Read The Four Pillars of Investing by William J. Bernstein Donald G. Coxe Online


Explains how independent investors can construct a superior investment portfolio by learning the four essentials of investing....

Title : The Four Pillars of Investing
Author :
Rating :
ISBN : 9780071385299
Format Type : Hardcover
Number of Pages : 240 Pages
Status : Available For Download
Last checked : 21 Minutes ago!

The Four Pillars of Investing Reviews

  • Chad Warner
    2018-11-16 20:21

    An investment adviser and I were talking about the financial books we had read, and he highly recommended this book as the next on my list. I can see why! Instead of immediately offering advice on how to invest, Bernstein takes a step back and makes sure you understand market theory, the history of the markets, the role of psychology in choosing investments, and the very real impact of expenses and the media's influence. The book contains statistics, tables, graphs, analogies, examples, and theory in a decently proportioned mix; my eyes never glazed over because of too many numbers. All this background information ensures that your investment decisions will be based on a wealth of data, rather than blindly following his recommendations.I agreed with Bernstein in almost all areas, with the exception of tilting or overweighting market sectors. There are 2 camps of stock fund investors: those who slice and dice the market and those who hold the total market. Bernstein points to the higher returns of value and small caps demonstrated by Fama and French and others, and recommends overweighting them and underweighting growth. John Bogle, on the other hand, preaches that the market is so efficient that there's no free lunch (higher returns) in any one sector over the long term, so it's better to just hold the entire market in a market cap weighted fund. I'm not entirely convinced either way, but I tend to side with Bogle.Bernstein advocates wide diversification, passively managed index funds, and buy-and-hold for the long term. This book is similar to The Little Book of Common Sense Investing, The New Coffeehouse Investor, and The Lazy Person's Guide to Investing, but provides a better explanation of the theory behind the practice. As a "lazy" buy-and-hold investor, I put myself squarely in the camp of these authors.The book presents the Four Pillars of Investing, then shows how to use the pillars to assemble a portfolio.Pillar 1: Investment Theory• High returns require high risk.• The market is efficient. Own it all by indexing.• Build a portfolio of mostly the total US stock market, some small US, and some large international. If desired, add small and large value and REITs.Pillar 2: Investment HistoryThe more history you know, the better prepared you'll be for the market's ups and downs.Pillar 3: Investment Psychology• Focus on long-term data. Large and small value outperform large growth.• Returns are random; don't imaging patterns.Pillar 4: Investment Business• Pay attention to fees and expenses.• Ignore almost all investing media.Here are more detailed notes:NotesPillar 1: Investment Theory• High previous returns usually indicate low future returns; low previous returns usually mean high future returns.• Because of their higher risk, small caps outperform large caps by 1.5%/year on average.• Good (growth) companies are generally bad stocks; bad (value) companies are generally good stocks.• Value stocks have higher return than growth.• When the political and economic outlook is brightest, returns are lowest. When things look darkest, returns are highest.You can have 1 of 2 mutually exclusive investing goals:1. maximize your chances of getting rich2. minimize your chances of missing goals or dying poor.• You can't time the market or pick winning stocks, so asset allocation is the only factor you can control.• Index the whole market.• Start with a percentage of bonds equal to your age.• Hold 15 - 40% of stocks in foreign stocks.• REITs have returns about equal to the stock market; allocate a max of 15%.• Young people should have a max of 75% in stocks, with the rest in short-term bonds.Pillar 2: Investment History• Bubbles have occurred throughout the market's history (canals, railroads, 1920s, 1960s) and will continue.• Basic rule of technology investing: users, not makers, profit most.Pillar 3: Investment Psychology• In the next decade, the last decade's worst-performing investment usually does better than the last decade's best-performing investment.• The most exciting assets have the lowest returns; the most boring ones have the highest.Pillar 4: Investment Business• Ignore financial media. The collective wisdom of the market is the best adviser.• The only guidance you need is with getting your asset allocation right; after that, it's self-discipline.Investment StrategyTaxable accounts• Own the market in a tax-efficient index fund tracking the Russel 3000 or Wilshire 5000.• Hold municipal bonds, Treasuries, and corporate bonds.• Rebalance only with fund distributions, inflows, and outflowsTax-sheltered accounts• Split the market into large market, large value, small market, small value, and REITs.• Hold government and corporate bonds.• Rebalance every 2-3 years.• Don't hold growth stocks; they're overvalued and have the lowest long-term returns.• For less than $5,000 - 10,000 in bonds, use a bond index fund. For larger amounts, buy Treasuries directly, and use the Vanguard Short-Term Corporate fund for the non-Treasury portion.• Don't hold more than 80% in stocks.• Keep the maturity of your bond portfolio 1-5 years.Portfolio for age 20-30Assumes 60/40 stock/bond split. Adjust as necessary for other proportions.32.5% large cap12.5% international7.5% REIT7.5% small value40% cash and bondsLater, add large value, small cap, corporate bonds, precious metals, split international by region, and add TIPS.Use value averaging instead of dollar-cost averaging: try to hit a target amount each month. If the fund declines, you must invest more. If the fund goes up, invest less. This forces investment at market bottoms rather than tops.

