One More "Don't Buy This Book" from Bill Bernstein

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One More "Don't Buy This Book" from Bill Bernstein

Postby Bill Bernstein » Thu Aug 29, 2013 11:41 pm

"Deep Risk," which was covered by Jason Zweig several weeks ago, is finally available in both Kindle and paperback from Amazon.

But bogleheads really have no need to buy it, since Jason's article

http://blogs.wsj.com/moneybeat/2013/07/26/shallow-risk-and-deep-risk-are-no-walk-in-the-woods/

covered it pretty well, and what wasn't got discussed in this thread:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=120512&p=1761508

Jason surprised me by writing his article several weeks before I had it in final form. But if you choose to disregard my advice and spend good money on it, well, I won't try to stop you.

It's available only on Amazon: I won't be making a Nook or iTunes version.

Best,

Bill
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby cinghiale » Fri Aug 30, 2013 12:02 am

What a great descriptive line and bit of imagery from 70's Motown:

"In a forthcoming e-book, “Deep Risk: How History Informs Portfolio Design,” Mr. Bernstein sifts through decades of financial data and global history to identify what creates deep risk. The four causes he came up with sound almost like lyrics to the old Temptations song “Ball of Confusion,” but they are deadly serious: inflation, deflation, confiscation and devastation.“

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"Don't Buy This Book"

Postby Taylor Larimore » Fri Aug 30, 2013 12:18 am

Boglehead Bill Bernstein wrote:
"Deep Risk," which was covered by Jason Zweig several weeks ago, is finally available in both Kindle and paperback from Amazon. -- But bogleheads really have no need to buy it.

This is very rare: An author who tells us not to buy his book. :oops:

Now, more than ever, I want to buy it.

Best wishes.
Taylor
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby kramer » Fri Aug 30, 2013 12:23 am

Thanks for the warning, but I am going to buy it anyway :D

I have managed to gain insights from each release in this series, your warnings not withstanding. After reading each one, I felt like I got excellent value.

Thanks for your hard work. It is appreciated.

By the way, I only see it in paperback on Amazon, not the kindle version. Can someone provide a link to the Kindle version?

I am abroad and perhaps that is a reason I can't see it?

Edit: Found it with the direct link given from efficientfrontier.com. But oddly, only the paperback version shows when I search deep risk bernstein at Amazon, and the paperback page gives no indication that there is a Kindle version.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Beagler » Fri Aug 30, 2013 12:49 am

Bill, love your writing style, but this is pretty brazen. :wink:
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby TomatoTomahto » Fri Aug 30, 2013 8:25 am

There are some authors whose books I purchase regardless of recommendations. In fiction, it is Richard Russo and Paul Auster. In non-fiction, you, sir, are one of those authors.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby nisiprius » Fri Aug 30, 2013 8:39 am

I can't promise not to buy it ever, but I do promise you I won't buy it until after I've finished reading Masters of the Word: How Media Shaped History. I don't know when that will be, but it's not as not as long as it looks ("448 pages,") since about half of it is chapter notes.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby buckstar » Fri Aug 30, 2013 8:49 am

Really enjoyed your interview with Russ Roberts on EconTalk, if others haven't heard it, it's worth the download.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby matjen » Fri Aug 30, 2013 9:13 am

wbern wrote:"Deep Risk," which was covered by Jason Zweig several weeks ago, is finally available in both Kindle and paperback from Amazon.

But bogleheads really have no need to buy it, since Jason's article


Well I think it is always nice to support esteemed members of the Boglehead forum. Having said that, if you are a Prime member at Amazon you can borrow it for free thereby following Wbern's advice :wink: . I have never tried it but may in this case just to figure it out. Always look forward to your efforts Wbern. The Four Pillars is the most important (to me) investing book I have ever read.

http://www.amazon.com/Deep-Risk-Portfol ... +bernstein
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby livesoft » Fri Aug 30, 2013 9:41 am

It seems that Dr Bernstein has learned something about marketing from a Wharton professor (and probably others):
Don’t Even Think About Reading This Post :D
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby mptness » Fri Aug 30, 2013 9:53 am

I will probably be purchasing a copy right away in case the price increases in the future. I may sell some of my long term bond fund to finance it. :happy
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Rick Ferri » Fri Aug 30, 2013 9:56 am

I learned that permanent investment loss comes from four "tions"; inflation, deflation, confiscation and destruction. We can't predict destruction. Inflation and deflation are difficult to see coming. Confiscation is probably the only one we can see coming from a long way off (like now perhaps?). Is there anything else I need to know?

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Amazon Prime "Borrowing"

Postby Bill Bernstein » Fri Aug 30, 2013 10:24 am

Bogleheads can Amazon-Prime-borrow the book guilt-fee: authors are compensated fairly, at least so far, for borrowed copies.

A larger question is whether Amazon Prime is consistent with Bogleheadedness; I *love* my Prime account, but it sure isn't doing anything good for my cash flow . . .

