May 10, 2006
News & Opinion: The Books of William Bernstein
In the area of personal finance, there are two types of books
- How do I get out of debt
- What do I do with all my extra money now that I am out of debt.
The books of William Bernstein are for those who have extra money and are trying to figure out a way of investing it for the long-term. He believe in index funds and asset-based investing as the best path to success.
[a short pause while short-seller, derivative traders, and commodity brokers file out of the room]
For all of you still reading, I throughly recommend both of his books. Bernstein recommends The Four Pillars of Investing to "the liberal arts audience" and The Intelligent Asset Allocator "for the sophisticated investor".
In the first book, Bernstein explains the Four Pillars as history, theory, psychology, and business. He takes time to explain how "The Market Is Smarter Than You", how "Your Broker Is Not Your Friend", and "Neither Is Your Mutual Fund". He ends the book explain how to create a portfolio of the right asset types to minimize risk while maximizing returns.
In The Intelligent Asset Allocator, you need to already be on the bandwagon. He spends a little time talking about historical returns and the wide variation of the last 80 years. Shortly thereafter, the reader will find themselves in the world of standard deviation, correlation, and mean-variance optimizers. This is for the investors who has already drunk the Kool-aid and now wants to mix some for themselves.