It's fair to say that Barry Ritholtz, a US stock market strategist and pundit, doesn't really fit the financial guru mould.
For starters, he thinks that listening to an expert's prediction about future market moves is pointless. "My opinion as to the future state of the economy or where the market might be going will be of no value to your readers," he recently told US magazine Financial Advisor. "I doubt anyone's perspectives on these issues are of any value whatsoever."
Instead 51-year-old Ritholtz (well known in financial circles for his influential blog The Big Picture), feels analysts should focus on trying to understand the present. "Most people have no idea what happened yesterdayhow on earth can they tell you what is going to happen tomorrow?"
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Unfortunately, when he looks at the market today, he finds the picture is not that positive. In particular, Ritholtz identifies three threats to investors.
The first is the spread of high frequency trading (HFT) the use of superfast computers and software to exploit arbitrage opportunities by executing trades in miliseconds. This "is a real problem", says Ritholtz. "Trading is a zero sum game, and if they are making a billion a year, it's coming from somewhere. HFT is a tax, which they get to split with the exchanges, which have also become corrupt." His solution would be to create a minimum holding period of at least one second, and force HFT companies to pay a fee of $0.01.
The second big problem is the banking sector, says Ritholtz. The financial crisis clearly revealed the threat posed by of 'too big to fail' banks. Yet they are still a part of the system. "Banks should be boring, not speculative super-leveraged hedge funds", says Ritholtz, who believes they should be split up.
The final threat is financial derivatives. People have been warning about derivatives since they caused heavy losses in the 1980s, but Ritholtz thinks "we still have not fixed the dangers" especially with commodity futures.
But it's not all bad. Despite these threats, and Ritholtz's dim view of his peers, he still has some useful advice for readers: "Learn to think in terms of years and decades, not days or weeks; use a good asset allocation model to own a broad and diverse (low fee) asset classes; rebalance [your portfolio] regularly; give up the stock picking (leave that to the idiots on TV). Oh, and shut the TV off altogether."