  • Krenzel
    2018-11-24 18:23

    In the introduction to his book, "The Four Pillars of Investing: Lessons for Building a Winning Portfolio," Dr. William Bernstein states that the "competent investor never stops learning." Yet, because the world of investing can be such a confusing place, it sometimes seems that the more you learn, the more confused you get. As a participant on the Bogleheads message board, I feel I am an educated investor but still I often get lost after reading all the different debates: Should I invest in total markets or slice and dice my portfolio? Should I invest all my money at once or adopt a dollar cost averaging philosophy? How much foreign exposure should I have? Is now the right time to buy REITs, or do I need them at all? One day, while perusing the message board and sifting through some of these same questions, I found a suggested investing reading list, and this book was listed as the starting point. In this straightforward book, explained with easy-to-understand examples, Dr. Bernstein provides a solid framework for investors to begin to answer some of these questions. In setting this framework, Dr. Bernstein introduces readers to four basic concepts, or what he terms the four pillars of investing: the theory, history, psychology, and business of investing. The first pillar, the theory of investing, gets most of his attention, as it comprises the first 100 pages of the book and explains how the bond and stock markets work. In this section, Dr. Bernstein emphasizes what he calls the "most important concept in finance" – the relationship between risk and reward. If investors want high returns, they must take great risks. Following this logic, Dr. Bernstein makes some conclusions that may seem foreign to most investors. For example, the best time to invest is not when things are going well, but when they are going poorly. Those who invest during a bubble are not taking a risk and therefore can expect low returns, whereas those investing during a bear market are taking a risk and therefore can expect (but will not be guaranteed) higher returns. Similarly, those who invest in "good companies" like Wal-Mart can expect lower returns than those who invest in "bad companies" like K-Mart, because good companies, with low risk, are generally bad stocks, while bad companies are generally good stocks. This idea – that high returns cannot be achieved without significant risk – is the key concept Dr. Bernstein continues to emphasize throughout the book.While the first pillar gets the most attention, Dr. Bernstein terms the second pillar, the history of investing, as "the one that causes the most damage" to investors. What separates the professional investor from the amateur investor is that the professional recognizes that bear markets are a fact of life – they inevitably come about once every generation, usually sparked by a new technological advance. Professional investors stay the course and don’t panic; they have a plan and stick with it. In fact, for beginning investors, a bear market is a blessing, allowing them to accumulate stocks at low prices. This concept again ties to the relationship between risk and return: throughout history, in times of great optimism, when prices are the highest and the risk is the lowest, future returns are the lowest, and when times look the bleakest, and risk is the highest, future returns are also the highest. In the third pillar, the psychology of investing, this relationship between risk and return is again raised. Most investors follow conventional wisdom of the time, investing in specific stocks or asset classes that are currently the most successful and thus buying at high prices. Dr. Bernstein provides two strategies to counter this psychology. He advises readers first to identify the conventional wisdom of the time and do the exact opposite. He also advises readers that assets with the highest future returns tend to be the ones that are currently most unpopular. The investor that is able to go against the flow – to stick with unpopular asset classes and pay attention to his or her entire portfolio return – in the long-run will be the most successful.Finally, the fourth pillar concerns the business of investing, which details how brokers, analysts, and the media work together to make money at the expense of often ignorant investors by peddling bad or biased information. Instead of paying exorbitant fees to brokerage firms or financial advisors, which steer investors to underperforming managed funds, investors can buy low-expense index funds through companies like Vanguard and thus tap "into the most powerful intelligence in the world of finance" – the market itself, which is, according to Dr. Bernstein, the best advisor available.Dr. Bernstein concludes his book by applying lessons learned from these four pillars and giving readers practical advice for how to construct their own portfolios. Although this section fell short of answering all my questions, the book as a whole serves as an essential investing guide in providing investors with a basic framework to use in evaluating the myriad of investing choices available. As even Dr. Bernstein concedes, "Four Pillars of Investing" is not an all-encompassing book on investing. It is not the only book you will need to read, and it is probably not the first investing book you should read, but it is nonetheless a book every investor should read.