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Re: Amazon Prime "Borrowing"

Postby nisiprius » Fri Aug 30, 2013 10:57 am

wbern wrote:Bogleheads can Amazon-Prime-borrow the book guilt-fee: authors are compensated fairly, at least so far, for borrowed copies.

A larger question is whether Amazon Prime is consistent with Bogleheadedness; I *love* my Prime account, but it sure isn't doing anything good for my cash flow . . .

Bill
Well, Amazon has been very clever about pricing it. My wife got sucked into it when she bought her Kindle. $70/year is really quite reasonable and manages to just fall under our "think-about-it" threshold. If you think Prime is evil, I curse the Boglehead who recommended that I try subscribing to BookBub. (That means, you, epictetus!) And following a BookBub lead, I noticed for the first time that Amazon will send you Amazon Daily Deal email reminders). I've bought more $1.99 books than I'm likely to read in the next six months. One of the SF publishers seems to be discounted every, or almost every Kurt Vonnegut book in rotation...

BTW spousal sharing of Prime works for free shipping, but not, apparently, for other Prime benefits.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Browser » Fri Aug 30, 2013 11:15 am

Downloaded it right away and have read a good portion already. Topnotch as usual - I keep learning new things from Dr. B. One question to the good doctor. I note that, while gold is prominently discussed, commodity funds (CCFs) are not mentioned (at least as far as I've gotten). Rather, you chose to discuss commodity producer stocks. I'm wondering why CCFs aren't included, and whether you have drawn any conclusions about where this asset class fits in? I'm guessing you don't think much of it, since you pretty much have discounted the importance of gold in the big picture, and they generally behave similarly. There's been a long-running debate going on about these things, and I'm sure Larry Swedroe won't be particularly happy that CCFs didn't get invited to the party. Appreciate any observations. Thanks.
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Gems from "The Four Pillars of Investing"

Postby Taylor Larimore » Fri Aug 30, 2013 11:17 am

Bogleheads:

Bill Bernstein is a brilliant author, adviser and a captain in Jack's crusade: "To give ordinary investors a fair shake." Bill has written many books on many subjects. My favorite is The Four Pillars of Investing. These are excerpts which I call "Investment Gems":
PILLAR ONE--Investment Theory:

"Anyone promising high returns with low risk is guilty of fraud."

"The long-term return of high-grade bonds is essentially the same as the dividend yield."

"The market is brutally efficient and can be thought of as being smarter than even its wisest individual participants."

"Stock picking and market timing are expensive, risky, and ultimately futile excercises."

"A prudent course is to make the broad market and a lesser amount of small U.S. and large foreign stocks your core stock holdings."

"Financial history provides us with invaluable wisdom about the nature of the capital markets and of returns on securities."

"No one--not the pundits from the big brokerage firms, not the newsletter writers, not the mutual fund managers, and certainly not your broker--can predict where the market will go tomorrow or next year."

"From the market peak in September 1929 to the bottom in July 1932, the market lost an astonishing 83%."

"The message to the average investor is brutally clear: expect at least one, and perhaps two, very severe bear markets during your investment career."

"Most investors are simply not capable of withstanding the vicissitudes of an all-stock invesment strategy."

"A young person saving for retirement should get down on his knees and pray for a market crash, so that he can purchase his nest egg at fire sale prices."

"For the 50 years from 1932 to 1981, Treasury bonds returned just 2.95% per year."

"The fundamental investment choice faced by any individual is the overall stock/bond mix."

"Alfred Cowles was directly responsible for the collection and analysis of most of the nation's stock and bond data from 1871 to 1930. Without Cowles, we would still be financial cave dwellers.

PILLAR TWO--Investment History

"Be aware that the markets make regular trips to the loony bin in both directions."

"There is nothing new--only the history you haven't read (Larry Swedroe quote)"

"In no field is a grasp of the past as fundamental to success as in finance."

"Bubbles occur whenever investors begin buying stocks simply because they have been going up."

"At times of great optimism, future returns are lowest; when things look bleakest, future returns are highest."

PILLAR THREE--The Psychology of Investing:

"The biggest obsticle to your investment success is staring out at you from your mirror."

"Overconfidence is probably the most important of financial behavioral errors."

"The next major error that investors make is the assumption that the immediate past is predictive of the long-term future."

"Human beings are not very good at taking losses or admitting failure."

"My experience is that the wealthier the client, the more likely he is to be badly abused (by his broker)."

"The most liberating aspect of an indexed approach is recognizing that by obtaining the market return, you can beat the overwhelming majority of investment professionals who are trying to exceed it."

"A superior portfolio strategy should be intrinsically boring."

"If you cannot hold onto the asset class mutts in your portfolio, you will fail. Your overall portfolio return is all that matters."

PILLAR FOUR--The Business of Investing

"Make no mistake about it, you are engaged in a brutal zero-sum contest with the financial industry.--every penny of commissions, fees, and transactional cost they extract is irretrievably lost to you."

