William J. Bernstein
1 Dangerous
Good historical data and an excellent discussion of the superiority of index funds make this book a worthwhile purchase. However, if you intend to blindly follow Bernstein's investment strategy - which lacks a deeper understanding of the importance of investment valuation and market timing - you stand to lose a great deal of money in the next ten years. Before implementing Bernstein's strategy, ask yourself just one question: "Am I aware of the statistical correlation between the market's price-to-earnings multiple and the market's return in the subsequent 10 years?". (If not, you may want to read Bull's Eye Investing by John Mauldin or Irrational Exuberance by Robert Shiller - two of the most revealing and honest investment books ever written.)
Bernstein's strategy, notwithstanding its emphasis on low-cost index funds, will fail if the investor ignores market valuation levels. An index fund is useless if the index is grossly overvalued to begin with. Please, it is in your own best interest to get a grasp of valuation principles before using Bernstein's investment strategy. Take note of investment master Warren Buffett's repeated warnings that stocks are extremely overvalued. Using an index fund does not nullify this fact.
2 The best investing book ever, except for Bernstein's other b
This is one of the two best investing books I have ever read. The other is Bernstein's Intelligent Asset Allocator.
I doubt that anything in Four Pillars is original to Bernstein. And, some of what he writes is arguable (e.g., Bernstein believes that reversion to mean is a mild force, Bogle believes it to be "profound".). But Bernstein has two gifts which make this book remarkable. He presents most of the important concepts in investing, many of which are complicated and abstruse, and explains them in a way which makes everything easy to understand for anyone with a basic knowledge of investing. He is a gifted teacher. His other gift: he is a very entertaining writer, and makes learning about investing a pleasure.
I'd strongly recommend this book to anyone interested in learning the basics of investing, especially those who have yet to see the wisdom in index funds, in avoiding joining the mob in chasing past returns, in avoiding brokers, in investing intelligently in general.
3 The best investment book I've read
Bernstein is obviously extremely analytical and objective. I've been trying find good books on investing and have read quite a few books. Some of those are good. However, no other book I've found gives a clear idea on how to formulate an investment strategy with a clear eye on risk overall with some excellent suggestions on independently going about it like this book. There were many little "gems" in this book in addition to great overarching clear ideas. Also his take on mutual fund companies and some advisors is eye opening. It made me reconsider my current strategy in an objective way. Read it and you will feel more confident in tackling the complex journey of investing.
4 Excellent Read - Wonderful Advice
This book is for everyone from the novice investor to the most savvy investor. The author does a wonderful job of explaining concepts and ideas without getting caught up in a bunch of analytical data and graphs. I wish this book had been published when I was much younger. All young people justing getting started in the work world should take the time to read this book. It will definitely help you later. Definitely worth the time to read this book!
5 Win by not losing.
William Bernstein, market historian, scholar, and strategist, writes this new book with the confidence of his experience and the courage of his convictions, just as he did in his earlier "The Intelligent Asset Allocator." The work is an expansion on the theme that you cannot beat the market by timing or hiring active professional fund managers, so allocate, sit back, and enjoy the long-term ride. His advice is equally applicable to the novice as well as the veteran investor. You get a short course on what market returns you should expect, why you cannot beat the market, why the professionals can't help you, and how to set up your own portfolio using index funds. In other words, he has no use for the investment business other than the index funds it produces.
Chapter 5 on Manias is an excellent history of economic progress, and obviously the groundwork that led to his soon-to-be-published "The Birth of Plenty" (mid-2004) on the origins of the West's affluence. I particularly appreciated his credit to Hyman Minsky on the pattern of bubbles. Although Kindleberger has covered much of the same ground and with greater visibility in the press, Minsky's contributions are more insightful to understanding the distinct nature of economic manias.
Another interesting tidbit is his portrayal of technology as being, in general, a bad business endeavor. Bill Fleckenstein has made this point frequently that technology, unlike Buffett's desired "consumer monopoly," is easily outmoded and supplanted with the new, new thing. Let's just be thankful that earlier entrepreneurs took the time and the risk to create progress.
The true worth of the book comes under the heading of "Why investors lose money." This is the cornerstone of Bernstein's philosophy stating that if you can keep from losing, you will win:
(1) Instead of joining the herd mentality, get out when "everybody" knows that something is a good thing. It only means that everyone who wanted to buy already has; there are no buyers left. Prices can only fall.
(2) Overcome overconfidence by checking the performance figures. Few professionals ever "beat the market." Why do you think you can?
(3) Understand that all investments return to the mean, thus past performance is no indication of future performance.
(4) Don't trade for excitement. Look elsewhere for entertainment.
(5) Keep your eye on the long term and don't be panicked out by emotional short term swings.
(6) Realize that there are no "great companies." The 1000+% returns are few and far between.
(7) Accept that the market is random. Therefore don't get fooled into believing patterns repeat. Index funds are the only way to go.
(8) Check your accounting carefully. Don't overstate your successes while forgetting your losses. Keep track of the portfolio's total return.
(9) Don't get taken for a ride by the investment industry. Trust no one.
