Rating: 
Summary: The foundation of any investment library
Review: William Bernstein has written a classic investment book that should be the foundation of anybody's investment library. I managed money for 7 years and have read most of the books considered classics. Nobody explains investment better than Bernstein. He combines a fascinating review of investment history - one of the best perspectives I have ever come across - with lots of practical advice. I love reading about investing and investments and this is my first pick for a reader of any level. I was amazed at how much I learned/re-learned.I now manage a mutual fund company and this is the first book that any new employee (or any existing one) is recommended when they ask me for my list.
Rating: 
Summary: astonishingly incompetent work
Review: William Bernstein is the kind of man who, as Paul Krugman put it, would rather spend a year hunting down a fact than a day mastering a theory. His book is packed with math but devoid of intellectual content.
Bernstein's approach rests largely on his insistence that there is no way to successfully and systematically pick stocks and obtain a better return than the market; stock movements are truly random, in both the long and short term. His justification for this claim is almost nonexistent. Only once does he, briefly, present a theoretical argument: as soon as a mutual fund manager tries to buy a stock he or she has identified as a superior investment, the buying will push the price of the stock up so that it is no longer a superior investment. That's it; the entire book rests on that claim. Bernstein does not explain where to place the threshold: why, say, a $1 billion fund will be afflicted, as opposed to a $100 billion fund. In fact, his claim is demonstrably false, as index funds are huge and have (as he continously points out) outperformed most active managers.
There are many active managers who have beaten the market over an extended time. Except for four, Bernstein simply ignores them. He deals with Robert Sanborn's record by noting that he did spectacularly in the early 90's, and poorly in the late 90's. He then points out that Sanborn's assets increased during the 90's, and claims this as proof that asset bloat thwarts even skilled managers. This is patently ridiculous. Simply noting a correlation does not show that asset bloat affected the returns. The true explanation is that the market went bonkers in the late 90's, and Sanborn, being a superior manager, did not throw away money on tech stocks; instead he bought sound businesses, which the market ignored until after the bubble burst. It is astonishing to see Bernstein, who is a doctor, think that a correlation among a few data points constitutes proof (think of drug studies). Bernstein has three excuses for Warren Buffett's superior performance, and they're pretty pathetic. First, he claims that because Berkshire's stock price sometimes drops, it is not a risk-free investment. True, but so what? Second, he claims that Buffett's performance has slowed in recent years, evidence of asset bloat. Aside from the problem of proving causality, this has hardly been a problem for long-term investors, and it is due not to asset bloat but to identifiable mistakes Buffett made. (I, for one, identified several in advance.) Third, Bernstein claims that Buffett is not a money manager, but a skilled businessman who becomes an active part of the companies he acquires. This is a blatant lie: Buffett has stated frequently that he does not interfere with the managements of his subsidiaries; in fact, he refuses to acquire any company unless the management will stay in place, since he says he would he have no idea how to run it.
Bernstein has a habit of lying. He claims that Peter Lynch's Magellan fund was not a mutual fund, but a private investment vehicle, before 1981, and so Lynch's record from 1977 to 1981 doesn't count. He makes the absurd claim that fund prospecti report the management fees, but not the operating expenses.
In denying that superior performance exists, Bernstein nowhere ackowledges the arguments made in favor of particular approaches (e.g. value investing), let alone refutes them. He processes irrelevant fund statistics endlessly, but does not look at the theories or results of legions of superior investors (Robert Olstein, Bill Nygren, Clyde MacGregor); even with Sanborn, Buffett, and Lynch, Bernstein never mentions or engages the active managers' arguments.
William Bernstein has no patience with ideas, and seems clueless as to how little he knows, as do his fans. He is clearly trying to play in the big leagues with only minor league talent.