"99% of what you read in and hear from the financial media is, in fact, advertising cloaked as journalism."

"It is a sad fact that you can pass the Series 7 exam and begin to manage other people's accumulated life savings faster than you can get a manicurist's license in most states."

"Stay clear of mutual funds and variable annuities with sales loads and fees."

"Vanguard became the first, and only, truly 'mutual' fund company owned by its shareholders. There was, therefore, no incentive to milk the investors, as generally happened in the rest of the investment industry."

"At the present time, I'd still give the nod to the more traditional open-ended index funds (over ETFs)."

"When you buy the market, you are hiring the aggregate judgment of the most brilliant and well-informed minds in finance."

"The stockbroker services his clients in the same way that Bonnie and Clyde serviced banks."

"The essential characteristics of the successful investor are the discipline and stamina to, in the words of John Bogle, 'stay the course'."

"With relatively little effort, you can design and assemble an investment portfolio that, because of its wide diversification and minimal expense, will prove superior to most professionally managed accounts."

MORE INVESTMENT GEMS

Best wishes.
Taylor
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby grok87 » Fri Aug 30, 2013 11:39 am

wbern wrote:"Deep Risk," which was covered by Jason Zweig several weeks ago, is finally available in both Kindle and paperback from Amazon.

But bogleheads really have no need to buy it, since Jason's article

http://blogs.wsj.com/moneybeat/2013/07/26/shallow-risk-and-deep-risk-are-no-walk-in-the-woods/

covered it pretty well, and what wasn't got discussed in this thread:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=120512&p=1761508

Jason surprised me by writing his article several weeks before I had it in final form. But if you choose to disregard my advice and spend good money on it, well, I won't try to stop you.

It's available only on Amazon: I won't be making a Nook or iTunes version.

Best,

Bill

Sorry Bill, you are going to have to make a much better case to stop me from reading anything you've written!
I really like your figure 4 showing a fairly strong negative correlation (R^2=31%) between stocks and inflation on a per country basis from 1900-2011.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby mptness » Fri Aug 30, 2013 12:04 pm

I got my copy for kindle, and at $4.95 it is sure to be a bargain. It will join several other books by Dr. Bernstein in my library including "The Intelligent Asset Allocator," "The Four Pillars of Investing," "The Investors Manifesto," and "The Ages of the Investor (which he also told Bogleheads not to buy). I have enjoyed and learned much from every one of his books. Dr. Bernstein, I am convinced you are a brilliant author, and you will never convince me not to buy one of your books.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby chaz » Fri Aug 30, 2013 12:06 pm

"The Four Pillars of Investing is the most important (to me) investing book I have ever read."

I agree.
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Commodities Funds

Postby Bill Bernstein » Fri Aug 30, 2013 12:54 pm

You're right, I should have at least mentioned commodities funds, if only to say, "if you want more detail about why commodities funds don't belong in your portfolio, please read the last book in this series, "Skating Where the Puck Was."

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Re: Commodities Funds

Postby Browser » Fri Aug 30, 2013 1:07 pm

wbern wrote:You're right, I should have at least mentioned commodities funds, if only to say, "if you want more detail about why commodities funds don't belong in your portfolio, please read the last book in this series, "Skating Where the Puck Was."

Bill

Ah, yes. I've read that one as well and should have remembered. I'm going off now to reread it...
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Levett » Fri Aug 30, 2013 2:32 pm

"Confiscation is probably the only one we can see coming from a long way off (like now perhaps?)."

I hear that buzzword--"confiscation"--from various quarters and never quite know who or what is being confiscated by whom.

Surely, you don't mean to be political. :wink:

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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby nisiprius » Fri Aug 30, 2013 2:49 pm

Levett wrote:I hear that buzzword--"confiscation"--from various quarters and never quite know who or what is being confiscated by whom.
The only context in which I've heard it involves conspiracy theories about the government once again prohibiting private ownership of gold. Sites that sell physical gold will say that they have gold coins that can't be confiscated, for example, although I don't see why, if The Government decided to confiscate stuff, it couldn't confiscate whatever it darned pleased, provided of course it did so by due process of law.

Obviously I need to broaden my confiscatory conspiratorial horizons as I'm not sure what Rick Ferri is alluding to.

The Government confiscates drugs and drug-related stuff all the time, of course.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby zzcooper123 » Fri Aug 30, 2013 3:07 pm

Justed finished the Kindle version today. Excellent book. Of note is Dr. Berstein's repeated statement that long term fixed rate mortgages are excellent inflation hedges.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Bill Bernstein » Fri Aug 30, 2013 3:30 pm

By "confiscation" I mean any one of a number of things, from outright government seizure of assets (as occurred recently in Argentina and Cyprus) down to increased tax rates. For example, in the 1980s and 1990s, the "Rangel Tax" hit IRA and retirement fund distributions in excess of $150K with a 15% surcharge. Was that "confiscation?" Some might say yes, some might say no. I won't go any further, since I don't want to get the thread locked.

