The Four Pillars Of Investing

Renew：Part 13
Author：William J. Bernstein
Update：08-15-2023
Tags：Other Books
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Chapter List

Chapter 11 Chapter 11. Remarkably, eight years after this book"s original publication, it survives with only one change, which is to update the latest edition of Jack Bogle"s amazing Common Sense on Mutual Funds Common Sense on Mutual Funds. This list should guide you through the subsequent legs of the life-long journey towards financial self-sufficiency.
Chapter 4 Chapter 4, it is an impossible impossible task.) Not infrequently, promising companies with large expected future dividend streams stumble and fall; nearly as often, companies given up for dead recover and provide shareholders with prodigious amounts of future income. task.) Not infrequently, promising companies with large expected future dividend streams stumble and fall; nearly as often, companies given up for dead recover and provide shareholders with prodigious amounts of future income.
Chapter 4 Chapter 4, when we discuss portfolio theory.
Chapter 3 SUMMARY.
Chapter 1 Chapter 1, all stocks are risky a.s.sets, as are long-term bonds. The only truly riskless a.s.sets are short-term, high-quality debt instruments: Treasury bills and notes, high-grade short-term corporate bonds, certificates of deposit (CDs), and short-term munic.i.p.al paper. To be considered riskless, their maturity should be less than five years, so that their value is not unduly affected by inflation and interest rates. Some have recently argued that Treasury Inflation Protected Securities (TIPS) should also be considered riskless, in spite of their long maturities, because they are not negatively affected by inflation.
Chapter 1 Chapter 1, as most IPOs fall into this category.
Chapter 5 Chapter 5 that raw brainpower alone is not sufficient for investment success, as demonstrated by Sir Isaac Newton, one of the most notable victims of the South Sea Bubble. We have no historical record of William Shakespeare"s investment returns, but I"m willing to bet that, given his keen eye for human foibles, his returns were far better than Sir Isaac"s. that raw brainpower alone is not sufficient for investment success, as demonstrated by Sir Isaac Newton, one of the most notable victims of the South Sea Bubble. We have no historical record of William Shakespeare"s investment returns, but I"m willing to bet that, given his keen eye for human foibles, his returns were far better than Sir Isaac"s.
Chapter 5 Chapter 5, the same thing happens in the investment world, where small long shot companies attract too much capital, leaving less capital for duller, more established companies. This depresses the prices of the more established companies and increases their returns. And, as we"ve already seen, IPOs are a lousy business. (This is also the main reason why the returns of small cap growth stocks are so low, as we saw in Figure 1-18 Figure 1-18.) I"ve formulated my own model, called the "investment entertainment pricing theory" (INEPT), which describes this phenomenon. For each bit of excitement you derive from an investment, you lose a compensatory amount of return. For example, a theater ticket may be thought of as a security with a high entertainment value and a zero investment return. At the opposite end of the scale, a portfolio full of dull value stocks-USX, Caterpillar, Ford, and the like-is the most liable to have higher returns.
Chapter 3 Chapter 3. Fortunately, his pain was eased by a high salary and the knowledge that as a newly minted superstar manager, he could demand even higher compensation, lest he peddle his scarce "talents" elsewhere.
Chapter 2 Chapter 2.
Chapter 3 Chapter 3 we showed that investment managers demonstrated no evidence of we showed that investment managers demonstrated no evidence of selection selection skill-that is, they could not successfully pick stocks. But quite clearly, as Mr. Sauter and a few other pract.i.tioners have demonstrated year after year, there is skill-transactional skill-in the actual skill-that is, they could not successfully pick stocks. But quite clearly, as Mr. Sauter and a few other pract.i.tioners have demonstrated year after year, there is skill-transactional skill-in the actual execution execution of stock purchases and sales. of stock purchases and sales.
Chapter 2 Chapter 2. Let"s consider each of these in turn. Let"s say you are an employee of General Motors. In this case, you are working for a "value company" and are vulnerable in rough economic times, just as are value stocks. In this case, it would not be a good idea to overweight your portfolio with value stocks, as in a severe economic slump you may lose both your job as well as a fair chunk of your portfolio. Similarly, if you work in high tech, it would be foolish to overweight growth stocks in your portfolio. This highlights the most common investment mistake made by corporate employees-owning company stock in their personal and retirement portfolios, as was recently demonstrated by the Enron debacle. If the company gets into trouble, the risk of losing everything is high. There are also people who should should own value stocks. These are employees of companies in "countercyclical" industries that do well even when times are bad, such as food and drug companies. The ultimate countercyclical jobs are in the p.a.w.n and repo business, which boom during economic slumps. If you work in either of these industries, you can knock yourself out and load up on value stocks if you so wish. Finally, if you are one of the vanishing number of individuals lucky enough to be getting a regular fixed pension, then you own, in essence, a bond issued by your former employer. If that employer was the government, you can capitalize (that is, discount) its payments by a low rate-say 6%. So, if you are relatively young, you essentially own a perpetual annuity, similar to prest.i.ti and consols. If your payments are $30,000 per year, this is the same as owning a long bond with a value of $30,000/0.06 = $500,000. If you are older, its value will be commensurately less. Your Social Security payments should be capitalized in the same way. If your pension comes from Trump Casinos, I"d capitalize it at much higher rate-say 12%-making its present value only $250,000 ($30,000/0.12 = $250,000). In any case, it would not be a bad idea to increase your stock holdings to reflect the "bonds" you effectively own via your pension and Social Security. own value stocks. These are employees of companies in "countercyclical" industries that do well even when times are bad, such as food and drug companies. The ultimate countercyclical jobs are in the p.a.w.n and repo business, which boom during economic slumps. If you work in either of these industries, you can knock yourself out and load up on value stocks if you so wish. Finally, if you are one of the vanishing number of individuals lucky enough to be getting a regular fixed pension, then you own, in essence, a bond issued by your former employer. If that employer was the government, you can capitalize (that is, discount) its payments by a low rate-say 6%. So, if you are relatively young, you essentially own a perpetual annuity, similar to prest.i.ti and consols. If your payments are $30,000 per year, this is the same as owning a long bond with a value of $30,000/0.06 = $500,000. If you are older, its value will be commensurately less. Your Social Security payments should be capitalized in the same way. If your pension comes from Trump Casinos, I"d capitalize it at much higher rate-say 12%-making its present value only $250,000 ($30,000/0.12 = $250,000). In any case, it would not be a bad idea to increase your stock holdings to reflect the "bonds" you effectively own via your pension and Social Security.
Chapter 10.
Chapter 14
Chapter 2.