( 22 reviews )
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Posted: Aug 13 2009
While I do not follow or believe in the investment philosophy presented in this book, I still found this book educational. I appreciated how the author described the business of investing. In this section, he wrote about brokers, mutual funds, and the press. While these three perform different functions, he said: "...their operations and strategies are somewhat different, but their ultimate goal is the same: to transfer as much of your wealth to their ledger books as they can." I cannot overemphasize the importance for investors to understand the business of investing. Investing and the business of investing are two different things. I also liked the section of when the author explained how Vanguard revolutionized the mutual fund industry. "Vanguard became the first, and only, truly `mutual' fund company-that is, owned by its shareholders. There was, therefore, no incentive to mild the investors, as generally happened in the rest of the investment industry, because the funds' shareholders were also Vanguard's owners. The only imperative of this system was to keep costs down." - Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market
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Posted: Jun 10 2009
I'm a huge fan of whatever you call this type of investing - strategic asset allocation, buy and hold (and rebalance), passive investing, asset class investing, etc. Essentially not active investing (where active management is some form of selection or timing - selecting a stock or a sector or a fund or a currency or a manager or trying to time one of those). This is a sensible way to invest and generate great results (IF you can stay disciplined and not fall to certain behavioral traps). There are some other good books related to this - books by Swedroe, Hebner, Ferri, etc. Highly recommended.
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( 1 of 1 found this review helpful ) Posted: Apr 19 2009
Here's a quick statistic for you. In 2008 Morningstar tracked 11,585 stock mutual funds. In 2008 11,584 of those funds had negative returns. Crazy huh? In any given year most mutual funds underperform the market in general. Add to that the fees you pay to a manager for their 'performance' and your returns get even worse. The question then is why would you pay a professional to do your investing for you? Maybe you don't know how to invest, and you have no idea where you would start. Well if you are looking at this book you have found a great place to start, and this could potentially be the only investment book you need for a long, long time. Here's a brief walk though The Four Pillars of investing: Pillar One - The Theory of Investing This section covers the the basics of what you need to construct your portfolio. First is the link between risk and reward, as well as when and why you should choose to invest in risky assets. Next is how returns are measured and how the price of an asset should be determined. Finally the section is wrapped up with the basics of of asset allocation and how to construct your portfolio. Pillar Two- The History of Investing Pillar two gives you a brief history of market returns, including booms and busts. This is the interesting history of times when investors lost sight of the fundamentals and markets went too far in one direction or the other. If you think irrational booms couldn't happen again then you haven't been watching the rise and fall in the housing market recently. Pillar Three - The Psychology of Investing Economic theory tells us that humans are perfectly rational beings who always make the right choices. Unfortunately this is rarely the case, which can cause some havoc on investment returns, both because of market participants and because of mistakes you make yourself. This section of the book gives an excellent introduction to behavioral finance and how understanding it can help your returns. One good example is the good company/great stock fallacy. Many people think it's wise to invest only in good companies. The problem with this line of thinking is that everyone knows the company is good, causing a run up in the stock price. Once the stock price is up then that limits the potential of above average returns. There are many other examples, but I will leave them to the book for you to read. Pillar Four - The Business of Investing The last section is one of the most important ones to understand, and that is all about the investment industry itself. During the California gold rush many people came to the West Coast in search of profits. Many smart people realized that the most money could be made not by looking for gold, but to sell mining equipment to those searching. In the same sense, many smart people have come to realize that the most money can be made not by smart investment strategies, but instead by selling those ideas and strategies to others. Stock brokers, fund managers, and financial pundits all make a living selling you ideas that they don't follow themselves. Recommendation I highly recommend this book to anyone looking for an easy way to build a portfolio. William Bernstein shows you that you only need two things to be successful with your investments: proper asset allocation and self-discipline. By minimizing costs and keeping it simple you can match the returns of the market, and by doing that you will outperform a huge number of your friends, and even a large percentage of mutual fund managers. If you have any money invested at all, or if you want to start, get this book. It will serve you well.