It is a risk, and if you take it seriously, you have to at least think about moving some assets out of the country. These days, however, it's very hard and not a little inconvenient to do, and I don't personally recommend it. But I would have been derelect in not at least discussing it. Perhaps the most useful point is that if you're sitting on the fence about buying a beach condo in Costa Rica or a flat in Paris, the confiscation scenario is a small thumb on that particular scale.

I'm of two minds about a low-rate fixed mortgage. On the one hand, it's always nice to burn the mortgage. On the other hand, if we ever get high inflation, a 4% mortgage is going to look mighty good to you.

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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Levett » Fri Aug 30, 2013 4:55 pm

TSA confiscated my favorite corkscrew, and as a consequence I was driven to drink beer. :beer

It's really dangerous out there 'cause you never know when Cristina Fernandez de Kirchner may become president here and our national anthem will be "Don't Cry for Me Argentina." :happy

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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby LadyGeek » Fri Aug 30, 2013 5:11 pm

I read the article and the thread, here's the summary: Subject: Jason Zweig Article on Shallow & Deep Risk
wbern wrote:Hi All:

Thanks for noticing.

The main point of the article is not to buy foreign real estate or to build a spacecraft in your backyard, but rather to realize that the historical record shows that:

1) In the post-gold-standard era ("fiat money era," in contradistinction, I suppose, to "Rolls Royce money era . . . ), inflation is a real probability at some point, and deflation is much less likely.

2) Bonds and bills get slaughtered with severe inflation, and stocks, while taking a hit early on, retain their real value in the longer term.

3) That the cheapest way (that is, the way that sacrifices returns the least) to insure against severe inflation is a diversified global stock portfolio, with TIPS and a soupcon of precious metals and natural resource stocks.

4) If your time horizon is much less than 20-30 years, you should still be more concerned with shallow than deep risk.

5) Even if you have a long time horizon, you still need to have plenty of liquidity so you can keep your head, and perhaps buy cheap, during the bad times.

Bill

The point I'm trying to make is that emotion seems to have gotten the better hand in this thread. See the notice at the top of this wiki article: Behavioral pitfalls. I will follow Bill's advice.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Browser » Fri Aug 30, 2013 7:25 pm

Say, is the recommendation for a retiree to have 20 years of basic expenses covered intended for the "young" 60-something retiree? What about us who are just a bit longer in the tooth? Are we shooting for "basic expenses to age 85", or should we be aiming to have those covered until 90 or older? I'd hate like heck to forget to die by age 86 and have to start looking for part-time work. :shock:
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Levett » Fri Aug 30, 2013 8:27 pm

In these troubled times, when the investor class is under siege from so many malign forces (I must remember to check the balance of my accounts), I think it's derelict of the likes of AQR or PIMCO (or, if there is an index available, Vanguard or DFA) not to provide us all with some sort of confiscatory hedge so that we can use less Xanax or Ambien as we lie awake during the day or night (as the case may be) fearful of a knock at the door from the confiscators.

Time to check my balance before I pop a pill. :wink:

Sweet dreams!

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Re: Gems from "The Four Pillars of Investing"

Postby abuss368 » Fri Aug 30, 2013 8:59 pm

Taylor Larimore wrote:Bogleheads:

Bill Bernstein is a brilliant author, adviser and a captain in Jack's crusade: "To give ordinary investors a fair shake." Bill has written many books on many subjects. My favorite is The Four Pillars of Investing. These are excerpts which I call "Investment Gems":
PILLAR ONE--Investment Theory:

"Anyone promising high returns with low risk is guilty of fraud."

"The long-term return of high-grade bonds is essentially the same as the dividend yield."

"The market is brutally efficient and can be thought of as being smarter than even its wisest individual participants."

"Stock picking and market timing are expensive, risky, and ultimately futile excercises."

"A prudent course is to make the broad market and a lesser amount of small U.S. and large foreign stocks your core stock holdings."

"Financial history provides us with invaluable wisdom about the nature of the capital markets and of returns on securities."

"No one--not the pundits from the big brokerage firms, not the newsletter writers, not the mutual fund managers, and certainly not your broker--can predict where the market will go tomorrow or next year."

"From the market peak in September 1929 to the bottom in July 1932, the market lost an astonishing 83%."

"The message to the average investor is brutally clear: expect at least one, and perhaps two, very severe bear markets during your investment career."

"Most investors are simply not capable of withstanding the vicissitudes of an all-stock invesment strategy."

"A young person saving for retirement should get down on his knees and pray for a market crash, so that he can purchase his nest egg at fire sale prices."

"For the 50 years from 1932 to 1981, Treasury bonds returned just 2.95% per year."

"The fundamental investment choice faced by any individual is the overall stock/bond mix."

"Alfred Cowles was directly responsible for the collection and analysis of most of the nation's stock and bond data from 1871 to 1930. Without Cowles, we would still be financial cave dwellers.

PILLAR TWO--Investment History

"Be aware that the markets make regular trips to the loony bin in both directions."

