While 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) The stockbroker makes most of his money on commissions and spreads. Mutual fund companies are similar.
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. I’m forming my asset allocation now and will post it soon.
Overall Rating: (ratings explained)