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Bernstein Turnabout?
Old 09-17-2013, 01:16 PM   #1
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Bernstein Turnabout?

William Bernstein seems to have done an about face regarding TIPS. In his ebook he supports Zvi Bodie's views on life cycle investing and holding 20 to 25 times living expenses in annuities and TIPS. But in this article he's not a fan. Strange how he waited until TIPS had a negative yield until he supported them?!
http://www.efficientfrontier.com/ef/903/bodie.htm


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Old 09-17-2013, 01:38 PM   #2
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I want a portfolio and retirement income that will work no matter what the stock market does or the future holds - inflation, deflation or anything in between.

Investment advisers that change their tune dramatically with every economic cycle change are just influenced by recency bias.
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Old 09-17-2013, 02:16 PM   #3
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Originally Posted by daylatedollarshort
I want a portfolio and retirement income that will work no matter what the stock market does or the future holds - inflation, deflation or anything in between.

Investment advisers that change their tune dramatically with every economic cycle change are just influenced by recency bias.
It doesn't lend itself to credibility, does it. I've also noticed how some of the Lazy Portfolios seem to change every few years. Basically, you can wrap all the advice into one statement. Index funds are usually cheaper and usually outgun active funds. That's it. After that you are on your own. Oh, and LBYM. The End. lol
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Old 09-17-2013, 02:23 PM   #4
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If I had to choose one guy on Earth who would be impervious to recency bias, it would be Bill Berstein.

But didn't he flip-flop on stocks, too? In Four Pillars and Intelligent AA he recommends portfolios of stocks and bonds, but in a recent e-book he advises against holding any stocks in retirement. Or so I've heard. (I haven't read his recent e-books.)

What gives?
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Old 09-17-2013, 02:28 PM   #5
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To some extent, the environment changes from time to time and so should our portfolios.

But really, this is all about marketing. Pay attention to the jackass on the camera, buy their book, use their investment advisory service.

Any wonder I categorically refuse to ever watch CNBC?
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Old 09-17-2013, 02:29 PM   #6
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Originally Posted by Onward
If I had to choose one guy on Earth who would be impervious to recency bias, it would be Bill Berstein.

But didn't he flip-flop on stocks, too? In Four Pillars and Intelligent AA he recommends portfolios of stocks and bonds, but in a recent e-book he advises against holding any stocks in retirement. Or so I've heard. (I haven't read his recent e-books.)

What gives?
The only thing I can think of is that either his conscience or a few attorneys got the better of him. Many of his clients got nailed in 2008 like the rest of us.
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Old 09-17-2013, 02:41 PM   #7
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Many of his clients got nailed in 2008 like the rest of us.
Agreed. The recent crash seems to be what changed his thinking.

But he, of all people. knew that the stock market could fall as it did. You would think his philosophy would have been able to withstand something that has clear historical precedent. He's a market historian, after all.
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Old 09-17-2013, 03:22 PM   #8
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To some extent, the environment changes from time to time and so should our portfolios.
Okay, I agree with that to some degree. I sold all my TIPS and longer term bond funds when I thought rates had nowhere to go but up. But this has been an unusual year. Usually no one knows if rates are going up or down unless of course you are a big bank and can price fix, well basically everything.
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Old 09-17-2013, 03:28 PM   #9
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Originally Posted by daylatedollarshort View Post
I want a portfolio and retirement income that will work no matter what the stock market does or the future holds - inflation, deflation or anything in between.

Investment advisers that change their tune dramatically with every economic cycle change are just influenced by recency bias.
SS, pension, annuity, CDs and rental income. Live of those and anythingelse is gravy.
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Old 09-17-2013, 03:48 PM   #10
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SS, pension, annuity, CDs and rental income. Live of those and anythingelse is gravy.
That's a good base.
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Old 09-17-2013, 04:35 PM   #11
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So the ideal advisor is the one who never changes their views regardless of new information? He's been very candid re: how the 2008 meltdown affected his views, based in part on how many seemingly solid investors he saw lose their heads at exactly the wrong time. For example: The worst retirement investing mistake - Sep. 4, 2012 He hasn't made a wholesale change in his investment philosophy, and lots of advisors feel this generation at least is in new territory WRT bonds including TIPS.

