PETER Berstein Interview

[nwsteve]

Good interview on CNN Money today http://money.cnn.com/2004/10/11/markets/benstein_bonus_0411/index.htm

Different Bernstein but still some gems from a Buffet like view of the investment world
Samples:
Q: What are investors' most common mistakes?

A: Extrapolation. Leaving fund managers in a down year to go with whoever's hot. The refusal to believe that shock lies in wait. Believe me, individual investors are not the only ones who mire themselves in this mistake. It is endemic throughout the investing community.

Q: Over the course of your career, what are the most important things you'd say you had to unlearn?

A: That I knew what the future held, I guess. That you can figure this thing out. I mean, I've become increasingly humble about it over time and comfortable with that .......
Also some interesting observations regarding debt, dividends and market timing as well.
nwsteve

 

[wabmester]

My favorite quote from the article: "the long run ain't what it used to be."

 

[Cut-Throat]

I like this one.

There's always somebody around who looks very smart. I've learned that the ones who are the most smart aren't going to make it. I don't know anybody who left investing to become an engineer, but I know a lot of engineers who left engineering to become investors

 

[nwsteve]

Another gem of insight relative to being "right" and why diversification is so critical to survival

The riskiest moment is when you're right. That's when you're in the most trouble, because you tend to overstay the good decisions. So, in many ways, it's better not to be so right. That's what diversification is for. It's an explicit recognition of ignorance. And I view diversification not only as a survival strategy but as an aggressive strategy, because the next windfall might come from a surprising place.

P Bernstein

 

[Cut-Throat]

He also acknowledges that he cannot predict the future.

Looking back over my last 30-40 years of life, I cannot recall any individual (no matter how smart or revered) that has predicted Anything of importantance. Whether it be Financial, Social, Political. The more specific the prediction, the more embarrassingly wrong the person was.

I'm not talking about predictions like 'Whether the Dow Jones will be up or Down next year' - That's a 50/50 Chance.

Conventional wisdom in the early 1990's was. 'Everybody made money in stock market in the 1980's - It won't repeat in the 1990's"

 

[John Galt]

I will make a prediction that covers financial, social and political territory and would be willing to bet the farm
on its accuracy. I predict the US will continue down the
road to socialism and collectivism, no matter which
major party is in power, and that my prediction will span decades if not centuries.

John Galt

 

[Cut-Throat]

 I predict the US will continue down the
road to socialism and collectivism, no matter which  
major party is in power

If the government is not in charge someone else will be! - Hint! - It won't be you!  

- It will be big Corporations like Enron, Wal-Mart GE, Texaco, Mobil. If this makes you comfortable you are much more trusting than myself!

 

[unclemick]

Well - if I understand Bogle correctly the mangement of the bulk of our retirement (individuals plus pensions) numbers less than 100.

P.S. I enjoyed the article.

 

[azanon]

Time for a fly in the ointment:

I believe i noticed at least 3 major paradygm shifts Berstein went through over the past decade that seemed to be polar-opposites related to investment strategies.  Sure, he seems very effective and eloquent at advocating whatever current strategy he is for today, but... how did he put it?   he makes no apologies for changing his mind  That's aweful convinent.

Regarding stocks:  You can pick any 15 consecutive year period in history comparing the overall stock market to the overall bond market, and in that test, stocks win every single time.  Even if you pick 1929 as a start date, or another date where bonds really excelled.  How long as the american market been in existence?  150 years thereabouts?   A record of 150 for 150 is extremely compelling.   I'm 33 with 15+  years till full retirement, and given that, its extremely tempting not to consider 100% stocks......  Peter Lynch has a reputation as least as high as Berstein, and he has admitted on several occasions the only thing that make sense to him is 100% stocks.

I dunno... he just seems like a flip-flopper.  Pushing massive diversification is definitely a good seller today given the post 1999 environment.  Instead of falling into the predictable mindset given the 1999 erosion, a "stepping out of the box" view of that recent history might be to view that as a buying opportunity, instead of a reason to diversify. Hmmmm, now there's a thought!

In short, i'm not impressed with Berstein.

 

[John Galt]

Never read Berstein, or Four Pillars, or Coffee Table Investor, or Bogle, and don't intend to (this is not meant
to discourage others - I'm just not interested). Why is that you may ask? Because, even if you had 1000
years of data showing no period where bonds
outperformed stocks, I still wouldn't take the chance.
Just because it never happened doesn't mean it won't.
Can't afford the risk. End of story.

John Galt

 

[unclemick]

Heh, heh, heh

You forgot to mention your inflation fighter real estate and the number of years invested in acquiring your skill set.

 

[Cut-Throat]

Time for a fly in the ointment:

I believe i noticed at least 3 major paradygm shifts Berstein went through over the past decade that seemed to be polar-opposites related to investment strategies.  Sure, he seems very effective and eloquent at advocating whatever current strategy he is for today, but... how did he put it?   he makes no apologies for changing his mind  That's aweful convinent..............

In short, i'm not impressed with Berstein.

Yes, I noticed the same thing and I agree. I tried changing my mind in my first 30 years of investing. Not only was it stressful, I was not that successful at it.

 

[azanon]

Can't afford the risk.  End of story.

I can't afford the risk of not being in stocks, and not keeping up with AND exceeding the inflation rate.  

Risk goes both ways.  Even over a long period of time, i'll acknowledge there's some risk of being in stocks.  But the risk of not being in them is clearly far greater.

Its important to remember rates of returns when compared are not linear, they are exponential.   The difference between 9% and 10% over 30 years is greater than the difference between 7% and 8%.  Run some comparisons and see that truth.   That extra 2-3% stocks will get you over bonds is a night and day difference when you consider a long time horizon, and a costly mistake if you don't take that risk.

That all being said, i'll have SS/ and a pension to mitigate that risk, which i expect to provide a good 40% of my retirement someday. My personal investments are only for the remainder.