The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein Summary and Reviews
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Book Reviews of The Four Pillars of Investing: Lessons for Building a Winning Portfolio
Book Review: The Best Investing Book I Ever Read
Summary: 5 Stars
Well...maybe second best...haha. The best investing book I ever read is still the classic, "A Random Walk Down Wallstreet" because it's more concised. This book is a lot more comprehensive but basically preaches the same message. For those who don't really have patience reading almost 300 pages, two words for you: index fund. Specifically, Vanguard Index Fund. So on the cover of the book, you see a comment from Bogle hailing it as the "Best investing book of the year"...mmm...wonder why. But the fact is, the Vanguard 500 is the cheapest S&P 500 index fund you can find. By cheapest I mean annual management fees that mutual funds charge...1% of a billion is a lot of money, and the fund managers get a fixed percentage regardless of the performance of the fund...robbery. This is one of the points the book makes: not to trust the so-called "advice" from the people in Wall Street.
The four pillars are:
1) Theory of Investing: Relationship btw risk/reward, how to properly estimate the discount value of an investment (the higher the risk, the higher the discount value)
2) Psychology: Understand that people are social animals and what they do as a group is not always logical. Investing takes conviction and staying the course of one's own individual path.
3) History: Know the history of the markets. Once or twice every generation, bubbles get burst. Buy after they've been burst.
4) Business: The financial industry people are con-artists. Think: if they know what is going up or down, why would they tell you? If they really do know, they would be at a beach somewhere.
I highly recommend people to read this book. It is very-well written and an addictive read. Other than indexing, for a more advanced approach, this shows how you can reallocate your portfolio based on asset class. For example, most people will have a portfolio with 60% stocks and 40% bonds, but within the 60%, you can further divide them based on value or growth and small-cap or large-cap. Value and small-cap historically gives more bang but you cannot have the bang without the added risk.
There is a lot of useful advice in this book. But if you have to remember one thing, if I have to pick the most important thing to remember for my investing days, it is this: Investing is boring...if you're having too much fun, something is wrong.
Book Review: Excellent overall, but is it ultimately contradictory?
Summary: 4 Stars
Terrific guide to investing in general and the financial industry in particular; the chapter on "full-service" brokers is priceless. I came away with two basic themes:
1. Identify the prevailing investment orthodoxy of your age and bet against it.
2. Always buy value stocks, they're way better than growth.
As I peruse the recent books, I am struck by how many recite #2, which is of course thoroughly supported by academic studies and loads of historical data, including a huge 6-year run in which value stocks have outperformed since the end of the tech bubble in 2000. However, #2 is now the prevailing orthodoxy of our age, and I expect that theme #1 is ultimately more important.
Note that when this was published in 2002, #2 was not (I don't think) in nearly such common circulation, and you would have made a lot of money over 2002-06 by following Bernstein's specific advice, which is probably still valid in the long run.
Book Review: Good but not unique
Summary: 4 Stars
Bernstein provides investors with good possibilities for mutual funds, but is not extremely different than what you'd find in the book, Bogleheads. It focuses on mutual funds alone, like many others, and doesn't give an introductory for new investors to let them know the benefits of real estate.
If your only thinking of mutual funds, it's a good buy to help guide your way to investing in indexes. Take a chance on the book before the market, especially with the present regime in office.
Book Review: Good Book But .... Short Term Traders & Investors Need More
Summary: 4 Stars
When investing short term one needs to realize that the stock market can present us with a lot of hot stocks every day.
Most of them may seem promising, but the truth is that a good number of these trading & investing opportunities might not be as profitable as one might think. That's why it's very important to know how to choose them especially if you plan to take advantage of them on a daily or weekly basis.
One site that I recommend is MomentumStockPick com. They have a pretty clear way for trading hot stocks with momentum using easy to understand strategies. This is also a place where you can learn why knowing how to manage the stock rally is critical to your success.
Book Review: Excellent advice and sound research
Summary: 4 Stars
This book is not very easy to read. Bernstein can occasionally be very detailed, and occasionally ventures into serious mathematical discussions on personal finance. However, it is worth persevering, for Bernstein's book is a very sound defense of index-based personal finance, with extremely persuasive arguments and thorough supporting data.
Bernstein tends to overstate efficient market theory. In parts, it seems that he argues that the market is efficient even in the short term, which is definitely not true. A better position, expressed best by Burton Malkiel, is that the market is not efficient in the short term, but that transaction costs prohibit individual investors from profiting from these inefficiencies. Both agree, however, that the market is efficient in the long term and that hence the best strategy for individuals is a passive index that matches personal risk tolerance.
Bernstein's aggressive recommendation of Vanguard also makes him come off as a bit of a shill. However, his intentions seem well-placed. After all, very few companies come close to matching Vanguard's index funds.
Overall, this book is worth the time it takes to read, and is a worthy addition to the existing collection of pro-indexing personal finance books.