It gets a little trickier when he begins building portfolios. Using representative stereotypes, he sets up hypothetical investments using US stock index funds made up of large caps, small caps, large value, small value, REITs, plus Foreign securities. The remaining assets should be split up between cash and bonds (long and short). Your results will be dependent on how well you can approximate this theories. Another catch comes with "rebalancing." Bernstein's advice here is also well taken. Sell out a portion of the superior performers to bring your percentages back in line to their desired weigh in the portfolio and re-allocate those funds into the underperformers to bring their numbers up to desired percentages. Regardless of his distain for decision making, this does require skill and action on your part, but Bernstein has given you enough help to get the job done correctly.
6 The Best Investing Book I've Read
I began seriously investing in stocks and bonds about three years ago. Since that time, I've read perhaps a dozen books on investing. This is my favorite. It has all the elements a beginning investor needs: clear explanations of basic investing concepts; lucid and entertaining prose; a brief history of the market to illustrate for the reader both the manias and extreme pessimism that have sometimes gripped it; and, most importantly, numerous cautionary tales about the industry that helps beginners make their investment choices.
Bernstein identifies four pillars for building a portfolio: theory, history, psychology and the business. The pillar of theory is about the conceptual framework of investing. This potentially could have been a very difficult section, but Bernstein makes it very readable even though he introduces a couple of ideas he claims most brokers are not familiar with. The second pillar of history is about how markets in the West have behaved in the past. Bernstein argues this history is important to remember so that investors develop reasonable expectations for what their investment will do and recognize both the warning signs of an overheated market or the symptoms of a depressed one.
The third pillar of psychology helps the reader to combat the usual mistakes beginning investors make: excessive trading, following hot stocks and funds, high fees, overconfidence, etc. Bernstein says the investor must learn to emotionally detach him- or herself from the investing crowd while still keeping a healthy respect for all he doesn't know. The fourth pillar of business emphasizes that those who provide investment services for you are often your worst enemy to getting a decent return on your money
This is a great book, but not a perfect one. I wish Bernstein had explained some things more fully - especially in the first section of the book on theory. But what he does explain, he explains well enough to catapult the reader to the next level of understanding, should he or she choose to go there. Some critics of the book might argue that Bernstein says nothing new. This is true. But the effectiveness of the book is in the way it is presented and how it is written. I recently read John Bogle's book "Common Sense on Mutual Funds". It is a superb book, and has many (but not all) of the same points as "The Four Pillars of Investing". But it fails to engage the reader as well as this book does.
7 Spot-on Advice
This book is right on the mark. I've purchased multiple copies and given them as gifts. And, oh, by the way, I work for a large actively-managed fund company in Boston, but my own investments are indexed wherever possible!
8 5 top insights from The Four Pillars of Investing
1. Risk and return go hand in hand:
No matter what type of investment you make, "you are rewarded mainly for your exposure to one thing - its risk... The biggest risk of all is failing to diversify properly."
2. Learn from history:
Sometimes the investing public loses perspective, and becomes either unjustifiably positive or negative. Any investor who does not understand history is operating with a significant handicap, and the book offers a primer on financial history.
3. Human nature can lead you astray:
Unless you become aware of - and resistant to - these common flaws, human nature suggests you will have a tendency to: pay too much for some types of stocks, trade too much, tend to be overconfident, and "regularly make irrational buy and sell decisions."
4. "You are locked in a life-and-death struggle with the investment industry":
Financial services companies exist "almost entirely for one purpose: the extraction of fees and commissions from the investing public." Furthermore, the author argues that the industry "operates at a level of educational, moral, and ethical imperatives that would be inconceivable in any other industry."
5. Figure out what you are going to need, then devise a strategy to get there:
Based on the four "pillars" outlined above, the author presents a series of steps designed to help you calculate how much you will need to save to meet your goals, and how to design and manage your financial portfolio so that it takes you where you want to go. "With relatively little effort," concludes the author, "You can design and assemble an investment portfolio that, because of its wide diversification and minimal expense, will prove superior to most professionally managed accounts."
9 Very Good Overview of Investing Principles and Applications
I am an avid fan of Bernstein and his fellow travelers in the Efficient Frontier, Sharpe, and other innovations of Modern Portfolio Theory, so I was disappointed to see so little of this valuable information included in this book. I understand that this book was meant to be less intimidating to the novice and intermdiate investor alike, and he doesn't disappoint with accessible articulation and a witty style that should appeal to every reader.
The two chapters on asset allocation, the ~one~ thing the investor is able to control, and the one thing which directly rewards the investor, doesn't explain the "frontiers" and why four assets or ten is best for the individual investor. The efficient frontier in layman's terms would have been especially helpful. On the other hand, dauntless pages were dedicated to diminishing returns (DR), which were clearly adumbrated for their importance.
Then Bernstein concentrates on Vanguard investment opportunities, with only brief reference to ETFs (exchange traded funds). Vanguard is to be commended for bringing index-investing to the fore, but Vanguard's steep minimums and stiff penalties are impediments for the smaller investor and are downright subversive to the investor who does not believe in a "buy-and-hold" theory of investing. Many ETFs are more asset specific and can be had without excess cost through a discount broker. I wish Bernstein had discussed the merits and demerits of "buy-and-hold" as opposed to, say the Fabian and other methods of entering and exiting the market on certain MDAs (moving daily averages).
