Book Written By: William J. Bernstein
The Four Pillars of Investing is a very interesting read with a lot of content on investing. Overall, I really enjoyed this book and would highly recommend it. This book builds a foundational knowledge of investing starting with early history of investing and covers many fundamentals for investing today. The author, William Bernstein takes an analytical approach to investing through modern portfolio theory. His goal with this book is to manage risk and investments to craft a successful investment strategy and retirement.
This book was originally published 20 years ago and is beginning to be considered an investing classic. I recently read the second edition which was published in 2023. I would recommend only getting the second edition as he does discuss some recent trends in the last few years.
The Four Pillars of Investing is full of content and analysis around investing, however some of the topics are a little dense and take a bit to fully comprehend. It is written so that anyone with a bit of investing background would be able to apply the concepts but might be a bit hard to get through for someone unfamiliar with investing.
It is broken into five sections, with each part detailing foundational knowledge needed to be a proficient investor. The five sections include:
The Theory of Investing
The History of Investing
The Psychology of Investing
The Business of Investing
Investment Strategy: Assembling the Four Pillars
I thoroughly enjoyed the parts of the book around the psychology of investing. One would think the perfect investment portfolio is one that “feels good” all the time. However, that is frequently not true in practice. The author highlights many times that emotion will generally lead one to make bad financial decisions. Taking a bit of risk with investing is generally something most investors need to do and can learn to become comfortable with, however, even the act of selling some stock when the market is up, generally runs against our intuition. Additionally, the financial news media shouting catastrophic headlines every time the market has a correction will create stress for many investors. Bernstein, recommends most people saving for retirement can manage stress from market swings by checking accounts a few times a year and occasionally rebalancing.
The author spent quite a bit of time researching and discussing financial “bubbles” in the market. A bubble in financial markets is when markets don’t behave normally because investors over-speculate on future performance based on recent performance. Examples include the dot-com bubble and the stock market crash of 1920. For the average investor it can be hard to see the relevance of bubbles in real time, but their effect on investors can be high.
I have also reviewed a free downloadable PDF book by William Bernstein for the beginning investor, called If You Can. It is about 16 pages and follows the same format with less intense content.