"There is nothing new--only the history you haven't read (Larry Swedroe quote)"

"In no field is a grasp of the past as fundamental to success as in finance."

"Bubbles occur whenever investors begin buying stocks simply because they have been going up."

"At times of great optimism, future returns are lowest; when things look bleakest, future returns are highest."

PILLAR THREE--The Psychology of Investing:

"The biggest obsticle to your investment success is staring out at you from your mirror."

"Overconfidence is probably the most important of financial behavioral errors."

"The next major error that investors make is the assumption that the immediate past is predictive of the long-term future."

"Human beings are not very good at taking losses or admitting failure."

"My experience is that the wealthier the client, the more likely he is to be badly abused (by his broker)."

"The most liberating aspect of an indexed approach is recognizing that by obtaining the market return, you can beat the overwhelming majority of investment professionals who are trying to exceed it."

"A superior portfolio strategy should be intrinsically boring."

"If you cannot hold onto the asset class mutts in your portfolio, you will fail. Your overall portfolio return is all that matters."

PILLAR FOUR--The Business of Investing

"Make no mistake about it, you are engaged in a brutal zero-sum contest with the financial industry.--every penny of commissions, fees, and transactional cost they extract is irretrievably lost to you."

"99% of what you read in and hear from the financial media is, in fact, advertising cloaked as journalism."

"It is a sad fact that you can pass the Series 7 exam and begin to manage other people's accumulated life savings faster than you can get a manicurist's license in most states."

"Stay clear of mutual funds and variable annuities with sales loads and fees."

"Vanguard became the first, and only, truly 'mutual' fund company owned by its shareholders. There was, therefore, no incentive to milk the investors, as generally happened in the rest of the investment industry."

"At the present time, I'd still give the nod to the more traditional open-ended index funds (over ETFs)."

"When you buy the market, you are hiring the aggregate judgment of the most brilliant and well-informed minds in finance."

"The stockbroker services his clients in the same way that Bonnie and Clyde serviced banks."

"The essential characteristics of the successful investor are the discipline and stamina to, in the words of John Bogle, 'stay the course'."

"With relatively little effort, you can design and assemble an investment portfolio that, because of its wide diversification and minimal expense, will prove superior to most professionally managed accounts."

MORE INVESTMENT GEMS

Best wishes.
Taylor



I always enjoy reading Taylor's gems. It is a treat!
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Bill Bernstein » Fri Aug 30, 2013 9:03 pm

Please, try not to draw conclusions before reading Jason's piece or my posts in the above thread. I believe that the confiscation scenario is very unlikely, but if you think it's impossible, you haven't read enough history.

Second, it's extremely expensive and inconvenient to defend against, and you certainly are not going to do it by buying a DFA or PIMCO fund.

The confiscation discussion is aimed mainly at people who are just ready to buy a place to live overseas; it's the one thing you can do in that regard, and it's one more reason--and a weak one at that--to do so.

That said, I love to travel, and often fantasize about owning a flat somewhere in Italy. But will the possibility of confiscation make me do so, let alone putting gold in a vault in Perth? Do I lay awake at night worrying about the knock on the door?

Heavens no.

Bill
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby abuss368 » Fri Aug 30, 2013 9:08 pm

Rick Ferri wrote:I learned that permanent investment loss comes from four "tions"; inflation, deflation, confiscation and destruction. We can't predict destruction. Inflation and deflation are difficult to see coming. Confiscation is probably the only one we can see coming from a long way off (like now perhaps?). Is there anything else I need to know?

Rick Ferri


Hi Rick,

That is an excellent way of remembering everything. I never thought of investment losses in this manner.

Thank you for sharing.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby pkcrafter » Fri Aug 30, 2013 9:31 pm

Bill, you're not going to tell me I can't read your book :!:

Actually this makes the book mandatory reading for any Boglehead.
While stocks should protect you against inflation in the long run, they are guaranteed to expose you to frightening price drops in the shorter run. That, in turn, could push you into the final frontier of deep risk: your own behavior.

Most investors can’t survive the pain of plunging prices, Mr. Bernstein says, unless they have a surplus of both cash and courage. If you have plenty of each, hang on. If you don’t, a sudden drop from record highs could lead you to bail out near the bottom, thereby inflicting a permanent loss of capital on yourself.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Kelly » Fri Aug 30, 2013 9:32 pm



I was able to order the paperback this Friday morning. Many thanks for the continued teaching.

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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Levett » Sat Aug 31, 2013 6:55 am

I think Rick needs to modify his four "tions" and add: tuition. :annoyed

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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Bustoff » Sat Aug 31, 2013 7:27 am

Mr. Bernstein notes that inflation can destroy at least 80% of the purchasing power of a bond portfolio over periods as long as 40 years. That is deep risk at its deepest—a hole so profound most investors can’t get out of it in a lifetime.

That the cheapest way (that is, the way that sacrifices returns the least) to insure against severe inflation is a diversified global stock portfolio, with TIPS and a soupcon of precious metals and natural resource stocks.


