make the money?!

    Sometimes I think that investing based on probabilities and some time ‘crap shoot’ especially when logic, rational thinking or fundamentals means zilch.

    My motto ‘ You say, Market is ‘rigged’. So accept it deal with it’!

  44. Expat says:

    If you are assuming the amateurs are against this post, then please count me as a “nay” on the pro side. It is your right to be a Vampire Squid by day and an Occupier by night, but, unless I am mistaken, your dinner party was not taking place in your office.

  45. reedsch says:

    As I submit that economics is applied moral philosophy, and business is applied economics, the nexus is firmly established. A pragmatist like Adam Smith or John Stuart Mill would have found the dinner table a most appropriate arena for dueling ideas. It need only be sufficiently lubricated with grog and spirits.

    When I drink beer, I can sing well,
    and when I drink wine, I can sing even better,
    but when I drink tequila, I can sing best of all.

  46. louis says:

    Your either doing the F*&%ing, or getting F*&^ed

  47. cognos says:

    A few random thoughts:

    1) On ZH… seems wrong 90% of the time the last 4 yrs… and for all history (at least US history ;)

    2) On “philosophers and intellectuals”… remember, LOTS of smart people and most of the professor intelligentsia thought Communism was a good idea.

    3) Few people can combine the effective naturalism of capitalism with the word – “should”.

    4) Finance can be a grand intellectual game. Soros and the old Bill Gross were great thinkers about policy and reaction functions. I hear they performed pretty well (Soros is arguably the best ever, Bill Gross runs $500B for a reason).

  48. [...] Barry Ritholtz, “An enormous difference exists between debating policy and managing assets. They are two radically different activities.”  (Big Picture) [...]

  49. mote says:

    “Second star to the right, and straight on till morning.”

    —Captain Kirk

  50. “…I have been very selective as to who and where I am going to waste it on. This turns out, as we shall see, to be a surprisingly effective and delightful strategy, one I may have to employ even after I get my voice back…”


    mind your own Note, above..

    this..”…one I may have to employ even after I get my voice back…”, alone, is Worth more than ‘Its Weight, in Gold’..”

    as you, already, have seen..”…This turns out, as we shall see, to be a surprisingly effective and delightful strategy…”

    and, as you may, already, suspect–”Too many ‘Good Ideas’ are, too often, wasted on ‘too many’..”

  51. willtruth says:

    While the captain analogy is correct in so far as, you manage money in the market you have not in what you want. However, there is a huge difference between being a Captain ( willing accomplice) and his passenger ( innocent client) ! The Captain being the manager who accepts the “Cronyism and Fraud” as the market is what it is and covers for it. And the innocent client, who listens to their manager ( the accomplice ) and believes, well everything is ok. Because, surely, my wonderful manager would not have me be in a market which is about to get crushed just so he can earn his 2%. We’ve seen how well this navigate the seas has worked for clients over the last decade.

    The markets are filled with too many Captains who are willing accomplices and that is the problem. If you think it’s worked well, let me tell you, you are just as much a part of the problem.

  52. 873450 says:

    Yes, but what about Pirates?

    Their numbers have been proliferating for 30+ years. When caught stealing, plundering, kidnapping and raping hostages (government capture), demanding ransom and sinking other ships (sometimes their own) they get to negotiate civil penalties enabling them (Oops, wrong, their shareholders) to pay fines (sometimes steep, sometimes not) without acknowledging criminality that would land anyone else in jail and permanently exile.


    BR: Good point. I may have to edit that in…

  53. Laocoon says:

    Great piece, Barry, but you give too much credit to the policy discussion side. Even policy discussions can’t be abstracted to simple values mantras, which I find most coffeehouse types want to do. The context, whether government or NGO, is complex, including existing laws/rules, fact sets and constituent preferences. A real government policy discussion can get pretty complex. But you are kind to compliment your friends.

  54. mloren1357 says:

    Barry thanks for sharing with us your sailing tricks and insights… It makes this insane world of investing somewhat tolerable.

  55. manifest says:

    Thar be dragons! :)

  56. super_trooper says:

    @BR, “Grad students can go to Cafe Reggio on MacDougal Street, smoke clove cigarettes, stroke their goatees.” While market professionals can start a blog, walk their dog and rubb their oversized belly. Neither of them will change the system. What we need are people who are willing to get on the street and protest (boots on the ground). We don’t need more armchair protestors/activists. The civil rights movement would not have happened in this decade. How about some more soma?

  57. Again, you seem to be misunderstanding the role of the professional asset manager. Their day job is not to change the system, but to manage risk.

    Try the cappuccino at Reggios — you’ll love it!