  • Zoe
    2018-11-17 17:55

    Very interesting book, well written but it isn't for people who want a quick buck. I liked how informative this book was. I just didn't really learn anything new. But then there are no new things under the sun. If you are serious about investing your money, remember diversification, patience, spend less, forget about deceiving the market and remember no one can predict the future, no matter how their "track records" may indicate otherwise. Finance 101: Past performance isn't indicative of future performance.

  • Fraser
    2018-11-20 22:04

    In short, Bernstein advocates wide diversification through a portfolio of passively managed index funds in different asset classes, and buy-and-hold for the long termPillar 1: Investment Theory• High returns requires high risk.• The market is efficient. Own it all by indexing. • You can't time the market or pick winning stocks, so asset allocation is the only factor you can control, hence index the whole market.Pillar 2: Investment HistoryThe more history you know, the better prepared you'll be for the market's ups and downs.• Basic rule of technology investing: users, not makers, profit most.Pillar 3: Investment Psychology• Focus on long-term data. Large and small value outperform large growth.• Returns are random; don't imaging patterns.Pillar 4: Investment Business• Pay attention to management fees and expenses, they are costly in the long run. • Ignore almost all investing media.• Start with a percentage of bonds equal to your age.• Hold 15 - 40% of stocks in foreign stocks.• REITs have returns about equal to the stock market; allocate a max of 15%.• Young people should have a max of 75% in stocks, with the rest in short-term bonds.Portfolio for age 20-30Assumes 60/40 stock/bond split32.5% large cap12.5% international7.5% REIT7.5% small value40% cash and bondsLater, add large value, small cap, corporate bonds, precious metals, split international by region, and add TIPS.Use value averaging instead of dollar-cost averaging: try to hit a target amount each month. If the fund declines, you must invest more. If the fund goes up, invest less. This forces investment at market bottoms rather than tops

  • Paul
    2018-12-10 19:55

    Bernstein argues that the successful investor must understand four essential content areas: the theory, history, psychology, and business of investing. Practically speaking, he argues that the best portfolios build on that understanding will be based on indexed mutual funds in several key asset classes.Bernstein’s theoretical understanding of the market is complex, and any short review will not do it justice. It is fair to say, however, that he argues that the market is much smarter and more efficient than any one of its actors. Trying to beat the market consistently, year after year, is a pursuit doomed to failure. Also key to his understanding is the assessment that risk and reward go hand in hand. The latter does not come without the former.His history of the market is to some extent a way to support the theory outlined in the book’s first section, but he’s a good storyteller, and many of the theoretical technicalities are easier to understand in historical narrative than pure mathematics. Berstein emphasizes the historical fact that the market periodically goes mad, resulting in bubbles and bursts.Bernstein’s market psychology can be summed up by saying that the investor is his own worst enemy. It’s easy to understand “buy low, sell high.” It’s quite another thing to buy when the whole world is selling, or vice-versa. Following fads, however, is a quick way to deplete a portfolio!It’s not unusual to hear insiders critique their own industry. Politicians, educators, athletes, academics, and many others routinely dismiss others in their fields. It was still surprising, however, to read the near utter contempt in which Bernstein holds the profession of finance. They’re all out to get your money! Stock brokers, mutual fund managers, and finance writers—he heaps scorn on them all. Which isn’t to say he doesn’t back up his scorn with lots of data. He certainly does, but in the end the people who profess to want to help you earn money are really more interested in taking it from you.It may be trite to boil Bernstein’s investment advice down to “if you can’t beat, join ’em,” but that’s pretty close to it. Since the individual investor or fund manager is highly unlikely to beat the market consistently over the life of a decent portfolio, the best thing to do is bet with the market indices themselves. His advice is more subtle than that, of course, but playing the index is a pretty close approximation of his thesis.Other than a long-ago reading of Peter Lynch’s Beat the Street, this is the first serious treatment of investing that I’ve read, so I’m not particularly qualified to critique Bernstein’s arguments. It is fair to say, however, that he argues clearly, backs up his assessments with understandable data, and is quick to point out the weaker or more questionable points of his thesis.