I found Bernstein's lack of mention of mid cap stocks throughout the book puzzling. None of the hypothetical asset allocations in the book have any room for mid caps, which can enhance performance and reduce risk. For Bernstein, there are only large and small market capitalization - no middle capitalization. Also, foreign funds and ETFs of foreign assets (such as EFA for MSCI-EAFE index) are considered important, but get only passing and ambiguous comments. The graphs and tables are helpful for the most part, but many are out of date, and some lacked a marked differentiation in plotting more than one overlap, which made for challenging deciphering.
The writing is effusive and accessible, making it a good introductory book and a refresher for bulls and bears alike. Overall, I found the book to be a tad bit too garrulous, but easy to read and informative . My cavils and criticisms aside, this book is truly one of the best books on investment in print.
10 This is a great book...
I won't be able to say anything that hasn't been said before, but this is really a good read on passive index investing strategy and market history. I found this to be good companion book to Larry Swedroe's Rational_Investing_In_Irrational_Times. This book covers market history, efficient market theory, statistics on actively manged funds vs. passive vehicles, and detailed information on how and why diversified portfolios work the way they do. I think the biggest hurdle people will have following the passive index strategy is having the guts to stick out bad markets and putting money into lagging asset classes by taking money from your winners.
Overall the critics are largely irrelevant (re: people who point out Warren Buffet). Although Bernstein presents a fairly weak argument in his book about the success of value investors such as Buffet, I still think the core of the book stands on it's own.
I like Warren Buffet's writings and investment style as much as the next person (and even own a few shares), but he really isn't running a "mutual fund" as people sometimes think. He runs a conglomerate that purchases good businesses that largely run themselves and hands money off to him as profit. This is a great business model, but significantly different from where Berkshire started decades ago. Of course most of these deals come to him because he is Warren Buffet and this gives him a decided advantage over the individual investor. I think in the end the efficient market theorists will be shown correct. I'd like to think that somewhere out there people are beating the market hand over fist continuously, but this is becoming harder and harder to do as an external investor buying stocks. Buffet's advantage over the recent past hasn't been his stock prowess but the fact that he owns the companies and has control over their destiny and cashflow.
Regardless, this book is a great read for anyone interested in protecting their money and beating virtually all money managers with minimal stress.
11 The Everyday Investment Guide
Bill does it again albeit in a much more readable style. This book is a rare gem. It covers aspects such as investor psychology as well as the blunt truth about future investment returns. The author has the ability to shed light on what is an esoteric industry. He has a dry sense of humour, and clearly sets out the case for the average investor. There is plenty of practical stuff here, and I find I refer to the book frequently. This book is a must for any investor, usurping any similar offerings.
12 Good for beginners and the investment jaded!
Mr. Bernstein has written a solid book, based on his "four pillars" of investing. They are as follows "investment theory", "historical perspective", "investor behavioral errors", and lastly " brokerages et. all don't have a responsibility to their clients.
For those of you coming out of the dotcom fiasco many of you will find that this book will heal some of those wounds. The poor accounting practices, the fraud and deception by both analyst and corporations have all made today's investors sceptical and cynical.
Mr.Bernstein will be the guiding light for many of you. His lengthy discussion on investment theory will open your eyes to the various ways to go about investing, and in that respect he borrows a lot from Benjamin Graham's, Warren Buffet's mentor, value investing. Which smoothly leads into his second pillar historical perspective.
Mr.Bernstein shows mathematically that over time the stockmarket and the bond market converge until their yields are the same, which is very interesting if you believe that the only way to make money is when the markets go up, I don't.
Lastly he lambast brokers and money managers both for their incompetency to beat the indices and for their uncaring attitude to see their clients thrive and prosper.
Many of the subjects he discusses in his book will give investors renewed power and strength to attack the investing world again.
Where Mr.Bernstein fails is his leaving out the investing theory of non-correlative investment strategies. It's where you invest in different types of investments that have no relation to one another. This type of investing is essential during bear markets.
I have been involved with futures as an investor, broker.... It is the only known non-correlative investment to the stock market. It allows investors to still make double and triple digit returns while the stock market is collapsing. From my own experience this the only way I survived the dotcom bubble and it is the only way I know a lot of investors could have avoided this massacre as well.
Mr.Bernstein loses sight of alternative investments and of various other types of money managers outside of just stockbroker et. al. That is my primary criticism, but this book otherwise is sound and solide in its strategy and investment suggestions.
13 Ideas that will change the way you invest
Look in the paper and find out how many funds are beating the S&P 500 or their appropriate index. Historically this is very few. And the one's that do well this year or two don't have long-standing power to stay among the leaders. And if you do find a fund that can beat the index, how much are they charging in fees and load that is eating into their margin of victory? After reading Mr. Bernstein's insightful guide into the history and psychology of investing I feel more confident in my new plan than I ever have before.