Similarly, I've always thought it was odd how much effort is put into finding examples of politicians who have "flip-flopped" on one issue or another over a long career in politics. Why? Thank goodness politicians have flip flopped over time or we'd have slavery and women wouldn't be able to vote among other outdated "norms"...

Never changing your views isn't a virtue in itself is it?
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Old 09-17-2013, 04:36 PM   #12
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Bernstein did not say don't hold stocks in retirement. I'm not sure where that came from. What he said is when you have won the game quit playing. He defined winning is when one has can cover 20 to 25 times expenses after ss and pension income with short term bonds, TIPs, annuities and cash. When that plateau is reached then he said one could invest in stocks as much as they want - just have your basic living expenses covered with the four previously mentioned safe investments.

The 20 to 25 times expenses in excess of social security and any pension income is geared to mid 60's retirees. Younger FIRE participants would need more than 20 to 25.

Midpack has it correct 100%. Bernstein did not change his own personal views as much as he saw the damage people did to themselves in the 2008 panic sell off when the market was in one of it's worse declines ever. Bernstein's advice was to the public at large to protect them from themselves.
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Old 09-17-2013, 04:43 PM   #13
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Thank goodness politicians have flip flopped over time or we'd have slavery and women wouldn't be able to vote among other outdated "norms"...
That isn't an example of recency bias in investing recommendations.

If stocks had not crashed in the last 5 years or so, his advice would never have changed. Yet the future is still unknowable either way.
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Old 09-17-2013, 04:48 PM   #14
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That isn't an example of recency bias in investing recommendations.
I didn't attribute recency bias to Dr B and neither did the OP, you did...
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Old 09-17-2013, 05:25 PM   #15
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I've enjoyed learning about investing from individuals like Dr. Bernstein but have found that the recommendations they make culminating from their research to be off base. The newer recommendations of saving safely for needs first is a sound strategy, IMO. But, now I wonder why they recommend stocks for all the extras. Why not just invest safely and guarantee yourself 80% of the extras?
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Old 09-17-2013, 05:34 PM   #16
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When was this piece written. Dr Bernstein inexplicably does not date his blog entries. I see a copyright of 2003 at bottom left of the page. OTOH, I see copyright 2013 at the bottom of his home page.

How do we know this represents a change in his thinking (if this matters anyway, but I assume it must to all those who are discussing it).

Ha
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Old 09-17-2013, 06:06 PM   #17
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When was this piece written. Dr Bernstein inexplicably does not date his blog entries. I see a copyright of 2003 at bottom left of the page. OTOH, I see copyright 2013 at the bottom of his home page.

How do we know this represents a change in his thinking (if this matters anyway, but I assume it must to all those who are discussing it).

Ha
I was going on the copyright date of 2003. I've been researching TIPS as an investment and ran into this. It seems like settling on an AA percentage in funds is no longer his focus but rather targeting funds with safe investments for future expenses. In other words the efficient frontier is now reserved for the wealthy.
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Old 09-17-2013, 06:20 PM   #18
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I've enjoyed learning about investing from individuals like Dr. Bernstein but have found that the recommendations they make culminating from their research to be off base. The newer recommendations of saving safely for needs first is a sound strategy, IMO. But, now I wonder why they recommend stocks for all the extras. Why not just invest safely and guarantee yourself 80% of the extras?
Investment portfolios depend a lot on individual choice and risk tolerances. Personally rather save more, spend less, and go the 80% route. We do have some stocks as a part of a diversified portfolio.

Overall we have assorted retirement income streams like Nun, though a somewhat different mix.
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Old 09-17-2013, 07:52 PM   #19
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Originally Posted by Gatordoc50 View Post
William Bernstein seems to have done an about face regarding TIPS. In his ebook he supports Zvi Bodie's views on life cycle investing and holding 20 to 25 times living expenses in annuities and TIPS. But in this article he's not a fan. Strange how he waited until TIPS had a negative yield until he supported them?!
Zvi Bodie and the Keynes’ Paradox of Thrift


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Does this mean that I don't have to finish reading his Four Pillars book?
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Old 09-18-2013, 06:14 AM   #20
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Does this mean that I don't have to finish reading his Four Pillars book?
You can still use it to help you sleep. Unless you want to slog through the immense amount of detail, you can get a better grasp by reading his Inverstors' Manifesto. It's much more readable and doesn't really have any significant differences in his recommendations. Since it's newer than Four Pillars, it has more up-to-date investment options in his discussions.
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