Reader:  “Is it just me or has Barry Ritzholtz gone over to the other side. I see him guest hosting Bloomberg more so maybe it just goes with the territory….I’m dismayed and don’t like it when these guys sell out. Roger Lowenstein and his article on Bernanke….in Atlantic Monthly. Just venting………”

Fleckenstein: Lowenstein, who is a good writer, has been a serial defender of the Fed. As for Barry, I can’t say, he is just another one of a lot of guys who don’t want gold to be higher, as it means much of what they currently think might be wrong.”



A TBP reader at Oppy forwarded me the above comment from a reader of Bill Fleckenstein. I sometimes forget that — despite tens of 1,000s of posts, years of columns, almost a decade of media appearances — some people have no idea about anything I have ever said or written. Apparently, some folks are too lazy/biased/ignorant/committed to a position/ to be bothered spending 30 seconds doing the slightest bit of homework after they come across a headline or Tweet. Rather, they read whatever they want into it — including all of their baggage, biases, and behavioral quirks — as opposed to engaging in actual thought.

The exchange above is a perfect example. Thus, I want to use this opportunity as a “Teachable Moment” to explain to those who may be unfamiliar with my investment philosophy or prior writings (so craftily hidden online) to explain why I write the things I do — on everything from Gold to Trading to Cognitive Biases.

If you are unfamiliar with my prior body of work, here are 10 things you should know about me:

1. I am Agnostic on everything: I am agnostic about Gold. In fact, I am agnostic about any asset class, sector, stock, bond or commodity. You cannot be in the market very long and grow attached to anything, as EVERYTHING will eventually disappoint you.

I call this my universal entropy theorem of investing, and its why everything — from Microsoft to the 10 year bond, from Apple to Gold — eventually goes to shit.

2. Biases and Behavioral Economics: I have spent the better part of my career trying to learn why that big under-used melon on the top of your neck fails to work as expected as investors. I have learned that some of it is a design flaw, although to be more accurate, it is actually a feature, not a bug. Your brain has evolved to help keep you alive — and it has been wildly successful for the species Homo Sapiens in that capacity. As investors, on the other hand, not so much.

3. Objective Empirical Data Beats Narratives: Everyone loves a good story. Our history as a species is several million years long, but over that entire period, the written word has only existed for a relatively brief few 1,000 years. Storytelling seems to be a good way to pass on information and knowledge.

I suspect this is why we are hard wired to prefer a narrative versus cool hard mathematics. This foible trips up investors who time and again fall prey to a good tale, despite when the underlying data is saying the exact opposite of the story. Hence, its why dotcoms developed new metrics — it fit the narrative. It is why Apple was going to defeat the law of big numbers. And, it is also why Gold comes part and parcel with its own unique tale, complete with heroes and villains and a comeuppance at the end of the tale for the bad guys.

4. Media: In my disclosure page, I write the following about my media appearances: “All media appearances (tv, print, radio) are unpaid. I show up, say what I believe, and go home. There are no fees, no scripts, no banking favors. I always disclose positions/conflicts to the producer/editors in advance. If time permits, I spit out my personal/client positions on air; Same goes for print. I try to post a heads up on TV appearances in advance when I can, but since they tend to be last minute affairs, no promises.”

I say what I do on media (like Bloomberg or any other outlet) for three reasons: 1) Its what I believe; 2) Being in the media is part of my job (branding, marketing, name recognition, etc.), 3) Its fun. I have a good time with it, engaging in debate, structuring ideas, pushing back against myths.  I never use PR people (when the Bailout Nation came out the publisher hired a PR agency for a month), I simply write what I write and if I get invited somewhere great — but thats not why I write, and I have been writing on various subjects for decades before I ever did media.

5. Valuation: Ultimately, investing is about identifying good value over long periods of time. The way we can do this for stocks is by looking at (preferably objective) metrics such as cash flow, revenues, price to book, dividends and last (and yes, often least) earnings. For bonds, its about the credit worthiness of the borrower, the yield, and inflation relative to Fed rates. There are metrics for energy and real estate; for industrial metals, food and timber it is harder to value; for precious metals it is extremely hard to find an objective intrinsic valuation.