14 Old information, lack of vision.
The book present only old information viewed from a pessimistic point of view, and reminds us that figures don't lie but liars' figure. The first part of the book emphasise the need to be sceptic in face of various financials annalists and the second tries to sell a system of investment from one of these financials company that we should fear. Mrs. Bernstein is probably one of the best salesman for that company, at least is book is.
15 a pleasure
i have read many financial books but this book is the first one which i found entrancing. it is great entertainment and the case he makes for his positions in personal investing is very persuasive. he caused me to make some financial moves which is, i think, the best argument for the book's value to me.
dan mccaw
16 Quite good
I'll reiterate what some others have said by stating that this is a very good book on basic investing and the construction of a longterm portfolio. My only qualm is that some of the advice rearding asset allocation is predicated on a prediction that stock returns and the return on TIPS will be virtually identical. So Bernstein advises even a young person who wants to invest aggressively to keep at least 20% of their portfolio in TIPS. As we all know, long term predictions tend not to come true. Bernstein is predicting stock returns that are far, far below the long term return of the market in the past. After one of the worst bear markets in history, this does not make sense to me. Yes, he explains in detail why he makes this prediction. But, still, it seems intuitive that stock returns should over the long run be back at the 10-11% a year average that they've done over the past century. In fact Jeremey Siegal has remarked that they should be above average.
Therefore, the advice to keep at least 20% of an aggressive portfolio in bonds seems imprudent for a young person, and I would reject this advice, especially if you would have to keep them in a taxable account.
But, overall, this is an outstanding book that almost anyone but the most well read investor would benefit from.
17 The foundation of any investment library
William Bernstein has written a classic investment book that should be the foundation of anybody's investment library. I managed money for 7 years and have read most of the books considered classics. Nobody explains investment better than Bernstein. He combines a fascinating review of investment history - one of the best perspectives I have ever come across - with lots of practical advice. I love reading about investing and investments and this is my first pick for a reader of any level. I was amazed at how much I learned/re-learned.
I now manage a mutual fund company and this is the first book that any new employee (or any existing one) is recommended when they ask me for my list.
18 Pillars of Wisdom
Bernstein's advice is to take a long step back from the daily market reports and concentrate on understanding how the markets work, the 'four pillars', and design your own investment strategy. Bernstein persuades us that with relatively little effort we can build an investment portfolio that is diversified, minimally expensive, and superior to most professionally managed accounts. An ability to estimate the long term return of the major asset classes is a critical skill. Failing to diversify across those asset classes is an investor's biggest risk. Students of modern portfolio theory (MPT) will find FOUR PILLARS to be a companion volume to Larry E. Swedroe's RATIONAL INVESTING IN IRRATIONAL TIMES. The markets are "brutally efficient". Avoid actively managed funds and use index funds to tap into the "collective wisdom" of the market. Market timing, stock-picking, and technical analysis don't work. Indexed securities may be a little dull, but the strategy outperforms the gurus. The first 'pillar' of the book is devoted to investment theory and historical returns of various asset classes. It's the longest section and some of the best material is here. In "Measuring the Beast" there is the the clearest explanation I have read of the dividend discount model (DDM) that is used to determine 'fair value'. This chapter also gives us the Gordon Equation to estimate market returns (Market Return = Dividend Yield + Dividend Growth Rate). Bernstein's conclusions are unsettling: The return of stocks and bonds will likely be similar in the future and their rates of return will probably be lower than in the past. There is no question that having an historical perspective on investment manias and crashes is an important second pillar of understanding for the informed investor. This history has been told before, but the material fits nicely. Bernstein's third pillar analyzes the behavioral errors investors routinely make. A need for excitement (viz. investors drawn towards low-probability/high-payoff situations) and a fundamental misunderstanding of risk/reward that leads investors to conclude that "great" companies must be winning stocks are just two errors that stand out. The fourth pillar of Bernstein's work is his shakiest. His caricature of the investment establishment that includes the brokerage community, mutual fund companies, and the media is painted with broad angry strokes. He is simply incorrect to say that brokers have no fiduciary responsibility towards their clients (It is required by the National Association of Security Dealers, NASD). On the other hand, his incisive analysis of the 401(k) retirement system is an important alarm. Bernstein's closing chapters address some of the big questions investors ask. His "back of the envelope" calculation for retirement nest eggs is as helpful as discovering a Leatherman Tool in your back-pocket. In a variety of investment scenarios the author ably demonstrates the application of his ideas in a specific and flexible manner. But it is fair to say that a typical portfolio will include US and foreign index equity assets with an emphasis on value (versus growth), short maturity bonds, and a real estate index fund. Serious investors will want to read this book.
19 A very good book...
This is an excellent overall investing book, and very well written. I do feel that he slightly overstates the case for efficient markets, but that is a minor criticism.
Highly recommended.
20 Bernstein's 4 pillars
I have been an avid investor for over 30 years and am widely read in this area. If i were to recommend one book on personal investing, this would be it. Dr. Bernstein builds nicely upon the work of masters such as fisher, dreman, malkiel, graham, and others. He shows that investing can be very simple if one keeps an eye on the big picture and the long-term. His obvious intent in writing this book is to help individuals design an investment strategy to fulfill their long-term financial goals. There is some financial math and charting in the book which may be challenging to the uninitiated, but even if these aspects are above your head, his writing style is very accessible and personal, so the basic message comes through loud and clear.
