The investor profile Manifesto: Preparing for Prosperity, Armageddon, and everything in between
The investor profile Manifesto: Preparing for Prosperity, Armageddon, and everything in between
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A timeless approach to investing wisely over an investment lifetime with the wake of the current market price as background describes, this guide just in time, how to invest it for a lifetime plan, in good times and bad times to discuss stocks and bonds, and the relationship between risk and return . Filled with in-depth insights and practical advice, the investor will help you manifest, the nuts and bolts of running an investment plan for life, among other things: how to survive dealing with INVE
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Brief, But Powerful,
William Bernstein presents the readers of his latest book with the distilled essence of investment wisdom. He laments that his previous works may not have connected with the broad audience he had hoped to reach, but the events of the past year encouraged him to give it one more try. There is little in the way of mathematics or complex graphs to confuse the unwary. Sounding like a caring uncle dispensing advice with tough love, Dr. Bernstein drives his points home with laser-like precision. You will not find his narrative peppered with wishy-washy words like maybe, possibly, perhaps, or “kinda like.” Note how he expresses himself in the following examples:
On the importance of saving: “Save as much as you can, and do not stop saving until you die.”
On risk versus return: “[I]n the course of earning those higher returns, your portfolio is going to lose a truckload of money from time to time. If you desire perfect safety, then resign yourself to low returns. It really cannot be any other way.”
On glib explanations of market behavior: “The reason that ‘guru’ is such a popular word is because ‘charlatan’ is so hard to spell.”
On buying low: “[M]ost grizzled veterans will tell you that the best purchases are often made when they feel they are about to throw up.”
On bad behavior: “Our emotions define our humanity…but in the world of finance, they are death itself.”
On performance chasing: “Alas, small investors incessantly chase returns the same way that dogs chase seagulls up and down the beach.”
On overconfidence: “In the investment world, you are not above average. You are likely not even close.”
Clearly, Dr. Bernstein does not consider it his mission to massage your ego. His goal is to make you a better investor, and I find his direct, no nonsense approach very effective. Even experienced investors who feel they have already learned the basics can benefit from this book. In the cacophony of news and opinion we face every day, it is necessary to take a step back every once in a while and convince yourself that you are not getting caught up in the moment and doing foolish things.
In a chapter devoted to building a portfolio, we are reminded that our investments must be tailored to our personal circumstances. To illustrate this, Bernstein introduces us to four hypothetical investors named Young Yvonne, Sheltered Sam, Taxable Ted, and in-Between Ida. As he constructs an appropriate portfolio for each of these individuals with distinctly different ages and backgrounds, we can see how fundamental principles are put to work in the real world. I found this chapter to be the most insightful in the book.
Be forewarned. The author advocates a long-term perspective and the use of low cost index funds. This book does not discuss stock picking tips or options strategies. If you are looking to beat the market, you will be disappointed. Indeed, the author will try to ween you away from what he considers harmful behavior. He will remind you that the goal of investing is not to get rich – it is to not die poor. The danger here is that you may give up your dream of making the big stock market score and spending the rest of your days sipping Mai Tai’s on a beach somewhere. This is not so bad since the odds are that you would have ended up serving Mai Tai’s on a beach somewhere.
Readers of Bernstein’s previous books as well as the works of other investment luminaries like John Bogle, Jason Zweig, and Jonathan Clements, will not find anything here that they haven’t read before. But the presentation is so concise, direct, and effective that it can’t help but reinforce your understanding of those basic investing truths which we too often forget when immersed in bear market events. Of all the investments I have made over the years, I consider the purchase of this book one of my better ones.
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|Excellent short investment primer,
A little background on myself since it affects my review. I have read over 200 books on investing. My conclusion is that investing in a diversified portfolio of low cost index funds is the way to build and maintain wealth. I am a member of the Internet Forum Bogleheads dot Org, whose members are disciples of Jack Bogle’s passive investing strategies. William Bernstein occasionally posts on this forum. I am also the author of the book Index Mutual Funds: How to Simplify Your Financial Life and Beat the Pros. I am also a contributing author to the Bogleheads 2nd book on investing titled The Bogleheads Guide to Retirement Planning. I recently met Bill Bernstein at the Boglehead’s 8th annual convention in Fort Worth in October 2009. I heard Bernstein answer questions and give a 20 minute lecture on the four lessons he learned from the Crash of 2008.