Rating:
Summary: Theory, History, Psychology, Business
Review: William Bernstein once again makes his case for indexing and throws in a good story along the way. There is a lot to like about this book and the historical section in particular is interesting and unique in investment literature. Bernstein traces much of the performance of the last twenty years back to a sort of backlash to the deflation of the depression years and notes the troubles in coming off the gold standard in the early twentieth century. True to current investment themes he offers yet another estimate for long term future returns (lower of course). One of a cast of thousands. I am not convinced by the case he has made for indexing only. Not that I think indexing is a bad way to go (it may be the only way to go) but this book does not prove the superiority of indexing. It does provide a strong case for it however. Indexing is a great way to proceed for the monies we must have in the future. It is interesting to note that the literature from Tweedy Browne takes exactly the opposite side of the equation. Lately I have noticed this tendency in several investing books/resources. For instance Bernstein notes that there is no reason to expect a money manager that beats the market over a five year period to continue to do so. Tweedy Browne notes that there is no reason a priori to expect a money manager not to continue to do so. What is interesting is that this amounts to saying that the ability to beat the market is essentially random. This of course agrees with the vast majority of evidence. For the average investor (and most people are average investors) the indexing method is best by far. This probably includes most people that consider themselves day traders. Bernstein does point out that most professional money managers use indexing for their personal portfolios regardless of what they recommend to their clients. However, I am not sure if this phenomenon has been objectively studied. The bottom line is that indexing does reduce the probability that the individual investor will be eating Alpo in his/her old age. But indexing also reduces the probability that the elderly investor will be eating caviar as well. Bernstein knows this and goes out of his way to point it out. That being said the best approach may be to index most of the money and have some set aside for stock picking or active management thereby partaking of the best of both worlds. Berstein also uses the same black magic for establishing the model portfolios that he used in The Intelligent Asset Allocator. Once again, asset allocation is shown to be as much an art as a science. Whatever turns out to be true the reader will find this to be an interesting, generally well reasoned book.
Rating:
Summary: Every investor should read this book!
Review: William Bernstein's new book, The Four Pillars of Investing, has been eagerly anticipated by readers of his first book - The Intelligent Asset Allocator. I think that readers of The Four Pillars will be just as happy as they were with the first book. 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.
Rating:
Summary: Win by not losing.
Review: William Bernstein, market historian, scholar, and strategist, writes this new book with the confidence of his experience and the courage of his convictions, just as he did in his earlier "The Intelligent Asset Allocator." The work is an expansion on the theme that you cannot beat the market by timing or hiring active professional fund managers, so allocate, sit back, and enjoy the long-term ride. His advice is equally applicable to the novice as well as the veteran investor. You get a short course on what market returns you should expect, why you cannot beat the market, why the professionals can't help you, and how to set up your own portfolio using index funds. In other words, he has no use for the investment business other than the index funds it produces.
Chapter 5 on Manias is an excellent history of economic progress, and obviously the groundwork that led to his soon-to-be-published "The Birth of Plenty" (mid-2004) on the origins of the West's affluence. I particularly appreciated his credit to Hyman Minsky on the pattern of bubbles. Although Kindleberger has covered much of the same ground and with greater visibility in the press, Minsky's contributions are more insightful to understanding the distinct nature of economic manias.
Another interesting tidbit is his portrayal of technology as being, in general, a bad business endeavor. Bill Fleckenstein has made this point frequently that technology, unlike Buffett's desired "consumer monopoly," is easily outmoded and supplanted with the new, new thing. Let's just be thankful that earlier entrepreneurs took the time and the risk to create progress.
The true worth of the book comes under the heading of "Why investors lose money." This is the cornerstone of Bernstein's philosophy stating that if you can keep from losing, you will win:
(1) Instead of joining the herd mentality, get out when "everybody" knows that something is a good thing. It only means that everyone who wanted to buy already has; there are no buyers left. Prices can only fall.
(2) Overcome overconfidence by checking the performance figures. Few professionals ever "beat the market." Why do you think you can?
(3) Understand that all investments return to the mean, thus past performance is no indication of future performance.
(4) Don't trade for excitement. Look elsewhere for entertainment.
(5) Keep your eye on the long term and don't be panicked out by emotional short term swings.
(6) Realize that there are no "great companies." The 1000+% returns are few and far between.
(7) Accept that the market is random. Therefore don't get fooled into believing patterns repeat. Index funds are the only way to go.
(8) Check your accounting carefully. Don't overstate your successes while forgetting your losses. Keep track of the portfolio's total return.
(9) Don't get taken for a ride by the investment industry. Trust no one.
It gets a little trickier when he begins building portfolios. Using representative stereotypes, he sets up hypothetical investments using US stock index funds made up of large caps, small caps, large value, small value, REITs, plus Foreign securities. The remaining assets should be split up between cash and bonds (long and short). Your results will be dependent on how well you can approximate this theories. Another catch comes with "rebalancing." Bernstein's advice here is also well taken. Sell out a portion of the superior performers to bring your percentages back in line to their desired weigh in the portfolio and re-allocate those funds into the underperformers to bring their numbers up to desired percentages. Regardless of his distain for decision making, this does require skill and action on your part, but Bernstein has given you enough help to get the job done correctly.
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