The Four Pillars of Investing: Lessons for Building a Winning Portfolio

The Four Pillars of Investing: Lessons for Building a Winning Portfolio | William J. Bernstein | A clear method for investing success

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The Four Pillars o...

	The Four Pillars of Investing: Lessons for Building a Winning Portfolio William J. Bernstein McGraw-Hill, 2002 - 240 pages average customer review:based on 87 reviews view larger image
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highly recommended

The Best Investing Book I Ever Read

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.

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A clear method for investing success

Why do we invest? To keep and increase our investments. Bernstein explains the path to reaching this goal and the key pitfalls that prevent most of us from maximizing our investments. He uses enough detail to be convincing but not so much detail that we get stuck. I know we have all seen this line before "if you read just one book..." When it comes to personal investing this just might be that book.

Excellent overall, but is it ultimately contradictory?

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.

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Good but not unique

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.

Good Book But .... Short Term Traders & Investors Need More

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.

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