6. About Gold: I recommended people buy Gold at a time when the underlying factors were a falling dollar and high inflation back in 2005-06 or so, and Gold was in the $400s.  At the time GLD was $43-45. The first time I recommended Gold to the investing public was on CNBC’s Power Lunch, when I suggested having a position in the GLD ETF. This was about 8 years ago, and GLD was in the $40s.  I recommended adding to your gold trade at $1040 for technical reasons. Based on a some technical work we did, including some quantitative analysis, we put a $1350 target on spot Gold. When Gold Hits Our $1350 Target, I suggested there was more upside but some profit taking was in order. In July 2011, to a roomful of Gold Bugs in Vancouver, I informed them that Gold is a Trade, Not a Religion – and I explained that these things tend to end with a spasmodic spike rather than a stock like rollover.

Note the statement Gold is a Trade, Not a Religion is actually grammatically incorrect — it should read: “Gold should be a Trade, and not a Religion” because for too many people it has become a religion.

7. Shorting: I like to short overvalued assets.  In general, I like short sellers as guardians against fraud. My working assumption is that anyone who is against short selling or short sellers are pro-Fraud.

I have not been short gold (nor held an asset or fund that was short). In fact, I don’t believe I have ever been short gold.

8. Quantitative Research: I do believe in crunching numbers, looking at cycles, trying to use math to optimize the investing process. That is half of my day job, as CEO of Fusion IQ. I believe the evidence is overwhelming that an objective, empirical approach to investing is vastly superior to a myth based, narrative driven heuristic approach.

9. Asset Management: The rest of my daily work involves managing actual assets for clients. We run an asset allocation model that owns stocks bonds AND commodities. (We sold all of our gold related holdings, including First Eagle, in December 2012 because they were under-performing — and that is part of our process).

Managing assets for clients has the potential to introduce all sorts of biases (career risk, cheerleading, etc.) but I try my damnedest to avoid these by creating specific rules for investing, and doing what I can to refine and follow them.

10. My Bias. Speaking of bias: As a fellow member of the species Homo Sapiens, I am as biased as any other human is. However, I have some degree of awareness of this. I hope this enlightened view allows me to avoid making at least the really obvious mistakes.

The bottom line is if you are buying something you don’t understand based on a narrative that is half myth pushed by people with an incentive to bring in more buyers, well then, you are setting yourself up for a disaster.  This is true for Gold, equities, IPOs, penny stocks, banking deals, etc.

To Fleck’s reader: “No, its just you . . .”


Category: Gold & Precious Metals, Psychology, Really, really bad calls, Rules

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.

36 Responses to “Sell Out: "The Other Side"”

  1. Rationality says:

    fantastic write up.

  2. A says:

    The biggest advantage the financial industry has, is that the average (so-called) investor chooses to remain ignorant.

    And consumer ignorance is highly profitable.

  3. Willy2 says:

    I, like “the Fleck” wants gold to be higher but on the same note my model says that gold is going lower in the coming months. Although I think gold will go higher in the next weeks. Made some good money in september 2011 by being short gold.

    I like the 10 things Mr. Ritholtz mentions. I´ve learned the hard way that even gold can go down (fast).

    • Willy2 says:

      Or does “the Fleck” think that all that QE will increase inflation and that as a result of that both gold & interest rates will “go through the roof” ?

      • Lots of people have said that over the past 5 years — but we have had lots of QE from central banks around the world, and STILL no significant inflation

  4. zn8ke says:

    I agree. I wish I worked with a man with those sensible insights. Especially the ending: “The bottom line is if you are buying something you don’t understand based on a narrative that is half myth pushed by people with an incentive to bring in more buyers, well then, you are setting yourself up for a disaster…”

    You are a star Barry ;)

    • parsec says:

      I get these mailers from penny mining stock touts alerting me to the next one all set to go through the roof. But reviews of brokers (can’t remember the site name) written by traders specializing in penny stocks stress working with brokers who feature “good borrow.” The only procedure I know of that requires this is SHORT SELLING.

  5. cjcpa says:

    Funny, my Melon tells me to eat more to survive the winter.
    Of course, I don’t need to eat more to survive any season.

    Reading your blog has made me more aware of cognitive errors, and the caveman/monkey language always makes me laugh. I read The Naked Ape high school and the analogy never ends.


  6. VennData says:

    But gold is so shiny!

  7. ComradeAnon says:

    Bill Fleckenstein and a reader are questioning your methods. Is there better praise? Keep it up Barry.

  8. Oral Hazard says:

    Bad boy, bad boy
    Whatcha gonna do
    When goldbugs come for you?
    Bad boy, bad boy

  9. Great post Barry – It’s funny how this person equates your rising public appearances as selling out, when:

    A. It’s a mere fraction of the stream of conscious you’ve written about for all to absorb. The only thing you haven’t shared is what you eat for breakfast (and I could have missed that).