The first quote above made me wonder if age in a Total Bond Fund is still appropriate for retirees ?
Since the second quote only recommends TIPS, is Bernstein suggesting TIPS replace the Total Bond Fund in ones asset allocation ?
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby pop77 » Sat Aug 31, 2013 7:36 am

wbern wrote:"Deep Risk," which was covered by Jason Zweig several weeks ago, is finally available in both Kindle and paperback from Amazon.

But bogleheads really have no need to buy it, since Jason's article

http://blogs.wsj.com/moneybeat/2013/07/26/shallow-risk-and-deep-risk-are-no-walk-in-the-woods/

covered it pretty well, and what wasn't got discussed in this thread:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=120512&p=1761508

Jason surprised me by writing his article several weeks before I had it in final form. But if you choose to disregard my advice and spend good money on it, well, I won't try to stop you.

It's available only on Amazon: I won't be making a Nook or iTunes version.

Best,

Bill

May be this is a clever technique by wbern to make us buy the book, but I just remembered I just spent 20 bucks on a lunch yesterday. I consider wbern's work as just not a book but reference material. His work is a good antidote for the virus that is constantly spewed over financial media. At least I have to constantly remember and reread to keep me away from temptations.

For example, the other day there was a story on Huffington post about a young guy who put his life savings on Tesla against all advice. For a moment I thought "what are the stocks that might be a Tesla of tomorrow!!" and tried to find them.

I went and reread the "Enemy in the mirror" chapter of his Investor Manifesto and that was the 'shot' I needed. It is interesting that wbern is really a doctor and I think he is still giving 'shots' for those who are susceptible against such infections.

I am going to just buy the book, it is not even worth thinking whether I should buy or not.

Just a suggestion to Wbern, I have seen Amazon works on a 'subscription model' for TV episodes. For example, I could just buy the current season of ' Breaking Bad'. I get a discounted price but I pay only when the new episode is available. I wonder whether Amazon will entertain such a subscription model for you series. If you think you will be writing a piece every two months, we could all just buy a subscription and can automatically download the new one once it is available.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby TomatoTomahto » Sat Aug 31, 2013 8:39 am

Levett wrote:I think Rick needs to modify his four "tions" and add: tuition. :annoyed

Lev

A literal LOL :sharebeer

Only funny because it's so true.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby nisiprius » Sat Aug 31, 2013 9:27 am

wbern wrote:Please, try not to draw conclusions before reading Jason's piece or my posts in the above thread. I believe that the confiscation scenario is very unlikely, but if you think it's impossible, you haven't read enough history.

Second, it's extremely expensive and inconvenient to defend against, and you certainly are not going to do it by buying a DFA or PIMCO fund.

The confiscation discussion is aimed mainly at people who are just ready to buy a place to live overseas; it's the one thing you can do in that regard, and it's one more reason--and a weak one at that--to do so.
Indeed. It's pretty much the conclusion I've come to. If write-your-own-storyline-here happens, having 50% of my stocks in Total International instead of 22% isn't going to rescue me. (Quick, Emma, get the dog and the jerrican of gasoline into the back of the car while I grab our passports and our Vanguard statements, we're heading for the border...)

However, you sort of brought it on you by lumping a diverse spread of things under the general heading of "confiscation." There's a tendency by some to label any law that might potentially cost them money, or might potentially deny them the opportunity to make money, as "confiscation." Gee, my house is zoned residential, the town is confiscating the money I could make by putting an asphalt plant in my backyard.

The devil of the "black swans" is that there might be 500 of them, each with one chance in a thousand of happening, each of which can be insured against at a cost of 1% of your portfolio. Well, then, if you do nothing, there is about a 39.4% chance that one of them is really truly actually going to happen to you. But, if you spend absolutely all of your wealth--leaving nothing to live on--insuring against them, you can at best shield yourself against 100 of them, leaving 400 to get you--and a 33.0% chance of getting hit by one of them.

If anyone has got better or more accurate data on the number, probability, and insurance costs of black swans I've love to have them... but I don't it's worth buying a copy of Pocket Ref to put in my shirt pocket, if the only reason I'm doing it is to stop a bullet.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Browser » Sat Aug 31, 2013 10:49 am

Just did a quick re-read of "Skating Where the Puck Was" to refresh my recollection about commodities in particular. Of course, we were once again reminded of the tradeoff between "short risk" and "long risk". The good Dr. was thinking about his next book on shallow vs. deep risk even then, but he came up with catchier monikers before publishing it. The stuff you try invest in to optimize short risk (volatility), such as trying to assemble a portfolio stuffed full of "alternatives" like commodity futures, may end up non-optimizing your long risk, and vice versa. You have to first determine which risk is the most critical risk for you to address and invest accordingly. There doesn't seem to be a formula that lowers both kinds of risk -- you pays your money and you makes your choice.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby jeffyscott » Sat Aug 31, 2013 11:09 am

grok87 wrote:
wbern wrote:"Deep Risk," which was covered by Jason Zweig several weeks ago, is finally available in both Kindle and paperback from Amazon.

