business and investing

I won't be able to say anything that hasn't been said before, but this is really a good read on passive index investing strategy and market history. I found this to be good companion book to Larry Swedroe's Rational_Investing_In_Irrational_Times. This book covers market history, efficient market theory, statistics on actively manged funds vs. passive vehicles, and detailed information on how and why diversified portfolios work the way they do. I think the biggest hurdle people will have following the passive index strategy is having the guts to stick out bad markets and putting money into lagging asset classes by taking money from your winners.

Overall the critics are largely irrelevant (re: people who point out Warren Buffet). Although Bernstein presents a fairly weak argument in his book about the success of value investors such as Buffet, I still think the core of the book stands on it's own.

I like Warren Buffet's writings and investment style as much as the next person (and even own a few shares), but he really isn't running a "mutual fund" as people sometimes think. He runs a conglomerate that purchases good businesses that largely run themselves and hands money off to him as profit. This is a great business model, but significantly different from where Berkshire started decades ago. Of course most of these deals come to him because he is Warren Buffet and this gives him a decided advantage over the individual investor. I think in the end the efficient market theorists will be shown correct. I'd like to think that somewhere out there people are beating the market hand over fist continuously, but this is becoming harder and harder to do as an external investor buying stocks. Buffet's advantage over the recent past hasn't been his stock prowess but the fact that he owns the companies and has control over their destiny and cashflow.

Regardless, this book is a great read for anyone interested in protecting their money and beating virtually all money managers with minimal stress.

Four Pillars is one of the best of the 15 investing books I have read. It is noteworthy because the book:

* integrates numerous theories of investing (Indexing, Efficient Market, Portfolio theory).
* places returns of various asset classes (large/small/growth/value stocks, bonds, REITs, minerals, cash) into historical perspective, then lays out a clear argument why the future may not resemble the past.
* provides extensive evidence why investors should steer clear of brokerages, mutual funds, and the cheerleading financial news industries.
* Bernstein has a colorful command of the language.

It would be no problem to give more details of why this book is outstanding, and I think other reviewers have done just that. I will instead explain why I rated this book four and not five stars:

* Bernstein is an Efficient Markets proponent, claiming that the markets are wiser than any individual investor or money manager. He concludes there is no room for stock picking. On the other hand, he observes, in his own inimitable style, "once a generation the markets go barking mad". Well, which is it? If the markets are efficient, then they will never go barking mad. And if they occasionally go barking mad, then they aren't always efficient.
* Bernstein claims that it is a fool's game to try to beat the markets (seeing as how they are efficient). He then proceeds to claim that Portfolio Management can consistently and over the long run beat the markets (albeit by less than 1%). Perhaps he should have added a caveat to his statements rather than create the appearance of internal contradiction.
* Bernstein makes extensive use of statistics to prove that, on average, the average investor cannot do better than the market average. He then goes on to prove that it is highly unusual for investors to have returns that are statistically unlikely. While this is simply a tautology, it is presented as a great insight into the market. For that matter, the odds that you have a college degree and have 5 close friends with college degrees is about 1 in 100. Yet I would wager that most people reading this review fit that category. Bernstein's observations are technically correct, but are a good example of Mark Twain's statement "there are lies, damned lies, and statistics".

I raise these points not to quibble over the validity of this or that idea in this excellent book, but rather to highlight that this book includes a healthy mixture of investing theory and astute observations, and given the complexity of the market, they do not always fit perfectly.

I have only one complaint. Bernstein waits till nearly the end to state that he is only referring to long term investing for retirement. Personally, I like to play the market with money I can afford to lose, and I generally "swing for the fences". Four Pillars is downright derisive towards this type activity. This caused me cosmic dissonance until I divined this unstated assumption.

This book is for everyone from the novice investor to the most savvy investor. The author does a wonderful job of explaining concepts and ideas without getting caught up in a bunch of analytical data and graphs. I wish this book had been published when I was much younger. All young people justing getting started in the work world should take the time to read this book. It will definitely help you later. Definitely worth the time to read this book!