21 Bernstein's 4 pillars
I have been an avid investor for over 30 years and am widely read in this area. If i were to recommend one book on personal investing, this would be it. Dr. Bernstein builds nicely upon the work of masters such as fisher, dreman, malkiel, graham, and others. He shows that investing can be very simple if one keeps an eye on the big picture and the long-term. His obvious intent in writing this book is to help individuals design an investment strategy to fulfill their long-term financial goals. There is some financial math and charting in the book which may be challenging to the uninitiated, but even if these aspects are above your head, his writing style is very accessible and personal, so the basic message comes through loud and clear.
22 Random walk theory bible
This is a very interesting book, even if you do not agree on the main consept here, that the stock market are efficient and cannot be outperformed for long stretches of time (A main problem with the theory -Warren Buffett- are discarded as irrelevant). Nevertheless there are many good points presented, that high return is only possible when there is high percieved risk, not that it is new, but many interesting examples are given. The history part were also fascinating, I have never heard of the "bubble" in english canals in ninetheenth century for example.
23 The truth hurts
I never thought I would say that I had a hard time putting down a book on finance, but I am mesmerized by this one. First, this book clearly states a lot of cold, hard truths about the market that the average person may have a hard time believing, but I can tell you that the author echoes just about everything that my professor taught about the market in my graduate finance class. I didn't believe him then, but after going through a couple of market ups and downs, I sure do now! Second, it explains a lot of tough concepts in a humourous and clear manner. Warning: this book is highly critical of the financial industry and those who work in it, so don't ask your stockbroker what he thinks about it! The best part is that I think he blows away a lot of misconceptions about the market while offering a reasonable investment program for the average guy. No miracles, no get-rich-quick schemes, but a sound, statistically supported method to invest and grow at least at the same rate as the market. Yeah!
24 Good general concepts...can be inaccurate at times
The author makes a worthy stab at reviewing the topic of investing, its theory, history, psychology, and business practices. For the most part, this is a good book for the beginner and intermediate investor. With the right level of attention, it could leave the reader with a road map for the future which would be solid enough.
But, the author gets a little too passionate about his arguments and points more than once, and overstates his case. Since the book is written for a novice investor, this is a dis-service. Also, the book has some inaccuracies and inconsistencies, none of which are fatal, but some are material.
Finally, the author tries to run the reader through some asset allocation examples - which turn out to be overly complex on the one hand, and simplistic on the other.
All in all, a good book, but should only be a starting point for the curious investor.
25 This book is a must in any investor's library.
Thinking about getting started in the stock market? Already invested? Are you in a 401k program? If so, you'll want to read this book! In fact, you need to read it.
These are nervous times we're living in. To relieve the anxiety that extreme market volatility creates, many investors turn to the public financial press and even worse, private newsletters for direction and assurance. This book was worth ten times the price of admission just to see those mediums exposed for what they really are - advertising cloaked as sound financial advice and tea leave readings portrayed as definitive harbingers of future market moves. As Bernstein notes, the people who produce this stuff make Miss Cleo look good by comparison in terms of accuracy and honesty.
As this book boldly explains, and as many investors have already concluded form their own observations, there are no discernable patterns in short term market movements. It is for the most part a totally random process. This unsettling revelation leaves you with only one viable course of action: make sure that your portfolio is properly diversified, utilize index funds as your core holdings, lean toward a balance of conservative (read: value stocks and bond) assets, and close your eyes to short term upheavals. If you can do this and stay in the game for 20 years or so, it's likely that things will work out just fine.
You owe it to yourself to read this book before plunking down another hard earned 50 dollars or so for the latest wave theory (or other flavor of the month) newsletter that purports to know the future. Bernstein has convinced me that they (the authors of such things) are looking for faces in the clouds and want to line their pockets while doing so.
My thanks go out to Mr. Bernstein (and his associates Jack Bogle, et al) for giving a damn about the little guy. Such people owe all of you a debt of gratitude.
26 Good book but overlaps with his original book.
Well worth reading but much of the content will seem familiar to readers of his other book (The intelligent assset allocator)
27 A Thinking Investor's Book
I have looked at a number of different investing strategies over the years and I really have to say that I enjoyed reading this guide to investing. Bernstein very carefully and methodically critiques the state of the investment industry and provides you with the correct ways to invest and interpret market news. There is some confirmation here with some successful trading techniques I have read about, one technique asks you to totally screen out media influence, another recommends fading news. If there is one great kernel of truth that I believe and read over and over again in good books on investing, it is to develop your own set of unbiased indicators to base your investment decisions upon. Another good book that keys off of real, unbiased data for developing a sound investment methodology is the 401k MarketBuster, which gives you a Fed following system that tests out pretty well. In any case, you can't go wrong with either book.
28 Erudition Spoiled by Intellectual Dishonesty
The best single critique of the efficient market theory was done by Warren Buffet in "The Superinvestors of Graham-and-Doddsville." Bernstein never troubled to address it.
