The Fine Art of Failure

Institutional
Sales Conference

Keynote May 15 2018

Presented by
Barry Ritholtz
Chairman, CIO of RWM

For institutional use only. Not for distribution to retail investors.

 Today’s Discussion

1. The Science of Failure

2. Types of Systemic #Fails

3. Learning How to Fail Well

See if you can spot any parallels to what we do . . .

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Avoid Clichés

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Studying Failure
Praise for Bailout Nation with New Post-Crisis Update

"Succeeds in laying out all that transpired in easy-to-understand

language. If you want to know how we got into this mess and what
might still be coming, this is the book for you."
—The Wall Street Journal

"The author writes with the fury of an insider mortified by the

behavior of his heretical peers. . . . There is much to be said for the
book's irreverence. Mr. Ritholtz has written an important book about
a complicated subject, and yet you could still read it at the beach.
Here's hoping that some policymakers in Washington take it with
them on vacation this month."
—The New York Times

"Ritholtz makes a valuable new contribution to our understanding of

how we arrived at this sorry juncture. He's smart, sassy, and often
amusing. If you're looking for an all-in-one place explanation of what
went wrong and why, this is the book for you (or your confused
neighbor)."
—Bloomberg

"Before the housing and credit bubbles popped, Barry Ritholtz, a

lawyer turned blogger and money manager, was one of the voices
crying in the wilderness. His caustic (and occasionally profane) blog,
The Big Picture, dissected macroeconomic news and relentlessly cut
through spin. His book takes a long view of the roots of the economic
crisis, tracing the history of a series of ever more expensive taxpayer-
funded bailouts of failed industries."
—Newsweek Ritholtz Wealth
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 Presentation failures
Bailout Nation: Investing in a Post-Crash World This is Your Brain on Stocks

Romancing Alpha, Forsaking Beta Misunderstanding Risk

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Failure Is a Growth Industry

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 How To Be Wrong

1. Understand Survivorship Bias

2. Notice Perspective

3. Open or Closed System ?

4. Unknowable Randomness

5. Meta-Cognition

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Ellenberg’s Epiphany

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 Difference of only a few %

Expense ratio A: 0.11% *

Expense ratio B: 0.62%

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* Vanguard average vs Industry average

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Understand Perspective
Data Rich Failure (”Open”)

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Closed Systems

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 Amazon’s Failures
1998 Bezos 2018 Bezos Prime

Failures: Kozmo.com, Amazon Auctions,

Fire Phone, Destinations, and many more
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Great , or . . . ?

11 Companies discussed in Good to Great

also include Gillette, which was taken over
by Procter & Gamble in 2005, and Philip
Morris, which changed its name to Altria

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Not Good, Not Great . . .

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. . . Not Built to Last

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 Rumsfield’s Metacognition?

* Table is wrong; “Known Unknowns” are not uncertain; “Unknown Unknowns” are…
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Nobody Planned This, Nobody Expected It

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 Wrong Like Ray

• Mistake-based learning: View mistakes as

opportunities to improve.”

• Fail Well: own your errors; never hide

them, but bring them forward to create a
learning opportunity.

• Pain + reflection = progress. The “pain of

failure” should lead to reflection, from
which your wisdom derives.

• Systemize: Track what you do; keep

improving from your mistakes.

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 How I Try to Fail Better

1. Learn about failure

2. Embrace Open Systems (Annual Mea Culpas)

3. Use Failure as a learning experience

4. MIB: Tell us about a time you failed — what did you

learn from the experience?

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 Know Your Knowns & Unknowns !

Known Knowns: Costs matter, lower the fund’s fee,

the better the long-term performance.

Known Unknowns: Investors are recognizing their

own inability to pick outperforming managers

Unknown Unknowns: GFC of 2008-09 revealed

most people lack the ability to anticipate how they
will respond to future, unknown market conditions

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 Barry L. Ritholtz
Chairman, CIO
Ritholtz Wealth Management
24 West 40th Street, 15th Floor
New York, NY 10018
212-625-1200
Barry@Ritholtzwealth.com