  • Mark
    2018-11-21 19:02

    Re-reading this in light of the money meltdown. ----One of the best books about investing I've read. By no means the first one you should read, but once you've got some of the basics under control, this helps takes it to a very sensible level. Asset allocation and the history of booms and busts are key here. Though I just finished it a couple of weeks ago, I'd like to start re-reading it again soon. Very readable and interesting, though I can do without ever hearing about the tulip bulb bubble yet again.

  • Daria
    2018-11-25 20:07

    This book exceeded my expectations. If Nassim Taleb were to write a book on investment advice early in his career that's probably what it would look like. The book covered some financial theory and history as well as offered very practical advice.

  • Wells Hamilton
    2018-11-30 01:59

    After years of studying technical and fundamental analysis, I can finally rest. Dr. Bernstein William J. Bernstein, a buy-and-hold, dollar cost averaging, index investing, portfolio rebalancer has made me a believer. I would have created a synopsis of the book for quick reviews down the road, but Bernstein conveniently included one at the end of each chapter, and one in the last chapter covering the whole book. The book is well-written, intelligent, and extraordinarily practical.

  • Kurt
    2018-11-26 20:14

    A very good book I'd recommend to anyone interested in investing. It covers all the fundamentals one should know to try to avoid making big mistakes. Though I do disagree with his assumption that the market is rational in that risk and return will always be proportionally related.

  • Justin
    2018-11-17 23:57

    Not particularly memorable

  • Milan
    2018-11-24 01:59

    This book started out well with the introduction and the history of the financial markets. One chapter of the book describe how the various financial intermediaries - brokers, fund houses and investment banks - all work to profit from the investors. It also shows that the basic role of financial press is marketing financial products and not providing information. William Bernstein correctly shows that the small investor always comes last in the hierarchy of the financial world.As the book moves towards 'Efficient Market Hypothesis' and construction of portfolio, it started making less sense to me. Maybe because some things of the US stock market are not really similar to the Indian stock market. Here in India, it is easy to beat the indices.There is a brief introduction to behavioural finance, but that is not enough. The author uses a lot of data to demonstrate the points and sometimes does not hit the mark. We all know how the data can be arranged and highlighted to show someone's point of view. Another thing that I did not like is that the author emphasises too much on relative performance rather than absolute performance.From the perspective of the US investors, the book can be very useful. But not so much for us Indians.

  • Ambassador
    2018-12-05 20:17

    Sound, sensible advice from a hero to frustrated investors everywhereWilliam Bernstein's The Four Pillars of Investing gives investors the tools they need to construct top-returning portfolios­­--without the help of a financial adviser. In a relaxed, nonthreatening style, Dr. Bernstein provides a distinctive blend of market history, investing theory, and behavioral finance, one designed to help every investor become more self-sufficient and make better-informed investment decisions. The 4 Pillars of Investing explains how any investor can build a solid foundation for investing by focusing on four essential lessons, each building upon the other. Containing all of the tools needed to achieve investing success, without the help of a financial advisor, it presents:Practical investing advice based on fascinating history lessons from the market Exercises to determine risk tolerance as an investor An easy-to-understand explanation of risk and reward in the capital markets **

  • Catlin Bettridge
    2018-11-14 23:55

    Through the numerous anecdotes provided by financial market history such as the Dutch Tulip Bubble of the 1600s and the Great Depression of the 1930s, this book provides a broad overview and introductory education in finance and investing. This book is somewhat technical and will be especially appealing to the reader who enjoys mathematical and scientific explanations of financial concepts. More importantly, this book imparts some extremely important lessons onto the reader, such as; markets are random and cannot possibly be predicted by anyone, and that the best possible long term return on investment is the return of the market minus the fees one pays. After reading this book you will probably become an index fund evangelist, and stop paying high fees on mutual funds, and that's a good thing

  • Zahwil
    2018-12-08 20:25

    I've read a few books about investing, but this is 'hands down' the best I've encountered. There's a lot of books out there which slam fund managers, stock brokers and their ilk, and recommend a passive approach with index funds. Unlike that 'old news', this book goes further by explaining how to value an asset, how to construct a portfolio, and how to think about your retirement 'nest egg'. Bernstein is a great writer and I will definitely be checking out his other books. He says early on that it's tough going to read books on financial investing and he suggests reading a few pages each morning. I found this advice impossible to follow; I read it every day and finished within a week.

