Now Bernstein comes back with an even better book from the standpoint of being readable for just about any kind or type of investor, experienced or inexperienced. The math and the charts are still there but with less rigorous emphasis. ...
The Four Pillars of Investing is both a historical review of investment success and failure with a very honest discussion of risk and reward. The pillars are the theory of investing, the history of investing, the psychology of investing (which is now recognized as a critical component in understanding why we invest the way we do) and finally, the business of investing. BTW, the humor in many of these chapters has not been lost either. I don't think your favorite stock broker or investment pro is necessarily going to enthusiastically recommend that you read this book.
Much of what is in the new book should be almost automatic wisdom/rules for investors but as we all know, we usually stray far and wide from good advice and common sense. In this post high-tech bubble collapse period, some solid review of investment principles is necessary. Call it back to basics if you will. It's just that Bernstein backs it up with the data to prove his points.
What really makes this book different from the first book (for me personally) is that Bernstein has finally put the portfolio construction recipe on paper in Chapter 13 called Defining Your Mix.
And now a special message to parents of high school and college graduates: buy them a copy of this book. Don't worry if they don't read it now. Or if they look at you strangely. For those that do read it, they'll be ten to twenty years ahead of their peers in investment wisdom and hopefully, financial security. And that's really what this book is all about; not how to trade or gamble on market timing but rather on how to use sound principles of investing to manage/understand risk while builiding a solid foundation of assets for the longer term.
Bernstein, together with a number of financial writers including Larry Swedroe and John Bogle, have written passionately about the merits of disregarding most of the preachings of the financial media and marketers and instead urge readers to take a sensible, rather than emotional, approach to investing. In an easily readable style understandable by most anyone, The Four Pillars provides an outstanding overview of basic concepts of risk in projecting portfolio returns and in explaining why so many investors spend so much money for worthless investing advice and management.
The Four Pillars does a wonderful job of explaining the axiomatic principle that anticipated returns are related to the risk of an investment. I've found that Bernstein's greatest strength is that he is able to explain the mathematical and statistical underpinnings of investment theory in a way that most readers can understand. His writing is not overly technical and the book was a joy to read. Bernstein's discussion on the underlying reasons that actively managed mutual funds, stock picking and market timing only generate high costs and poor performance is excellent and quite convincing.
I thought the book did a particularly good job of describing the mental factors involved in a long term investing strategy. The book was written after the technology crash and the events of 9/11 and draws on these events to explain the type of mental anguish which investors must anticipate over the course of a long term plan. Unlike many investment writers who simply advocate investment in equities because they historically have done better over the long term, Bernstein takes pains to advocate a diversified portfolio tailored to the investor's level of risk tolerance so that an investor can stay the course through thick and thin.
For people who believe that they have a unique ability to actively trade their way to market beating returns - read this book and it will change your life.