    B. You are being called on by BB TV and others PRECISELY because you are a prolific provider of content that is well thought out and you pull no punches (plus being entertaining to listen to).

  10. jbay says:

    Not to be a stickler for the details Barry but “the written word has only existed for a relatively brief few 1,000 years.”

    ~ Writing has been around a little longer then 1,000 years. See the Epic of Gilgamesh as an example, believed to have first been written down circa 2,000 B.C.. Granted mass produced literacy is younger along with the printing press but writing has been around for at least 4,000 years and that’s just a guess. It’s conceivable that there was older writing that has been lost to history.

    Again, apologies for getting away from your point. I find it silly that someone would think you’re a sell out because you use an opportunity to reach a larger audience. That seems like a self defeating mind set coming from a looser. Banks did bad things, why would anyone care what platform you use to communicate that right? Anyways, if you’re ever interested in learning about the ancient past the Epic of Gilgamesh is pretty informative of other writings, histories and the evolution of culture in general. Well worth a read.


    • 4000 doesn’t count as “A few 1000″ ?

      Especially relative to millions of years!

      • ottnott says:

        It is common knowledge that the “relatively brief” modifier, when applied to “few 1,000″ and when that “few 1,000″ is enumerating years, limits use of “few 1,000″ to no more than 3,875 years.

        As the number of 1,000s rises, the term “few” must be replaced by, in ascending order:

      • jbay says:

        I missed the few. I apologize.

  11. faulkner says:

    “it is actually a feature, not a bug.” Hurrah on that call Barry. The story of heuristics and biases too often becomes a summary of what poor saps we all are instead of how well we naturally navigate our worlds.

    “An objective, empirical approach,” as much as that can be achieved, is a distinct set of skills, and for the most part not a sought after lifestyle.

  12. Arequipa01 says:

    Your decision to take advantage of this ‘teachable moment’ has produced an interesting text, one which while arguing for ‘agnosticism’ and resistance to ‘religion’ or ‘belief’, struggles to escape one temple only to stumble into another. I like it, and I like it when you reflect on these things, however, if you’ll forgive me my presumption, I’d like to comment briefly on your first three points:

    1) Markets are a crooked path, walking a straight line leads one to the cliff.

    2) This focus on ‘physiological’ shortcomings is interesting but when exaggerated it serves as ‘noise’, that is to say, at a certain volume it functions as a narrative which blots out the fact that much of the common social discourse surrounding capital markets is utter BS- I submit that much of the cognitive bias you discuss here is a product of the BS frequency emitted by the financial complex- operative example, Greenspan and his magic flute. Is it really cognitive bias when the instrument perceives a masked/deceptive ‘noise’ as a true signal?

    3) ‘Objective empirical data’ is not digestible outside a discursive/narrative context.

    I guess finally I submit that a binary approach to the markets is exactly wrong. To wit, if you privilege the ‘number-crunching’ approach, how do you incorporate into your analytic process (subsequently in your conclusions) the fact the ‘numbers’ are 1) static. i.e., descriptions/precipitates of a past dynamic reality, and 2) often, in their essence, false. So, when studying/analyzing/interacting with the capital what exactly are you observing/perceiving?

  13. mad97123 says:

    What I strugle with being long this equity market is there is no Objective Empirical Data for the place we’re in, even the Fed members themselves will say we’re in uncharted water.

    Stocks have are gone up during this liquidity fest, and that is a data point for sure, but it’s hard to say participants are investing based on any objective empirical data.

    • Agreed — an unprecedented case of first imprression!

    • Willy2 says:

      There’s ENOUGH Empirical Data to tell me at which point we are. There’s – at least – one person that has a VERY clearcut vision. And he doesn’t think we’re in “Unchartered waters” because history is repeating itself.

  14. obryzum says:

    “Gold should be a Trade, and not a Religion”

    A question Barry: Why are there only two choices, and why are they “either” a Trade “or” a religion????? Perhaps Fleckenstein was by implication criticizing this as a false dichotomy. I saw your Yahoo Finance piece, Barry, where you very clearly come out with what you learned in your experience of being a trader. But what about those of us who approach the market with a mindset other than that as a trader. Is our only other option religion?????

    • To repeat what I wrote in the very first rule:

      EVERYTHING will eventually disappoint you. I call this my universal entropy theorem of investing, and its why EVERYTHING eventually goes to shit.

