“Having emailed and spoken to thousands of investors over the years, I have come to the sad conclusion that only a tiny minority will ever succeed in managing their money even tolerably well” — William J. Bernstein
If I had to pick a favorite investment and finance writer, and one that every dividend investor should read it would be Bernstein. His newest book, The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between, is no exception.[ad#tdg-embedded]
Although I do not want to give away the farm here, I think I will do something that I do not usually do on this blog. I am going to provide a summary and what I consider to be the most important points made by Bernstein. I do this with no illusion that I am even close to possessing the financial intellect Bernstein has. Instead, I do this as a way to document the most important points for both you and I!
Once you are done reading the book, continue to come back to this post to remind yourself of what is most important and continue to consider how each point fits into your own portfolio.
Chapter 1: A Brief History of Financial Time
During times of social, political, and military turbulence, the prices of both stocks and bonds can tank. The positive side of this is that it is often followed by a period of good returns. However, the reverse is possible, and a recovery may never come.
Chapter 2: The Nature of the Beast
Long term high returns come with risk – you can have some wicked losses on the way to those returns. If you want safe, you get low returns.
Even though on a daily, monthly, or yearly basis all stocks can show losses, over the long term, different stock asset classes can have very different return profiles. It is best to hold all of them.
The Gordon Equation is a good way to help estimate future returns.
It is best to buy stocks and bonds when there is a high degree of economic or political trouble. You get better returns that way. If you just buy in periods of calm, your returns will be lower.
Small-caps and value companies generally have higher returns over time.
A concentrated portfolio is risky.
The best that investors can do is minimize fees
Chapter 3: The Nature of the Portfolio
A balanced portfolio comes from allocations in both stocks and bonds. Invest in stocks only with money you do not need for at least 10 years.
Your age and risk tolerance help determine your split between stocks and bonds.
Keep things simple – you can do well with just two asset classes (stocks and bonds). More complex allocations are fine, as long as fees are minimized.
Chapter 4: The Enemy in the Mirror
Do not shoot for excitement in your portfolio.
Control your emotions via re-balancing – it forces you to act in a contrarian manner.
Good companies are usually not good stocks.
Don’t force patterns when none exist.
Stay away from fancy investment products.
Chapter 5: Muggers and Worse
You are at war with the financial industry – they want your money! “If you act on the assumption that every broker, insurance salesman, mutual fund salesperson, and financial advisor like a hardened criminal, you will do just fine.”
Chapter 6: Building Your Portfolio
Stick with three asset classes: total U.S. stock market, international stock markets, the bond market.
The portfolio is the most important “thing”. Some parts will be up while others will be down. It is how it does as a whole that matters.
Summary
This was one of the best investment books
I wrote this with the intention that you, the reader, and me would be able to quickly read this post to remind us of what is truly important when investing. I am going to refer to it often – will you?
The Investors Manifesto truely is a great book. If you are going to read any finance books this is on the top of the list. There are many other great books, but this one should be number one.
I’m really looking forward to all my clients and prospects treating me like a criminal. Perhaps I should just stop giving financial planning advice, insurance advice, tax planning advice, retirement and education advice, estate planning advice, mortgage planning advice, budgeting advice and generally educating my clients about finances. Instead, I’ll just sell them stuff they don’t need and churn their portfolio, then I can be a real criminal. Whatever happened to innocent until proven guilty. I’m all for people asking lots of questions, ensuring their advisor has proper credentials, getting references etc. I think if they did that I would have a lot more clients and many other advisors a lot fewer. I’m sure this type of rhetoric sells lots of books and magazines but I’m getting a little bit fed up with all the advisor bashing going on these days. End of rant.
Hi Thomas. Thank you for your comment and I can understand from a professional standpoint that it is frustrating with all the continued backlash. Unfortunately, I think that there is a lot of work to do by the industry to fix the damage that has been done in the past. The churn has really hurt the industry and has impacted a lot of advisors who are trying to do the right thing.
TDG
@The Dividend Guy: Funny I also just reviewed his book:
http://investorjunkie.com/review-of-the-investors-manifesto-by-william-bernstein
@Thomas J Venner: I agree, I’m not in the field and feel he paints too broad of a stroke.