The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

A little background on myself since it affects my review. I have read over 200 books on investing. My conclusion is that investing in a diversified portfolio of low cost index funds is the way to build and maintain wealth. I am a member of the Internet Forum Bogleheads dot Org, whose members are disciples of Jack Bogle's passive investing strategies. William Bernstein occasionally posts on this forum. I am also the author of the book Index Mutual Funds: How to Simplify Your Financial Life and Beat the Pros. I am also a contributing author to the Bogleheads 2nd book on investing titled The Bogleheads Guide to Retirement Planning. I recently met Bill Bernstein at the Boglehead's 8th annual convention in Fort Worth in October 2009. I heard Bernstein answer questions and give a 20 minute lecture on the four lessons he learned from the Crash of 2008. I have enjoyed Bernstein's previous books, and I really like his Retirement Calculator from Hell story posted on his Efficient Frontier web site. I looked forward to reading the Investor's Manifesto. Bernstein correctly points out that every few years we experience a Bear Market in stocks, but nobody knows when to predict when the next one will begin. If you examine history from WWII, you will find we have experienced about 13 Bear Markets in 65 years.....or roughly a Bear Market about every 5 years. Bernstein's solution to the dilemma of not knowing when the next Bear Market will begin is to hold a diversified portfolio of low cost index funds, including both stocks and bonds. Bernstein's recommendation is not new with regards to holding a portfolio of both stocks and bonds. Benjamin Graham back in his 1934 book Security Analysis recommended roughly a 50:50 split between stocks and bonds. At first, I was a little surprised that Bernstein said the field of finance (and investing) is a relatively small one compared to other fields. He said the number of major ideas is small compared to medicine, engineering, or the social sciences. After I thought about it, I realized Bernstein is right. A while back I was doing research for a short story on investing. My research showed very few major ideas and most of them were just within the last 20 years or so. For example, it took until 1994 for William Bengen (engineer turned financial advisor) to study past stock market returns and conclude that retirees should not withdraw more than an inflation adjusted 4% of their initial portfolio during retirement. Up until that point, many people suggested you could withdraw 10% annually, the historic return of the stock market. In 1998, the famous Trinity Study was published with findings similar to Bengen's. Fama and French's 3-factor study identifying small value stocks as giving the highest returns was published in 1992. Monte Carlo analysis of retirement withdrawals did not start until 1997. In recent years, the financial planning profession has started to recommend SPIA's (single premium immediate annui

It's always fun to hear that one of your favorite authors has released a new book. Given that William Bernstein's The Four Pillars of Investing is quite literally my favorite book on investing, you can imagine how eager I was to read his newest release. End result: I might have a new favorite. The Investor's Manifesto seeks to make a "teaching moment" of the volatility of the markets in 2008 and 2009. It does a great job, highlighting the benefits (and limitations) of diversification, the inescapable link between risk and expected returns, and the need to be suspicious of any claims from the financial services industry. Added bonus: A chapter on the behavioral/psychological shortcomings of humans as investors is an absolute treat when written by a man who practiced as a neurologist (and therefore knows a thing or two about how our brains work).

William Bernstein presents the readers of his latest book with the distilled essence of investment wisdom. He laments that his previous works may not have connected with the broad audience he had hoped to reach, but the events of the past year encouraged him to give it one more try. There is little in the way of mathematics or complex graphs to confuse the unwary. Sounding like a caring uncle dispensing advice with tough love, Dr. Bernstein drives his points home with laser-like precision. You will not find his narrative peppered with wishy-washy words like maybe, possibly, perhaps, or "kinda like." Note how he expresses himself in the following examples: On the importance of saving: "Save as much as you can, and do not stop saving until you die." On risk versus return: "[I]n the course of earning those higher returns, your portfolio is going to lose a truckload of money from time to time. If you desire perfect safety, then resign yourself to low returns. It really cannot be any other way." On glib explanations of market behavior: "The reason that 'guru' is such a popular word is because 'charlatan' is so hard to spell." On buying low: "[M]ost grizzled veterans will tell you that the best purchases are often made when they feel they are about to throw up." On bad behavior: "Our emotions define our humanity...but in the world of finance, they are death itself." On performance chasing: "Alas, small investors incessantly chase returns the same way that dogs chase seagulls up and down the beach." On overconfidence: "In the investment world, you are not above average. You are likely not even close." Clearly, Dr. Bernstein does not consider it his mission to massage your ego. His goal is to make you a better investor, and I find his direct, no nonsense approach very effective. Even experienced investors who feel they have already learned the basics can benefit from this book. In the cacophony of news and opinion we face every day, it is necessary to take a step back every once in a while and convince yourself that you are not getting caught up in the moment and doing foolish things. In a chapter devoted to building a portfolio, we are reminded that our investments must be tailored to our personal circumstances. To illustrate this, Bernstein introduces us to four hypothetical investors named Young Yvonne, Sheltered Sam, Taxable Ted, and in-Between Ida. As he constructs an appropriate portfolio for each of these individuals with distinctly different ages and backgrounds, we can see how fundamental principles are put to work in the real world. I found this chapter to be the most insightful in the book. Be forewarned. The author advocates a long-term perspective and the use of low cost index funds. This book does not discuss stock picking tips or options strategies. If you are looking to beat the market, you will be disappointed. Indeed, the author will try to ween you away from what he considers harmful behavior. He will remind you that the goal

I had previously read Swenson's Unconventional Success. This book contains essentially the same advice, but is much, much more readable. The way the author connects financial history going back several millennium to practical advice on what to do with your portfolio today, was quite elegant in my opinion. I have never before read an investment book that was as helpful,entertaining and well-reasoned as this one. A welcome antidote to the buffoons on CNBC and FBN.

There are many books on investments. This is one of the great ones in my opinion. It is my favorite since Swenson's Unconventional Success, and is much better written that that one. The points are somewhat familiar. Trying to pick stocks or pick managers is useless, so stick to low cost index funds. Allocate assets to minimize risk based on your own personal risk tolerance. Beware of the whole financial industry, which is designed primarily to extract as much money as possible from you, thus working directly against your financial interest. This advice will not appeal to many people. It is the old "get rich slow" advice. I suspect many people are far more interested in titles that supposedly tell you how to make 1 million dollars a year through day trading. Good luck to them. I don't believe it'll happen, Bernstein does not believe it'll happen either. He thinks stocks going forward may promise 4 to 8 percent per year over the long long term. His points are strongly supported through reasoned arguments. There is much discussion of the recent turmoil in the financial markets and the good advice that people should always understand the risks they are taking. For people who can understand and follow the advice in this book, it could well change their future, particularly young people with long saving times ahead of them. There are no sure things in the investment world, all you can do is improve your probability for success and decrease your probability for loss. In my opinion, the strategies espoused in this book are the most sensible and historically successful at putting the odds in your favor. This goes on my short list of great and highly recommended investment books.