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

William J. Bernstein
5.0 out of 5 stars  See all reviews (3 customer reviews)
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Book Description

1 Aug 2010

The classic guide to constructing a solid portfolio—without a financial advisor!

“With relatively little effort, you can design and assemble an investment portfolio that, because of its wide diversification and minimal expenses, will prove superior to the most professionally managed accounts. Great intelligence and good luck are not required.”

William Bernstein’s commonsense approach to portfolio construction has served investors well during the past turbulent decade—and it’s what made The Four Pillars of Investing an instant classic when it was first published nearly a decade ago.

This down-to-earth book lays out in easy-to-understand prose the four essential topics that every investor must master: the relationship of risk and reward, the history of the market, the psychology of the investor and the market, and the folly of taking financial advice from investment salespeople.

Bernstein pulls back the curtain to reveal what really goes on in today’s financial industry as he outlines a simple program for building wealth while controlling risk. Straightforward in its presentation and generous in its real-life examples, The Four Pillars of Investing presents a no-nonsense discussion of:

  • The art and science of mixing different asset classes into an effective blend
  • The dangers of actively picking stocks, as opposed to investing in the whole market
  • Behavioral finance and how state of mind can adversely affect decision making
  • Reasons the mutual fund and brokerage industries, rather than your partners, are often your most direct competitors
  • Strategies for managing all of your assets—savings, 401(k)s, home equity—as one portfolio

Investing is not a destination. It is a journey, and along the way are stockbrokers, journalists, and mutual fund companies whose interests are diametrically opposed to yours.

More relevant today than ever, The Four Pillars of Investing shows you how to determine your own financial direction and assemble an investment program with the sole goal of building long-term wealth for you and your family.

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Product details

  • Hardcover: 336 pages
  • Publisher: McGraw-Hill Professional; 1 edition (1 Aug 2010)
  • Language: English
  • ISBN-10: 0071747052
  • ISBN-13: 978-0071747059
  • Product Dimensions: 23.5 x 16.3 x 3 cm
  • Average Customer Review: 5.0 out of 5 stars  See all reviews (3 customer reviews)
  • Amazon Bestsellers Rank: 284,518 in Books (See Top 100 in Books)
  • See Complete Table of Contents

More About the Author

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Product Description

From the Back Cover

Since its initial publication, The Four Pillars of Investing has become a staplefor the independent-minded investor looking to make better-informedinvestment decisions. Written by noted financial expert and neurologistWilliam Bernstein, this time-honored investing guide provides the knowledgeand tools for achieving long-term profitability.

Bernstein bridges the four fundamental topics successful investors use to generateexceptional profits on a consistent basis:

  • The Theory of Investing: “Do not expect high returnswithout risks.”
  • The History of Investing: “About once every generation,the markets go barking mad. If you are unprepared,you are sure to fail.”
  • The Psychology of Investing: “Identify the era’sconventional wisdom and assume that it is wrong.More often than not, it is.”
  • The Business of Investing: “The stockbroker serviceshis clients in the same way that Bonnie and Clydeserviced banks.”

From the essential soundness of classic portfolio theory through the inherent wisdomof investing in multiple asset classes, The Four Pillars of Investing providesa distinctive blend of market history, investing theory, and behavioral finance tohelp you become a successful, self-sufficient investor.

About the Author

William J. Bernstein, Ph.D., M.D., is a neurologistand the cofounder of the investment managementfirm Efficient Frontier Advisors. He is theauthor of three finance books—The IntelligentAsset Allocator, The Four Pillars of Investing, andThe Investor’s Manifesto—and two volumes ofeconomic history, The Birth of Plenty and A SplendidExchange. Bernstein is currently working ona history book exploring the effects of access totechnology on human relations and politics.

Inside This Book (Learn More)
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Front Cover | Copyright | Table of Contents | Excerpt | Index
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Customer Reviews

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Most Helpful Customer Reviews
2 of 2 people found the following review helpful
5.0 out of 5 stars In praise of 'The four pillars of investing' 3 Nov 2013
By N. Root
Format:Hardcover|Verified Purchase
I've read 20 or so books on investing and this comes in the top two. (The other is Tim Hale's Smarter Investing). Why? Too many journalists, reporters, authors, stockbrokers and mutual fund salesmen imply that they have the right hot tip, money-making fund managers or above average performance that you can join in on. Unfortunately, the statistics just don't support this, starting with the analogy that a large proportion of us can't be above average drivers and finishing with the fact that funds with above average performance for the last few years tend to fall below average. So what to do? Invest in low cost index funds and diversify. But the book is also very human, you have to sleep at night rather than worry about your investments and the book recognises that too, advocating government bonds (Gilts in the UK), corporate bonds and even tiny percentages in property funds, commodities and others. Any disadvantages? The book allows for USA taxes which aren't relevant to us in the UK.
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5.0 out of 5 stars Excellent 14 Sep 2014
Format:Kindle Edition|Verified Purchase
Great book. A few sections I had to read a few times to understand. I felt it was an unbiased description of where to put your money for retirement.
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5.0 out of 5 stars Anyone interested in investing start here 8 Sep 2014
Format:Kindle Edition|Verified Purchase
Great book have given me some confidence to go it alone let's see what happens in 25 years time :)
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Most Helpful Customer Reviews on (beta) 4.7 out of 5 stars  50 reviews
44 of 45 people found the following review helpful
4.0 out of 5 stars "New and improved"? 22 Feb 2011
By Henry Thoreau - Published on
So, this "new edition" basically amounts to an excellent, 2010, fourteen-page postscript tacked onto a verbatim reprint of the original 2002 edition? Hmmm. Savvy investor that he is, ol' Bill doubtless relishes reaping a whopping return on a relatively wee investment of (fresh) human capital. Shrewd! ;-)

In any case, I separately relished Bernstein's 2009 "Investor's Manifesto"--which (as the author himself essentially concedes in its preface) is likely a better choice for lay, beginning investors because it minimizes (or "segregates") the "unnecessary complexity" of this "2002" book's sundry "tables, graphs and examples."

