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b'With Michael Batnick, CFA, Director or Research at Ritholtz Wealth Management, Writer at The Irrelevant Investor blog

Michael Batnick, CFA, is the Director of Research at Ritholtz Wealth Management and a writer for theirrrelevantinvestor.com blog where he posted the article \\u201cTen Things Investors Can Learn from the Horse Track.\\u201d
In the article, he parallels the process of investing with that of gambling and, more specifically, with horseracing. Undoubtedly, there are risks and rewards with both, and before placing a bet or buying a stock, one must do a well thought out analysis and, to use a racing term, one must handicap properly. \\u201cIf you handicap well, but bet poorly,\\u201d says Michael, \\u201cyou\'ve failed. Even a horse with a very high likelihood of winning can be either a very good or a very bad bet, and the difference between the two is determined by only one thing: the odds\\u201d.
When investing, typically someone will be doing an analysis to calculate risk and reward and once that\\u2019s understood, you either take the leap or you drop it and move on. But often when picking stocks, people pay too much attention to a company they like or a product they like and way too little attention to value or the terms of probability.\\xa0 As Michael says, \\u201cThey pay too much attention, again, to the story and not enough attention to actually what\'s going on beneath the surface.\\u201d
Michael also writes that "investors pay too much attention to glamour and too little attention to value." For example, people tend to look at companies such as Amazon or Microsoft in terms of their success and their gigantic returns, but don\\u2019t focus on \\u201chow insanely difficult it was to obtain those gigantic returns.\\xa0 The price of gigantic returns is gigantic draw-downs.\\u201d Generally, growth stocks underperform value stocks because a lot of the future growth is already priced in.\\xa0 He further states that \\u201cevery single stock and strategy and theme and asset class goes through periods of underperformance. Whatever stock you\'re buying or the strategy you\\u2019re employing\\u2014particularly on the value side\\u2014is going to be painful at times, and that is the price for high-end returns.\\u201d
As Charlie Munger, Warren Buffet\\u2019s partner has so famously said, \\u201cWe look for a horse with a one in two chance of winning, but that pays you three to one.\\u201d
In horseracing or investing, you have to calculate the odds before placing your bet.
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Steve Pomeranz: I spend a lot of time reading and, in that process, I continually discover new thinkers and writers who enhance my knowledge and make me a better person and investor.\\xa0 I think I just found one of those individuals and, fortunately, because of this show I often get them to join me to so I can talk to them in more depth. Michael Batnick is Director of Research at Ritholtz Wealth Management, he\'s a member of their investment committee and heads up the company\'s internal research efforts, and I\'ve asked him to the show to talk about a wonderful new essay he just wrote called, "Ten Things Investors Can Learn from the Horse Track." Hey, Michael, welcome to the show.
Michael Batnick: Thanks for having me, Steve. Good to be here.
Steve Pomeranz: So, needless to say, that title, "Ten Things Investors Can Learn from the Horse Track," caught my attention because I have discussed numerous times on this show the parallels between investing and poker playing, but I never thought about it in terms of other forms of gambling.\\xa0 I guess before we begin, let\'s get this straight.\\xa0 I\'m sure you think investing has risks,...'