But bogleheads really have no need to buy it, since Jason's article

http://blogs.wsj.com/moneybeat/2013/07/26/shallow-risk-and-deep-risk-are-no-walk-in-the-woods/

covered it pretty well, and what wasn't got discussed in this thread:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=120512&p=1761508


Sorry Bill, you are going to have to make a much better case to stop me from reading anything you've written!


For those who don't require immediate gratification, there is a way to both do as Bill suggests and not buy, but still read it. I have no need or desire to own books, in any format. My library does have Bill's other new, non-investing/finance, book already...

Bill will just have to find a way to get by without the extra dollar or so in royalties that I will be depriving him of. :wink:
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Abe » Sat Aug 31, 2013 11:20 am

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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby nisiprius » Sat Aug 31, 2013 11:21 am

jeffyscott wrote:For those who don't require immediate gratification, there is a way to both do as Bill suggests and not buy, but still read it. I have no need or desire to own books, in any format. My library does have Bill's other new, non-investing/finance, book already...
Indeed. When I semiretired at 62, I removed the Amazon link from my "favorites" and replaced it with a link to the page in my local library network's website that allows me to request a book through interlibrary loan. A network of some forty-odd suburban public libraries and seven small colleges, with a combined total of three million titles, but recently they've added some additional major libraries. I used to be able to get 90% of the stuff I wanted, now it's going to be even more. Anyway, I can click "Request It," and typically around three days later I get an email saying it's ready for pickup at my local library. It happens to be about 0.6 miles from my door, so I treat it as motivation to get a walk in.

It easily saves me $500/year.

"Deep Risk" isn't available, but "Masters of the Word" is.

I put in a request for "The Cuckoo's Calling" (J. K. Rowling's pseudonymous mystery) today. 926 holds on first copy returned of 198 copies. It will be interesting to see how long it takes to get that one.
Bill will just have to find a way to get by without the extra dollar or so in royalties that I will be depriving him of. :wink:
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby jeffyscott » Sat Aug 31, 2013 12:15 pm

nisiprius wrote:Indeed. When I semiretired at 62, I removed the Amazon link from my "favorites" and replaced it with a link to the page in my local library network's website that allows me to request a book through interlibrary loan. That used to be a network of some forty-odd suburban public libraries and seven small colleges, with a combined total of three million titles, but recently they've added some additional major libraries. Anyway, I can click "Request It," and typically around three days later I get an email saying it's ready for pickup at my local library. It happens to be about 0.6 miles from my door, so I treat it as motivation to get a walk in.


Similar, but smaller system here for interlibrary loan. Local library is just a mile away from our home, it's a very nice facility but I almost never do anything there but go get my stuff off the "hold" shelves.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Browser » Sat Aug 31, 2013 12:47 pm

I note from the book that BB is neighbors with Craig Rowland (craigr on the BH forum) of Permanent Portfolio fame. Now I know why Dr. B has spent so much time talking about the PP! I'll bet he and CR have had some interesting discussions. I think framing an allocation like the PP in the shallow vs. deep risk context is helpful. I've always viewed the PP as doing a pretty good job of dampening short-term portfolio volatility - which can enhance short-term returns vs conventional portfolios. But the tradeoff is that you leave a lot of money on the table long-term. Despite the claims (especially for gold), it may not be a great portfolio for handling deep risk, as is discussed in the book.
If we have data, let’s look at data. If all we have are opinions, let’s go with mine. – Jim Barksdale
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Browser » Sat Aug 31, 2013 1:01 pm

Of course, the paradox regarding "deep" or "long-term" risk, is that the longer the timeframe the greater the uncertainty about your ultimate fate. The impact of this has been discussed by Lubos Pastor & Rbt. Stambaugh. They argue that the long-term volatility from stocks is really much greater than the short-term volatility because the uncertainty about expected returns increases with the length of time horizon. Unpredictability just gets more unpredictable the further out you go. This seems to present a challenge to the viewpoint that stocks are a good asset for handling "deep risk". Maybe they were in the past, but we don't know about the future. The deepest risk of all is that the future won't be anything like the past and that it is really a "great unknown". That is one deep risk that we can't do much about. Don't know if anything more can be said, but I would have liked to have seen it covered by the brilliant, insightful author.
If we have data, let’s look at data. If all we have are opinions, let’s go with mine. – Jim Barksdale
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Bill Bernstein » Sat Aug 31, 2013 1:14 pm

I do touch on it tangentially in the book. Here's the short course:

1) Stock risk 101: The ann'd SD of stocks decreases with time. So look, stocks become less risky over longer horizons!!
2) Stock risk 202: Uh oh, the dispersion of total returns still increases. A lot. In addition, longer dated puts are more expensive. Stocks are still more risky with time.
3) Stock risk 303: Because of of the compounding of the ERP, a consumption-based model shows that over long enough time periods, you're always better off with stocks. In addition, in no nation with market history of >60 years or so has the ERP ever been negative.
4) Stock risk 404: In a fiat-money world, at some point severe inflation is highly probable, in which case you're a lot better off with stocks.