29 Erudition Spoiled by Intellectual Dishonesty
The best single critique of the efficient market theory was done by Warren Buffet in "The Superinvestors of Graham-and-Doddsville." Bernstein never troubled to address it.
30 Best investment book I have ever read
A number of reviewers comment on Bernstein's aversion to active managers.
This is a point which has been demonstrated again and again in the financial literature. See especially 'A Random Walk Down Wall Street' by Burton Malkiel and both books by John Bogle. Although some managers, historically, outperform, they are not the same managers who outperform in the future. This has been demonstrated again and again with different sample periods and different data: it is the dirty secret of the investment management industry, that the rational investor would choose the low fee option.
In the institutional pension fund (defined benefit) market, where fees are *much* lower and sophisticated consultants advise the trustees, you would expect it to be much easier to select good active managers. The reality, which Bernstein addresses, is that institutional pension funds make *more* use of passive or indexed funds, than individuals do.
Bernstein's book brilliantly summarises the main points about investing for the individual investor today:
1. stock returns are likely to be a lot lower in the future, than in the past
2. fees on funds are going to be a very important influence on final returns (1 or 2% of 7% annualised returns hurts a lot more than of 13% annualised returns)
3. since it is impossible to know (in advance) who the superior fund managers are going to be, it is better to lodge the majority of money in index funds, which will provide a return, long run average, better than 2/3rds of money managers, at a far cheaper cost
But the book is much subtler and deeper than this. It looks at how we get 'valuation bubbles' like the recent dot-com/ telecoms boom, and how humans consistently make investment mistakes for deep seated psychological reasons. It helps you to look sceptically at a financial 'advice' industry, that is really there to make a living off your hard earned savings.
Bernstein's bias is towards value investing and he correctly points out that it is possible to pursue this investing style using 'value tilted' index funds, with low fees. Although value as a style has massively outperformed growth over the last 3 years (to the tune of 40% aggregate), it is still a point worth taking in. When stocks in general are expensive (as they still are on any quantitative basis), cheap stocks can still be the way to go.
Reading this book, along with David Chilton's 'The Wealthy Barber' and the books by Burton Malkiel and John Bogle, is likely to be among the most rewarding things you can do for your personal wealth, long term.
31 Astonishingly Incompetent Review
It's scary that a previous reviewer is actually challenging what is accepted by a wide spectrum of authors and economists, namely that index funds handily outperform actively managed ones over the long term. This is not an original Dr. Bernstein idea. The number varies but no one usually argues with the oft quoted 85% figure. THIS is what is at the heart of Dr. Bernstein's book and the book really is a cookbook about the mechanics and psychology of index investing. He does bring up some examples of actively managed funds that have had good runs for awhile and then crashed miserably. If you selectively look at certain periods of time, namely when they are having their good run, then yes, you can make the misleading claim that these funds beat the market over time. But in those cases you would have had to bail out of the funds before the storm clouds came, and this is precisely the point Dr. Bernstein is trying to make with the examples--no one knows when to do so and even if you did, you would take a capital gains bath and give up a lot of the returns anyway. Over the long term investing horizon, actively managed funds are a horrible bet. If Dr. Bernstein is incompetent, then so are: Vanguard founder John Bogle, Larry Swedroe, Burton Malkiel, Tom and David Gardner (Motley Fool), Drs. French and Fama, et al. There may be some minor valid points of contention to be taken in Dr. Bernstein's book, but to present them as evidence that the basic principles of the book are invalid is embarrassing in its intellectual dishonesty. If you are interested in how to design a portfolio with a decent long term return that will beat most mutual funds and match the market, and want to be psychologically prepared for the trials and temptations on that path ahead, buy this book. If you want to be the best pal of the commission-churners, keep your business with the load funds and stock brokers. Better yet, write a nasty review of this book or one of those of an author mentioned above.
32 A bitter pill for the investment business to swallow
In a calm and carefully reasoned way he punctures the egos of nearly everyone in the investment industry who would stand between you and your assets. Those familiar with Jack Bogle's writings will find little new here, but Bernstein has a slightly different perspective as an individual financial adviser. His words of reassurance for the long term investor in these troubling times are worth the price of the book. I have read many books about investing, but few have risen to this level of usefulness, timeliness and readability. And most amazing, he is a fellow physician. We are not known for our financial common sense.
33 Great primer on building a long-term portfolio.
This book is not designed for people who are trying to figure out how to make short-term profits. As the title says, this book gives you advice on building a long-term portfolio. And Bernstein stresses some main points: invest in index funds; diversify; keep costs low; rebalance regularly; tune out market noise; and stay the course.
The information in this book is generally not complicated, and there is little math involved. The content is easy to understand, even if you are a relative newcomer to investing. He does a nice job of explaining the value bias, which states great companies often don't make great stocks. He also spends a chapter on the Dividend Discount Model, which is a fairly accurate method of determining future returns. And he has a chart in the book which gives estimated returns for various asset classes for the next few decades (hint: diversify into small, value, REIT).