      I dont know how much clearer I can say that

  15. PDS says:

    yes generally a good response except I take issue with answer #4 re BR’s rationale behind media appearances…If I were a client of his I would question his ability to manage my money professionally while at the same time doing all of the PR stuff…which he does alot of here and on TV…and frankly given the mercenary aspect and conflict of interest prone biz media that he associates with, again I as a client would ask …”why do it….I’m hiring you to manage my money…not to spend what appears to be a large amount of your valuable time on TV promoting yourself marketing for new clients?”….media exposure is a double edged sword…in a measured way it can help….but excessive media exposure can be dangerous….you may begin to suffer from Master of the Universe syndrome…and that can be hazardous to your biz….just sayn BR

  16. OscarWildeDog says:

    I guess this “internet thing” is here to stay. And, since the internet thing begat blogs, and bloggers begat commenters, there will always be trolls, idiots, misinformed people, and all the like. I personally believe that I should read all sides to try to minimize my biases and proclivities, and I usually keep my comments to myself. I read about 20 blogs religiously, due to the content and the (seemingly) agnostic approach to the topic at hand. In other words, I try not to read only my point of view on anything.

    However, I feel I have to comment here. I did the same thing a few weeks ago to another blogger I follow pretty closely who was lamenting on virtually the same thing – people not understanding the blogger’s points, taking things out of context and, well, just being “troll-like.” And here is what I said to him.

    Most of your readers, Barry – and this should be important to you – respect what you do, and respect you as a person. We may or may not agree with you but, hey, you are the blogger and we are but the readers (makes for a possible Shakespearean line, methinks.) I find that many, many thoughtful and well-meaning bloggers tend to fret at different rates of “frettidity” (my word) about what any of us think. As a former debate team captain and a current and future polymath, I can’t get enough information. My bad. But, Barry, you should key and direct your thoughts to those of us who have been devout followers all these years and not worry about what THE MINORITY think. To that end, to list why you do what you do, while appreciated, is totally unnecessary. From those of us who are, and will continue to be fans, we get it.

  17. godot10 says:

    “I am agnostic on everything.”

    is sort of like Captain Kirk saying “I don’t believe in the no-win scenario.”

    That “everything is a trade” suggests, to me anyways, that one will never be presented with a fundamental choice, which is non-negotiable and non-tradeable. Fundamental choices tend to be a “Sophie’s Choice”.

    “I am an agnostic on everything” is a really good general operating principle, but the exceptions are a bitch when they occur.

  18. boveri says:

    I take whatever Barry says about investing and managing money at face value, but that’s not what is important to me. This blog is worth a lot to me and thereby presents to me a very positive reflection of the man himself.

  19. investorinpa says:

    As a long time reader and occasional poster on this fine website, I can clearly vouch that Barry did in fact recommend readers ride gold all the way up to 1350. While I disagree with Barry about things from time to time, he does ANALYZE everything and comes as close to being an “all about the numbers” guy since, well, Billy Beane. Granted, i doubt a movie will be made about Barry anytime soon, unlike the famed Oakland A’s GM.

    As far as the TV appearances go, having been on TV a few times myself (not for anything investment related, but more so for political or local issues), I can say that TV is a lot of fun, esp after you have done it a few times. Its also fun to be a pseudo celebrity or have the random person come up to you and say hello, they saw you on TV. Not sure if that’s a thing that Mr. Ritholtz enjoys, but it is a fun ego booster.

  20. FrViper says:

    Thanks for the review. Now if I could only condense it down and make a stick-on for the refrigerator!

  21. [...] Barry Ritholtz, “The bottom line is if you are buying something you don’t understand based on a narrative that is half myth pushed by people with an incentive to bring in more buyers, well then, you are setting yourself up for a disaster.”  (Big Picture) [...]

  22. Tahoe says:

    thanks! Great post. I remember one of my most important trading lessons – if you don’t understand the trade, then you probably shouldn’t be in it. Thanks again. Great content and insight, and valuable advice!

  23. [...] That led to my snarky tongue-in-cheek post, 12 Rules of Goldbuggery. It was a bit of a laugh but I was surprised just how viral it went. The pushback is an exercise in cognitive dissonance, some of which was disturbing in its money losing emphasis on narrative.  My response was this explanation of my thinking about any and all trades — not just gold — titled Sell Out: “The Other Side”. [...]

  24. [...] the circumstances that are supportive of Gold’s ongoing rise. Despite what some goldbugs have laughably said about me, I am agnostic about the metal, except when it is losing people lots of money. I do detest the [...]