Barry Ritholtz has spent decades analyzing financial markets and watching investors make the same costly mistakes over and over. As chairman and chief investment officer of Ritholtz Wealth Management, an advisory firm managing over $5 billion in assets, he understands how small missteps can lead to major financial setbacks.

His latest book, How Not to Invest: The Ideas, Numbers, and Behaviors That Destroy Wealth—And How to Avoid Them, published on March 18, 2025, highlights the most common investment traps and how to sidestep them.

Unlike his first book, Bailout Nation, which was written during the chaos of the 2008 financial crisis, Ritholtz describes this book as a “joy” to write—mainly because hindsight offers a clearer perspective. The book explores real-world case studies from Hollywood, music, and corporate America to show how overconfidence leads to bad decisions.

For example, The Beatles were initially rejected by record labels, and Steven Spielberg’s Raiders of the Lost Ark faced skepticism before becoming a classic. Meanwhile, Elizabeth Holmes of Theranos was once celebrated as a visionary—before being convicted of fraud. The lesson? People often think they know more than they actually do, and that overconfidence leads to poor decisions, especially in investing.

So, what are the three biggest mistakes that prevent investors from building wealth? Ritholtz breaks them down into three categories.

1. Falling for Bad Investment Ideas

One of the biggest reasons investors fail is that they follow the wrong advice.

“There’s an endless stream of bad financial advice out there,” says Ritholtz. "Everyone is trying to sell you something—whether it's get-rich-quick schemes, stock-picking gurus, or the latest 'hot' investment trend."

This problem has intensified with the rise of social media. Platforms like TikTok and YouTube are filled with financial influencers pushing speculative investments that often lead to losses.

A prime example of a bad idea was the meme stock craze. Many investors bought into stocks like GameStop and AMC purely based on online hype, only to watch their investments crash when the excitement faded.

How to Avoid This Mistake:

• Be skeptical of any investment advice that promises high returns with little risk.
• Stick to investments with strong fundamentals, steady earnings, and long-term growth potential.
• Diversify your portfolio instead of chasing the latest trend.

2. Misunderstanding the Power of Compounding

A surprising number of investors fail to grasp the long-term power of compounding.

If you had invested $1,000 in the U.S. stock market in 1917 and reinvested dividends, it would be worth $32 million today. Most people struggle to believe this because compounding works exponentially, not linearly.

The stock market has historically returned 8 to 10 percent per year. At that rate, an investment doubles approximately every 7.2 years. However, many investors make mistakes that prevent them from benefiting from compounding.

Common Mistakes Investors Make:

1. Keeping too much cash. Holding money in savings accounts or underperforming assets means losing out to inflation.
2. Delaying investments. The earlier you start, the more time your money has to grow. Even waiting five years can mean missing out on hundreds of thousands of dollars in returns.
3. Trying to time the market. Many investors wait for the "perfect" entry point, often missing out on long-term gains.

How to Leverage Compounding:

• Start investing as early as possible, even if the amount is small.
• Let investments grow without frequent buying and selling.
• Reinvest dividends instead of cashing them out.

3. Making Emotional Investment Decisions

One of the biggest reasons investors lose money is that they make decisions based on emotions rather than logic.

The two most common emotional mistakes are:

• Buying high out of excitement. Investors often buy into a stock when it's already at its peak, driven by fear of missing out.
• Selling low out of fear. When markets decline, panic leads many investors to sell at a loss instead of riding out the downturn.

This pattern played out during the dot-com crash of 2000 and the Bitcoin collapse of 2022. Many people invested at the top of the market, only to see their wealth disappear when the bubble burst.

How to Avoid Emotional Investing:

• Develop a long-term investment strategy and stick to it.
• Automate investments using dollar-cost averaging to remove emotional decision-making.
• Ignore media hype and focus on long-term financial goals.

The Bottom Line: Investing Is About Avoiding Mistakes

Most people believe that successful investing requires picking the right stocks. In reality, avoiding mistakes is just as important.

Even if you never become the next Warren Buffett, you can still build significant wealth by:

• Ignoring bad investment advice and focusing on fundamentals.
• Harnessing the power of compounding by staying invested.
• Keeping emotions out of your financial decisions.

"Simply avoiding these three mistakes puts you miles ahead of the average investor," says Ritholtz.

For a deeper dive into common investing pitfalls and how to avoid them, check out How Not to Invest, available now.

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The best time to start investing was yesterday. The second best time is today.

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