The Four Pillars of Investing

William Bernstein is also the author of The Intelligent Asset Allocator. While his previous book did not do as well, The Four Pillars of Investing propelled him to imminent infamy.

Bernstein has done a magnificent job with his four theories. Whether you’re just starting out on your portfolio or have roughed it out as a seasoned investor, you will definitely take something from these four pillars.

The first pillar is the need to know certain inalienable investment theories. Like how great returns must always come with great risks and why you must never believe anyone else who tells you otherwise.

The second pillar is the need to know history. Events such as the South Seas Bubble, to more recent ones like the dot com mania are discussed. Bernstein stresses the importance of knowing the past so that you may never repeat it in the future.

The third pillar is the need to know the psychology of investing. Bernstein explains how the investor’s greatest enemy is usually himself. Most investors just are not psychologically built to handle the volatility of the market. In mishandling psychology, they lose money.

The final pillar is the need to know the investment business. Bernstein reminds us that mutual fund companies and investment professionals have interests that do not run parallel with our needs. Bernstein is a strong advocator of the independent investor and low cost index funds.

Overall its an enjoyable read with highly narrative commentaries despite the inundation of numbers in some parts. Highly recommended.