I'd been aware of Harry Browne for some time, but was beyond delighted to see that Craig had written the definitive book on the subject and, further, lived about 10 blocks from me. I gave him a copy of my latest history book, which he paid me for with a stack of Weimar Reichsmarks.

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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby Browser » Sat Aug 31, 2013 1:44 pm

wbern wrote:I do touch on it tangentially in the book. Here's the short course:

1) Stock risk 101: The ann'd SD of stocks decreases with time. So look, stocks become less risky over longer horizons!!
2) Stock risk 202: Uh oh, the dispersion of total returns still increases. A lot. In addition, longer dated puts are more expensive. Stocks are still more risky with time.
3) Stock risk 303: Because of of the compounding of the ERP, a consumption-based model shows that over long enough time periods, you're always better off with stocks. In addition, in no nation with market history of >60 years or so has the ERP ever been negative.
4) Stock risk 404: In a fiat-money world, at some point severe inflation is highly probable, in which case you're a lot better off with stocks.

I'd been aware of Harry Browne for some time, but was beyond delighted to see that Craig had written the definitive book on the subject and, further, lived about 10 blocks from me. I gave him a copy of my latest history book, which he paid me for with a stack of Weimar Reichsmarks.

Bill

According to Pastor & Stambaugh's' view, it's not just that the dispersion of terminal returns gets larger with time with estimated returns based on known parameters, it's the fact that there is great uncertainty about just how much larger it might get because the parameters are completely uncertain. They would allow for the fact that observations such as #3 above cant' be counted on for anything. You're welcome to assume that it does mean something, but you are sailing off into uncharted waters nonetheless. I guess this could be called "hyper-deep risk" -- or the "everything we know based on past experience is probably wrong" risk.
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Re: One More "Don't Buy This Book" from Bill Bernstein

Postby bobcat2 » Sat Aug 31, 2013 3:50 pm

wbern wrote:I do touch on it tangentially in the book. Here's the short course:

1) Stock risk 101: The ann'd SD of stocks decreases with time. So look, stocks become less risky over longer horizons!!
2) Stock risk 202: Uh oh, the dispersion of total returns still increases. A lot. In addition, longer dated puts are more expensive. Stocks are still more risky with time.
3) Stock risk 303: Because of of the compounding of the ERP, a consumption-based model shows that over long enough time periods, you're always better off with stocks. In addition, in no nation with market history of >60 years or so has the ERP ever been negative.
4) Stock risk 404: In a fiat-money world, at some point severe inflation is highly probable, in which case you're a lot better off with stocks.

I'd been aware of Harry Browne for some time, but was beyond delighted to see that Craig had written the definitive book on the subject and, further, lived about 10 blocks from me. I gave him a copy of my latest history book, which he paid me for with a stack of Weimar Reichsmarks.

Bill


Since we only have reliable data on many countries stock and bond markets going back to 1900, point (3) above is pretty weak. That's like saying a baseball hitter has not hit a home run in his last 40 at bats, so he couldn't possibly hit a home run the remainder of the season. Not to mention that few households have significant stock investment horizons of 50 years, much less 60 years.

And as Browser has tried to point out, we know the true mean of stock returns historically, but we can only estimate mean stock returns going forward and we may be very inaccurate in our forecast of the mean. This possible forecast error makes holding stocks riskier the longer we hold them, as the forecast error of the mean compounds. Here is Ken French summarizing this point.
The Pastor-Stambaugh result is driven by uncertainty about the true expected return. The volatility or standard deviation of returns is usually defined as the expected variation relative to the true mean of the process generating returns - as if we knew the true expected return. But, as Pastor and Stambaugh emphasize, we never actually know the true mean. When they include uncertainty about the true mean (as well as uncertainty about other true parameters) in the analysis, they find that long-run returns are indeed more volatile than short-run returns.

If we knew the true expected return, our uncertainty about long-run returns would grow with the return horizon. In essence, the unexpected return diversifies away - the average unexpected return gets smaller as N grows - so under some simplifying assumptions the variance of the cumulative unexpected return would be proportional to the holding period. But we do not know the true expected return. Because we make the same error when we forecast the one-year return one year out, two years out, and N years out, our uncertainty about long-run returns grows more quickly than the return horizon. ...

In short, if we knew the true expected return, our uncertainty about long-run returns would grow with the return horizon. But we do not know the true expected return. Because we make the same error when we forecast the one-year return one year out, two years out, and N years out, our uncertainty about long-run returns grows more quickly than the return horizon.

Link to French discussing this point.
http://www.dimensional.com/famafrench/2009/12/qa-are-stocks-safer-in-the-long-run.html


It's also not clear to me why in point (4) you wouldn't be better off with real bonds instead of stocks.

BobK
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