  • Cindy
    2018-11-13 23:55

    The four pillars: Theory of Investing (returns are directly linked to risk), the History of Investing (understand past performance to build a portfolio, not to chase returns), the Psychology of Investing (stay the course!), and the Business of Investing (long-term, low-cost index funds will statistically beat any actively managed plan).Take this book in small doses so you can ruminate on the concepts. I'm a huge fan of statistics, data, and the wisdom that comes from thoughtfully analyzing these. If you like the concepts in this book, make sure to check out the Bogleheads forum and keep learning.

  • Christopher Durand
    2018-11-24 20:11

    William Bernstein does an excellent job of not only putting together a solid investing strategy. He doesn't hesitate to throw in numerous graphs and the occasional formula, but it is nothing the average person can't understand with careful reading. My favorite part about this book is that he takes the time to discuss implementing the strategy. He acknowledges that a person's financial situation may be less than ideal and works to provide numerous scenarios to overcome the challenges most investors deal with on a daily basis (such as the tax advantaged accounts available, or how to segue from a portfolio of individual stocks to one constructed with index funds).

  • KennyO
    2018-12-10 18:01

    A really well written treatise on the basics of investing for those who didn't major in finance in college and don't want to wallow in stock analysis. The Four Pillars are: The Theory of Investing, which isn't rigorously theoretical; The History of Investing, knowing the lessons of history helps you avoid its errors; The Psychology of Investing, again not terribly psychological but it exposes the most invidious investing traps; The Business of Investing, the first chapter here is titled "Your Broker is Not Your Buddy." Good stuff!

  • Scott Diamond
    2018-11-18 21:19

    I listened to the audio book and I was expecting a serious financial tome but this book was delightful. The author covers some common topics in investing but does it in a humorous manner. He also offers some unique advice regarding performance of the stock market relative to bonds and REITs. I haven't studied REITs in depth but it appears that the author's advice provided in 2002 has held up very well up to 2016 and beyond.

  • Noah
    2018-11-19 00:11

    Bernstein provides excellent insight into the history of the financial markets and the psychology of investing. The guidance on setting up a portfolio is backed up by thorough explanations. He explains how to diversify and how to get started from nothing. He also teaches his to use value averaging as a mechanism to add to your investment portfolio and rebalance at the same time. Excellent financial advice. Must read!

  • Adam
    2018-11-15 22:56

    This book is a must read for anyone that will ever do investing. If you learn some of the basics about how and why you should invest then you can save quite a bit of money in the process. This book is practical and detailed and specific without being too much in the weeds of details. I loved this book. Wish there was a higher star rating I could've given it.

  • Cass
    2018-12-08 20:12

    One of the best investment books I've ever read. It did more to bring me peace of mind and security in the fact that index fund investing is the only way to go. It has been a spring board to other investment reading. I'll not pay someone to manage my assets which means I need to learn how to manage them myself. With tools like this, I'm move forward quite competently.

  • Guy Simard
    2018-11-14 18:20

    What a fantastic book about investments and investment strategy. This is not a book for beginners but if you are looking for substance regarding investment strategy, this is an excellent book to read. Bernstein goes way back (Centuries!) to look at investments throughout time, not only the last 50 years. This gives you a good perspective regarding markets.Highly recommended.

  • Eric
    2018-11-15 21:06

    This is one of THE best books I have ever read on Investing. Following the more general introduction to Tony Robbins: Money Master the Game, I find this book goes even deeper and re-emphasizes how one should approach investing. Great book.

  • Angel **Book Junkie**
    2018-12-02 00:21

    I suck at investments. (and I work for a bank) I honestly don't feel like I know any more coming out of this book then I did going in. I think I am going to pick up Investing for Dummies I might learn a little more.

  • Alexis
    2018-11-25 02:01

    I was particularly drawn to the history and psychology sections. And although the theory part was really boring for me, it was necessary with which to understand the rest of the book. I definitely think I'll refer back to this book from time to time.

  • Katharine R
    2018-11-19 01:24

    While this book contains plenty of useful and important advice, my one caveat is that the recommendations aren't aggressive enough for 20-somethings.

  • Daniel Oon Yong Lin
    2018-11-12 19:04

    I have read tons of books that are similar in type and technicals however this read is just amazing. Put it this way, this is the book that I will get my family to read.

  • Bernardo Muñoz
    2018-12-10 00:09

    Buen libro al principio, sobre todo los 2 primeros pilares, los últimos capítulos ya me parecía que me querían vender algo. Le doy un 6.

  • Yong-Siang
    2018-12-02 00:59


  • Taylor Foss
    2018-11-30 18:18

    Amazing. A "must read" for any level of investor.