If you have read books by John Bogle or Larry Swedroe, you probably already know the main themes of this book. But if you have not, I would recommend this as a great way to learn about long-term investing.
34 Straight Talk
Debunks the steady stream of prattle coming out of Wall Street and the media. Focuses on what can happen rather than year to date and five year returns. Provides workable plans based on historic reality.
35 astonishingly incompetent work
William Bernstein is the kind of man who, as Paul Krugman put it, would rather spend a year hunting down a fact than a day mastering a theory. His book is packed with math but devoid of intellectual content.
Bernstein's approach rests largely on his insistence that there is no way to successfully and systematically pick stocks and obtain a better return than the market; stock movements are truly random, in both the long and short term. His justification for this claim is almost nonexistent. Only once does he, briefly, present a theoretical argument: as soon as a mutual fund manager tries to buy a stock he or she has identified as a superior investment, the buying will push the price of the stock up so that it is no longer a superior investment. That's it; the entire book rests on that claim. Bernstein does not explain where to place the threshold: why, say, a $1 billion fund will be afflicted, as opposed to a $100 billion fund. In fact, his claim is demonstrably false, as index funds are huge and have (as he continously points out) outperformed most active managers.
There are many active managers who have beaten the market over an extended time. Except for four, Bernstein simply ignores them. He deals with Robert Sanborn's record by noting that he did spectacularly in the early 90's, and poorly in the late 90's. He then points out that Sanborn's assets increased during the 90's, and claims this as proof that asset bloat thwarts even skilled managers. This is patently ridiculous. Simply noting a correlation does not show that asset bloat affected the returns. The true explanation is that the market went bonkers in the late 90's, and Sanborn, being a superior manager, did not throw away money on tech stocks; instead he bought sound businesses, which the market ignored until after the bubble burst. It is astonishing to see Bernstein, who is a doctor, think that a correlation among a few data points constitutes proof (think of drug studies).
Bernstein has three excuses for Warren Buffett's superior performance, and they're pretty pathetic. First, he claims that because Berkshire's stock price sometimes drops, it is not a risk-free investment. True, but so what? Second, he claims that Buffett's performance has slowed in recent years, evidence of asset bloat. Aside from the problem of proving causality, this has hardly been a problem for long-term investors, and it is due not to asset bloat but to identifiable mistakes Buffett made. (I, for one, identified several in advance.) Third, Bernstein claims that Buffett is not a money manager, but a skilled businessman who becomes an active part of the companies he acquires. This is a blatant lie: Buffett has stated frequently that he does not interfere with the managements of his subsidiaries; in fact, he refuses to acquire any company unless the management will stay in place, since he says he would he have no idea how to run it.
Bernstein has a habit of lying. He claims that Peter Lynch's Magellan fund was not a mutual fund, but a private investment vehicle, before 1981, and so Lynch's record from 1977 to 1981 doesn't count. He makes the absurd claim that fund prospecti report the management fees, but not the operating expenses.
In denying that superior performance exists, Bernstein nowhere ackowledges the arguments made in favor of particular approaches (e.g. value investing), let alone refutes them. He processes irrelevant fund statistics endlessly, but does not look at the theories or results of legions of superior investors (Robert Olstein, Bill Nygren, Clyde MacGregor); even with Sanborn, Buffett, and Lynch, Bernstein never mentions or engages the active managers' arguments.
William Bernstein has no patience with ideas, and seems clueless as to how little he knows, as do his fans. He is clearly trying to play in the big leagues with only minor league talent.
36 Great all around insight
--I am a student at a small, private university in central Illinois majoring in Finance. Throughout my time there I have become very involved in the stock market and what, or should i say who makes it run. I am currently working as an intern with a local investment company, and throughout my research I have come upon Dr. Berstein's book "The Four Pillars of Investing." I have not yet finished this book, but i am merely pages away from the end and I can't wait to wrap all of Dr. Berstein's findings up and try to apply them in every way possible. I especially enjoyed the section describing the 3rd pillar I believe it was dealing with investor psychology. I have come away whith great applicable advice that will prove to be invaluable as I continue in my career in investing. I must admit that what initially drew me to a career in securities was the excitement and uncertainty of the trade, but what Dr. Bernstein has taught me is that to trade on feelings is a sure way to loose every penny you have. I believe, although I have much to learn, that I already have a well-rounded understanding in investing in the long term after reading this book. Much more of an understanding than many casual investors and even many brokers have, as i have learned that to be a broker doesn't require, but a very minimal understanding of the ins and outs of the stock market.
--After reading this book, I can't wait to read Dr. Bernstein's other book, though I hear it contains drier content, "The Intelligent Asset Allocator." I would definately recomend this book to anyone seeking to gain a more well rounded concept of investing, whether you are looking for somewhere to start, or merely to sharpen your skills, this is the right place to look.
--My compliments to Dr. Bernstein and this great presentation of investment knowledge.
37 Required reading for intelligent investors
It took a doctor to write the most succinct, penetrating book about investing for laymen and professionals. Bernstein writes so well and is so right on about reality of investing. It is counterintuitive and difficult to say the least. His advice on building portfolios that will work is worth the price of the book. I am getting copies for family and friends.
