cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
After so many "have you read...?"'s, I ordered this through my cruddy little local library and after a 4-5 day wait while it was sent "from the big city", I had a chance to dig through it.
Up front, this is not a book for casual reading nor is much of the content easily consumed. Several areas require reading a sentence or paragraph and then stopping for at least 10-15 seconds, often longer.
Besides complexity, there is density. A lot of points made, many of which I'm still consuming intellectually. Therefore if I get it wrong or forget something crucial, if another reader would chime in, that would be appreciated.
Main points with some supporting data. I've re-ordered the point flow in the book to fit a flow I find easier to manage.
- Actively managed investments fail to produce better results than broad index funds (specifically the wilshire 5000 'total stock market' and less so the s&p 500). Over short periods of time and in specific instances they do, but there is little long term correlation of "beating the market" that isnt explainable by simple chance. In fact, the odds of flipping a coin or (in the authors instance) monkeys throwing darts at a stock sheet, those odds would produce more winning years than are represented by actual efforts by active fund managers. There are two kinds of people: those that know they cant beat the market and those who dont know that they cant beat the market.
- There are no "investment newsletters" or "systems" that have been evaluated that actually beat the market indexes long term, and many substantially trail it.
- There are no "investment experts" or "advisors" that have any better luck investing or allocating funds than the average person with a fairly simple education in investing can manage. They do worse while charging monies that further subvert the investment return. Of all people who became rich through investing, only two (Warren Buffett and Peter Lynch) stand out. Lynch's 'run' was actually not that long and towards the end of it he barely beat the market through 'thrash' trading. Buffets style is rather unique but not unrepresentative of indexng...buy a bucket of good high dividend stocks and distressed businesses, actively fix the problems yourself in some instances, and keep them forever (this latter is my observation). Effectively two out of 4 billion. Start flipping coins and go grab a monkey before the monkey market starts running up the prices on them.
- Virtually everything you read regarding investment strategies and/or 'best bets' is crap. As a convergence of sciences and psychologies, the mass and nearly random (and sometimes inverse) reactions of "the market" as driven by investors is unpredictable and inexplicable.
- Short term determinations of market directions are impossible as they are usually "speculative" in nature. Every investment market ever measured runs a trend from emerging through developing through maturing through developed through (usually) extinction. This trend establishes a risk profile that is speculative, then high, descending. When it bottoms out the measured civilization often ceases to exist or becomes irrelevant. His example that plays well is a guy walking his dog from his home to the park, along a fairly straight line. The dog is on a 20 foot leash and runs randomly about. Watching the guy's direction gives you the market direction. Watching the dog gives you the speculative direction, whatever that is. Investment advisors, active fund management, writers and newsletters try to help you guess which way the dog is going. Not even the dog really knows. Betting on which way the man is going in the long term (broad indexes over 20-30+ year periods) produces a consistent and winning return.
- The value of a single stock at a moment in time is easy to calculate; the value of the overall market even easier. For each investment, type of investment, or class of investment, it returns income. To the extent that it is likely to produce future income, drawing that back into todays dollars, adjusted by the risk of success/failure to continue to exist and produce that income, you end up with a value in risk adjusted, discounted "todays" dollars.
- Future overall returns on investment in the US markets will be lower than historical averages. Bernstein uses "real returns" indicating after tax and after inflation, in order to simplify a lot of comparisons. He estimates real returns of stocks and bonds in the US going forward to being roughly equal, with bonds returning 3% and equities returning 3.5%. He notes that foreign stocks are a little cheaper than US stocks and might do better. REITS, emerging market stocks, small caps, and value stocks also should do better and can be added to a portfolio to improve returns, while concurrently reducing volatility and risk.
Up front, this is not a book for casual reading nor is much of the content easily consumed. Several areas require reading a sentence or paragraph and then stopping for at least 10-15 seconds, often longer.
Besides complexity, there is density. A lot of points made, many of which I'm still consuming intellectually. Therefore if I get it wrong or forget something crucial, if another reader would chime in, that would be appreciated.
Main points with some supporting data. I've re-ordered the point flow in the book to fit a flow I find easier to manage.
- Actively managed investments fail to produce better results than broad index funds (specifically the wilshire 5000 'total stock market' and less so the s&p 500). Over short periods of time and in specific instances they do, but there is little long term correlation of "beating the market" that isnt explainable by simple chance. In fact, the odds of flipping a coin or (in the authors instance) monkeys throwing darts at a stock sheet, those odds would produce more winning years than are represented by actual efforts by active fund managers. There are two kinds of people: those that know they cant beat the market and those who dont know that they cant beat the market.
- There are no "investment newsletters" or "systems" that have been evaluated that actually beat the market indexes long term, and many substantially trail it.
- There are no "investment experts" or "advisors" that have any better luck investing or allocating funds than the average person with a fairly simple education in investing can manage. They do worse while charging monies that further subvert the investment return. Of all people who became rich through investing, only two (Warren Buffett and Peter Lynch) stand out. Lynch's 'run' was actually not that long and towards the end of it he barely beat the market through 'thrash' trading. Buffets style is rather unique but not unrepresentative of indexng...buy a bucket of good high dividend stocks and distressed businesses, actively fix the problems yourself in some instances, and keep them forever (this latter is my observation). Effectively two out of 4 billion. Start flipping coins and go grab a monkey before the monkey market starts running up the prices on them.
- Virtually everything you read regarding investment strategies and/or 'best bets' is crap. As a convergence of sciences and psychologies, the mass and nearly random (and sometimes inverse) reactions of "the market" as driven by investors is unpredictable and inexplicable.
- Short term determinations of market directions are impossible as they are usually "speculative" in nature. Every investment market ever measured runs a trend from emerging through developing through maturing through developed through (usually) extinction. This trend establishes a risk profile that is speculative, then high, descending. When it bottoms out the measured civilization often ceases to exist or becomes irrelevant. His example that plays well is a guy walking his dog from his home to the park, along a fairly straight line. The dog is on a 20 foot leash and runs randomly about. Watching the guy's direction gives you the market direction. Watching the dog gives you the speculative direction, whatever that is. Investment advisors, active fund management, writers and newsletters try to help you guess which way the dog is going. Not even the dog really knows. Betting on which way the man is going in the long term (broad indexes over 20-30+ year periods) produces a consistent and winning return.
- The value of a single stock at a moment in time is easy to calculate; the value of the overall market even easier. For each investment, type of investment, or class of investment, it returns income. To the extent that it is likely to produce future income, drawing that back into todays dollars, adjusted by the risk of success/failure to continue to exist and produce that income, you end up with a value in risk adjusted, discounted "todays" dollars.
- Future overall returns on investment in the US markets will be lower than historical averages. Bernstein uses "real returns" indicating after tax and after inflation, in order to simplify a lot of comparisons. He estimates real returns of stocks and bonds in the US going forward to being roughly equal, with bonds returning 3% and equities returning 3.5%. He notes that foreign stocks are a little cheaper than US stocks and might do better. REITS, emerging market stocks, small caps, and value stocks also should do better and can be added to a portfolio to improve returns, while concurrently reducing volatility and risk.