That said, there's certainly enough textual subject matter here NOT included in "The Investor's Manifesto" to warrant your perusing "The Four Pillars of Investing" too. Perhaps you should check out both books via your nearest public library before deciding which one(s) merit permanent inclusion on your personal bookshelf.
78 of 84 people found the following review helpful
3.0 out of 5 stars New edition????????????? 31 Jan 2011
By MrDontWorryAboutThat - Published on
Format:Hardcover|Verified Purchase
Like Bogle, this is probably the best advice on investment you can obtain HOWEVER....

I would have easily given it a five star but, Bernstein engages in the marketing tactics of the mutual funds (he scorns) who do the same in order to sell/market to make more money on increased volume(shame shame). He doesn't update the text throughout the book to represent the recent economic events (like a typical college text book). He adds a college midterm paper length addition at the end of the book to update recent economic events. I advise, buy the cheaper original version and read the added ending on amazon in the "search inside this book" link (if they don't get rid of it after I make this post). Dr. Bernstein, you have a fiduciary responsibility to be better than this "new edition". Please refund.
23 of 23 people found the following review helpful
5.0 out of 5 stars Investing 101! 3 Mar 2013
By Omar Halabieh - Published on
Format:Hardcover|Verified Purchase
As the title suggests, the author presents within this book four essential pillars of successful investing. Each section of the book is then dedicated to investigating and detailing each of these pillars and they are: 1) Theory 2) History 3) Psychology and 4) Business. The first section on theory, is one which the author calls "the most important part of the book". In his words it "surveys the awesome body of theory and data relevant to everyday investing". This section centers itself around the "fundamental characteristic of any investment is that its return and risk go hand in hand." The second section on History postulates that "an understanding of financial history provides an additional dimension of expertise." The third section, Psychology, is one in which the author surveys the area of "behavioral finance". Where one "learns how to avoid the most common behavioral mistakes and to confront your own dysfunctional investment behavior." Last but not least the last section - Business - exposes how "the modern financial services industry is designed solely to serve itself."

What sets this book apart from other investing books is the breadth of areas covered, and also the writing style which is both "understandable and entertaining". A highly recommended read for any investor regardless of level.

Below are key excerpts from the book, that I found particularly insightful:

1) "The highest returns are obtained by shouldering prudent risk when things look the bleakest."

2) "Most small investors naturally assume that good companies are good stocks, when the opposite is usually true."

3) "Sine you cannot successfully time the market or select individual stocks, asset allocation should be the major focus of your investment strategy. because it is the only factor affecting your investment risk and return that you can control."

4) "Bubbles occur whenever investors begin buying stocks simply because they have been going up."

5) "Buying assets that everyone else has been running from takes more fortitude than most investors can manage. But if you are equal to the task, you will be rewarded."

6) "There are really two behavioral errors operating in the overconfidence playground. The first is the "compartmentalization" of success and failure. We tend to remember those activities, or areas of our portfolios, in which we succeeded an forget about those areas where we didn't...The second is that its far more agreeable to ascribe success to skill than to luck."

7) "By indexing, you are tapping into the most powerful intelligence in the world of finance - the collective wisdom of the market itself."

8) "Rebalancing forces you to be a contrarian - someone who does the opposite of what everyone else is doing. Financial contrarians tend to be wealthier than folks who like to simply follow the crowd."

9) "Risk and return are inextricably enmeshed. Do not expect high returns without frightening risks, and if you desire safety, you must accept low returns."

10) "This book should be seen as a framework to which you'll be continuously adding knowledge."

11) "The overarching message of this book is at once powerful and simple: With relatively little effort, you can design and assemble an investment portfolio that, because of its wide diversification and minimal expense, will prove superior to most professionally managed accounts."
21 of 21 people found the following review helpful
5.0 out of 5 stars Retread? Yes, but still 5 stars. 17 Sep 2011
By Kevin Kroskey, CFP, MBA - Published on
The other couple reviews are dead-on that this book is essentially a reprint of the 2002 edition with a short commentary on the great recession. Mr. Bernstein and his publisher are capitalists--the basic tenant of the book no less, so I have no issue with the virtual reprint. Yet, the book is so good that I see it almost as a community service to re-release the book. If it saves a few more investors from high costs, poor allocations, investment salespeople (not true advisors) and bad behavior society at large will be better off. A word of caution: as much as I love this book, it is geared more so for an engineer-type mentality even though it is less technical than "The Intelligent Asset Allocator." "Investor's Manifesto" is a more readable and still very worthwhile book with similar content as "The Four Pillars". Be sure to check out Bernstein's columns in Money Magazine (one of the only worthwhile columnists in the magazine) and periodic thoughts posted on his website at [...]
9 of 9 people found the following review helpful
5.0 out of 5 stars Perhaps THE best investing book for laypeople 2 May 2012
By Eric E. Haas - Published on
I'm an investment advisor.

I recommend this book to all laypeople who want to self-educate.

In my opinion, this may be the best investing book for laypeople ever written.

The first part was kind of thick, in my opinion (it is about history of investing and the risk/reward tradeoff). But if you slog through those first few dozen pages, you will be richly rewarded by the rest of the book.

Only other books that come close to this book, in my opinion, for self-education of laypeople are:
- Common Sense on Mutual Funds, by Bogle, and
- A Random Walk Down Wall Street, by Malkiel
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