Book Review: The Four Pillars of Investing

Update: Yanking this one from waaaay back in the archives! Today (6/4) only, the Kindle eBook version of The Four Pillars of Investing is only $1.99. I read this book nearly 10 years ago, and I still have my hardcover copy sitting on my bookshelf. One of my favorites.

My original review published on December 26, 2004:

4pbookWhile A Random Walk Down Wall Street was more of a primer on investing in general, The Four Pillars of Investing by William Bernstein focuses on forming your portfolio. The four pillars are investment theory, history, psychology, and finally investment business.

The book uses statistics and research to support it’s conclusions, which are (briefly and in my opinion) that:

  1. Markets go up and down, but timing it is hard if not impossible, and any success one may have is basically luck.
  2. As risk increases, so does the return. (Ex. Small-cap stocks vs. Large-cap stocks.)
  3. Yes, many actively-managed mutuals fund beat the market every year, but there is no way that you could pick them ahead of time. This year’s winners are just as likely to be next year’s losers. Stick with index funds with the risk-return profile that you desire.
  4. Brokerage firms and stock brokers make their money on commissions and spreads. Most mutual fund companies are similar in that they make their money from fees, without actually being very good at market-beating returns.
  5. Proper diversification in low-expense ratio products can bring you the best chance to keep your money and make it grow.

The book is pretty easy to read, with minimal math. I also briefly browsed Bernstein’s previous book, The Intelligent Asset Allocator, which has a similar focus but is very heavy in the math department. I’d read this book first and see if you thirst for the mathematical underpinnings. I didn’t.

Comments

  1. I just started “A Random Walk Down Wall Street.” Have you read any of John Bogle’s books? I found “Common Sense on Mutual Funds” to be pretty good. If you’re interested in indexing, that is. Nice site, by the way.

  2. Actually, that is the very book that I am reading next! I’m definitely interested in indexing, and I see that you are using Vanguard as well. I look forward to reading your blog in the future.

  3. thanks for sharing!

  4. This book is next on my list! I have read A Random Walk Down Wall Street and I really liked it. Hopefully this book will be just as good.

  5. AHH!!! So mad I missed this! ugh. thank you for sharing tho! I am always on the look out for good investing books. Maybe they’ll bring back the deal.

  6. I missed it. I really would’ve loved to get it for the price. I’m currently reading common sense on mutual funds. I read the millionaire investor prior to this. I’m in the process of wanting to set up a portfolio. I downloaded If you can when you posted it. I can’t believe I didn’t check this website last week. And I was off. Thanks for all your posts.

Trackbacks

  1. [...] Although I don’t really recommend it as an investing guidebook like The Four Pillars of Investing, I did find it a fun book to read. I think it presents a new-ish view on picking stocks and was a refreshing change of pace for me. [...]

  2. My Pocket Change » Book Review: The Four Pillars of Investing says:

    [...] Lastly, I’ll take a sentence to thank Jonathan of MyMoneyBlog for turning me onto this book.? It has been a real eye-opener.? I hope it is for everyone else too. [...]

  3. [...] Wait, How Does The Estimator Work? I originally saw this method in The Four Pillars of Investing (review). Let’s take the previous example again, but take away some zeros. You start with $100 at the beginning of the year, and at the end of the year you have $120. In the middle you contributed $10. So you earned $10, but compared to what? What’s the denominator? $100? $110? If you estimate by assuming it came in the middle, it’s $105. So you made the equivalent of $10 on $105. Figuring out that return is easy: [...]

  4. [...] The Four Pillars of Investing by Bernstein (Review) [...]

  5. [...] level, this book might not be the very first book on saving money I’d give someone, or my favorite book about investing, but I am going to keep it in my library because it provided some different ways to explain to [...]

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