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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 (2 customer reviews)
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Book Description

July 8 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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The Four Pillars of Investing: Lessons for Building a Winning Portfolio + The Intelligent Investor: The Definitive Book on Value Investing
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Product Description

From the Back Cover

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

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

  • The Theory of Investing: “Do not expect high returns without 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’s conventional wisdom and assume that it is wrong. More often than not, it is.”
  • The Business of Investing: “The stockbroker services his clients in the same way that Bonnie and Clyde serviced banks.”

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

About the Author

William J. Bernstein, Ph.D., M.D., is a neurologist and the cofounder of the investment management firm Efficient Frontier Advisors. He is the author of three finance books—The Intelligent Asset Allocator, The Four Pillars of Investing, and The Investor’s Manifesto—and two volumes of economic history, The Birth of Plenty and A Splendid Exchange. Bernstein is currently working on a history book exploring the effects of access to technology on human relations and politics.


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Front Cover | Copyright | Table of Contents | Excerpt | Index
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5.0 out of 5 stars Excellant March 30 2014
Format:Hardcover|Verified Purchase
This book gives very good advice. One is less likely to be fooled by the salesmen of the various investment companies. People will be able to do for themselves and act in their own best interests, not the salesman's best interest. This is a very good book for the young proffesional just starting out.
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Format:Hardcover|Verified Purchase
I read his earlier "Intelligent Asset Allocation" books several years ago and enjoyed it; the math didn't put me off perhaps because of an engineering degree. Although I understood well, I still wasn't ready to put it into practice.

This book is more focused on the necessary level of understanding and clearly "how to" so you can actually implement the plan. The first chapter or two you may run through a little quickly, then it keeps getting more and more interesting. I can relate to many of the storied of financial "promoters"- I have seen many first hand attempting their pitch.

This is a book that everyone- from first job through retirement- should read and consider. We are subjected to so much media and social pressure- wake up!
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Amazon.com: 4.7 out of 5 stars  53 reviews
44 of 45 people found the following review helpful
4.0 out of 5 stars "New and improved"? Feb. 21 2011
By Henry Thoreau - Published on Amazon.com
Format:Hardcover
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.
79 of 85 people found the following review helpful
3.0 out of 5 stars New edition????????????? Jan. 30 2011
By MrDontWorryAboutThat - Published on Amazon.com
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.
24 of 24 people found the following review helpful
5.0 out of 5 stars Investing 101! March 2 2013
By O. Halabieh - Published on Amazon.com
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."
22 of 22 people found the following review helpful
5.0 out of 5 stars Retread? Yes, but still 5 stars. Sept. 16 2011
By Kevin Kroskey, CFP, MBA - Published on Amazon.com
Format:Hardcover
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 [...]
11 of 11 people found the following review helpful
5.0 out of 5 stars Perhaps THE best investing book for laypeople May 2 2012
By Eric E. Haas - Published on Amazon.com
Format:Hardcover
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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