38 Essential reading
Everything that can be said has already been said in the last few reviews, so I will make this short. What Bill covers should take care of the average investor over a lifetime of investing, coupled with his first book. Not only does his advice make sense, but it is great reading too! Invest in this book, it will be far more profitable than your last stock trade.
39 Lots of Truth and Candor for the Money
A splendid book. I've admired Dr. Bernstein's efforts to popularize modern portfolio theory on his web site (The Efficient Frontier) and read his previous book on asset allocation (The Intelligent Asset Allocator). This book is his best effort yet to bring objective advice to the average investor about portfolio building.
Previous reviewers have covered most aspects of this fine work, but I'd like to emphasize one aspect. All individual investors should understand the role of brokers, the financial press, and even mutual funds in the financial industry. Dr. Bernstein lays out who's interests they serve, and where their profits are derived. Be aware.
Heartily recommended to new investors, and also to experienced investors who routinely rely on conventional means to make their investment decisions.
40 A great book for the individual investor
This is truly a great book on investing for the small investor and covers all of the bases. The section on the full service broker should be revealing for the less informed investor. Bernstein falls short of telling us that there is no product offerred by the full service brokerage firm wasting your money on.
The case for index fund investing and diversification is so convincing it is axiomatic that it should be followed by all investor's. I see that INTEL has fired their investment advisors and is placed the pension assets in index funds.
Coverage of Exchange Traded Funds (ETF's) is too light, I guess the good Doctor is waiting for more empirical data on the tax deferral characteristics promised by ETF's. Those who do not wish to wait are directed to Gary Gastineau's book on ETF's.
If I had a wish list it would be to buy a book combining Bernsteins's first two books with the beautiful prose and clarity in Frank Armstrong's Investment Strategies for the 21st Century (available on the internet for free) edited by Jonathan Clements, with a CD narrated by Suze Orman.
41 Every investor should read this book!
William Bernstein's new book, The Four Pillars of Investing, has been eagerly anticipated by readers of his first book - The Intelligent Asset Allocator. I think that readers of The Four Pillars will be just as happy as they were with the first book.
Bernstein, together with a number of financial writers including Larry Swedroe and John Bogle, have written passionately about the merits of disregarding most of the preachings of the financial media and marketers and instead urge readers to take a sensible, rather than emotional, approach to investing. In an easily readable style understandable by most anyone, The Four Pillars provides an outstanding overview of basic concepts of risk in projecting portfolio returns and in explaining why so many investors spend so much money for worthless investing advice and management.
The Four Pillars does a wonderful job of explaining the axiomatic principle that anticipated returns are related to the risk of an investment. I've found that Bernstein's greatest strength is that he is able to explain the mathematical and statistical underpinnings of investment theory in a way that most readers can understand. His writing is not overly technical and the book was a joy to read. Bernstein's discussion on the underlying reasons that actively managed mutual funds, stock picking and market timing only generate high costs and poor performance is excellent and quite convincing.
I thought the book did a particularly good job of describing the mental factors involved in a long term investing strategy. The book was written after the technology crash and the events of 9/11 and draws on these events to explain the type of mental anguish which investors must anticipate over the course of a long term plan. Unlike many investment writers who simply advocate investment in equities because they historically have done better over the long term, Bernstein takes pains to advocate a diversified portfolio tailored to the investor's level of risk tolerance so that an investor can stay the course through thick and thin.
For people who believe that they have a unique ability to actively trade their way to market beating returns - read this book and it will change your life.
42 The most important investment book you'll ever read
Right up front, I read Bernstein's first book and thought it was a classic. However, it wasn't a huge market success which the author admits for many reasons but it was/is still a fine book (The Intelligent Asset Allocator).
Now Bernstein comes back with an even better book from the standpoint of being readable for just about any kind or type of investor, experienced or inexperienced. The math and the charts are still there but with less rigorous emphasis. ...
The Four Pillars of Investing is both a historical review of investment success and failure with a very honest discussion of risk and reward. The pillars are the theory of investing, the history of investing, the psychology of investing (which is now recognized as a critical component in understanding why we invest the way we do) and finally, the business of investing. BTW, the humor in many of these chapters has not been lost either. I don't think your favorite stock broker or investment pro is necessarily going to enthusiastically recommend that you read this book.
Much of what is in the new book should be almost automatic wisdom/rules for investors but as we all know, we usually stray far and wide from good advice and common sense. In this post high-tech bubble collapse period, some solid review of investment principles is necessary. Call it back to basics if you will. It's just that Bernstein backs it up with the data to prove his points.
What really makes this book different from the first book (for me personally) is that Bernstein has finally put the portfolio construction recipe on paper in Chapter 13 called Defining Your Mix.
And now a special message to parents of high school and college graduates: buy them a copy of this book. Don't worry if they don't read it now. Or if they look at you strangely. For those that do read it, they'll be ten to twenty years ahead of their peers in investment wisdom and hopefully, financial security. And that's really what this book is all about; not how to trade or gamble on market timing but rather on how to use sound principles of investing to manage/understand risk while builiding a solid foundation of assets for the longer term.