I have enjoyed Bernstein’s previous books, and I really like his Retirement Calculator from Hell story posted on his Efficient Frontier web site. I looked forward to reading the Investor’s Manifesto.
Bernstein correctly points out that every few years we experience a Bear Market in stocks, but nobody knows when to predict when the next one will begin. If you examine history from WWII, you will find we have experienced about 13 Bear Markets in 65 years…..or roughly a Bear Market about every 5 years. Bernstein’s solution to the dilemma of not knowing when the next Bear Market will begin is to hold a diversified portfolio of low cost index funds, including both stocks and bonds. Bernstein’s recommendation is not new with regards to holding a portfolio of both stocks and bonds. Benjamin Graham back in his 1934 book Security Analysis recommended roughly a 50:50 split between stocks and bonds.
At first, I was a little surprised that Bernstein said the field of finance (and investing) is a relatively small one compared to other fields. He said the number of major ideas is small compared to medicine, engineering, or the social sciences. After I thought about it, I realized Bernstein is right. A while back I was doing research for a short story on investing. My research showed very few major ideas and most of them were just within the last 20 years or so. For example, it took until 1994 for William Bengen (engineer turned financial advisor) to study past stock market returns and conclude that retirees should not withdraw more than an inflation adjusted 4% of their initial portfolio during retirement. Up until that point, many people suggested you could withdraw 10% annually, the historic return of the stock market. In 1998, the famous Trinity Study was published with findings similar to Bengen’s. Fama and French’s 3-factor study identifying small value stocks as giving the highest returns was published in 1992. Monte Carlo analysis of retirement withdrawals did not start until 1997.
In recent years, the financial planning profession has started to recommend SPIA’s (single premium immediate annuities) for retirement. There are pros and cons of SPIA’s including giving up control of your money to an insurance company for 20 or 30 years. In most states, there is a State Insurance Guaranty Association which is a group of insurance companies which are supposed to pitch in and maintain annuity payments to policy holders if the issuing insurance company goes bankrupt. As the Sub-Prime Crash of 2008 pointed out, many insurance companies (think AIG) participated in the mortgage security shenanigans and almost went bankrupt. Because of the risk of insurance company bankruptcy, Bernstein is recommending avoiding SPIA’s. He speculates that maybe the Federal Government will issue SPIA’s in the future.
Bernstein correctly points out that the best annuity you can buy….is to wait until age 70 to start drawing Social Security.
Bernstein also correctly points out that very few people can be their own financial advisors. To be your own effective financial advisor, you have the following four traits: 1) interested in investing, 2) math skills, 3) knowledge of history, 4) understand and control your own behavioral finance tendencies.
Bernstein believes the Gordon equation should be used to predict the future returns of stocks. When the book was written, the Gordon equation predicted future stock market returns of 4-8% in inflation adjusted terms.
Bernstein says Markowitz’s mean variance optimization is a great teaching tool, but it should never actually be used in the real world of investing.
Bernstein also recommends not investing in the countries with the fastest growing economies. Most studies have found an inverse relationship between economic growth rate and stock market returns.
In regards to asset allocation, Bernstein suggests the starting point of the Rule of 100 (100 minus your age is your suggested stock allocation). Jack Bogle calls…
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|Fun read, interesting… but his previous book was better,
Two or three years ago, I decided to read William Bernstein’s ‘Four Pillars of Investing’, after a favorable review in the Wall Street Journal. I wasn’t disappointed. The book covered the basics of the history and psychology of investing, presented a balanced description of the market, the marketing, and the marketeers, providing convincing evidence to make me think that, for the average Joe, the easy but boring path of the low-cost index investing and keeping the cool while the market is going crazy is the safest one. I though that, after the market meltdown of 2008-early 2009, ‘The Investor’s Manifesto’ would provide interesting insights and a summary of new evidence coming from the serious finance literature. Instead, I found a book that was basically a brief summary of ‘Four Pillars…’, without most of the ‘hard’ data that helped Bernstein to make his case. If I had to give a recommendation, I would say forget about this one and read his ‘Four Pillars of Investing’. Still, ‘the Investors Manifesto’ makes a fun and interesting read and could be an excellent primer for a person who has not read anything on the topic.
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