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Old 05-14-2008, 01:03 PM   #1
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Trying not to skim the last pages ...

.. of The Four Pillars of Investing by William Bernstein. But I just reached page 56 where the author states "Going forward, it looks like stock and bond returns should in the 6% range, not the 10% historical reward. Don't shoot me, I'm only the messenger."

6%? That doesn't sound very rosy at all. At this point, I feel like I was just given the conclusion 1/6th of the way into the book. Am I in for a surprise later on in the book, or have I just been slapped with reality?
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Old 05-14-2008, 01:50 PM   #2
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Read it. You've got the book, and it's good for you even though it's slow going, so just grit your teeth and do it. Bernstein has a lot more to say in the rest of the book.

Personally I hated it but read it twice.
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Old 05-14-2008, 01:56 PM   #3
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Remember, opinions are like rectums: everyone has one and most of them stink.

Go ahead and read the book and don't fret too much about a questionable prediction.
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Old 05-14-2008, 02:06 PM   #4
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Remember, opinions are like rectums: everyone has one and most of them stink.

Go ahead and read the book and don't fret too much about a questionable prediction.
Given that this book and the author are spoken of quite highly on this forum, I'm surprised that this prediction hasn't been called out (or I didn't look closely enough in my forum searches).

Since my wife and I are 4-6 years away from ER (I'm 49), I was more interested in reading up on asset allocation and index funds. I almost skipped purchasing this book.

Time for some lunchtime reading ...
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Old 05-14-2008, 02:09 PM   #5
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Given that this book and the author are spoken of quite highly on this forum,
Don't look at me. Never read the book, not do I intend to. If you asked me for reading suggestions, I would be pointing you to graduate level finance textboooks, academic articles, etc.
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Old 05-14-2008, 02:19 PM   #6
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Don't look at me. Never read the book, not do I intend to. If you asked me for reading suggestions, I would be pointing you to graduate level finance textboooks, academic articles, etc.
What? You don't get your investment advice from physicians either?
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Old 05-14-2008, 02:27 PM   #7
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What? You don't get your investment advice from physicians either?

I prefer overly enthusiastic pig production employees (AKA piglet sodomizers).
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Old 05-14-2008, 04:07 PM   #8
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6%? That doesn't sound very rosy at all. At this point, I feel like I was just given the conclusion 1/6th of the way into the book. Am I in for a surprise later on in the book, or have I just been slapped with reality?
Yeah, you're right. If you can't agree with it then it's not worth reading!

A number of prognosticators have chosen the Gordon Equation's 6% as the rule for the next century. That number seems to be meeting more expectations than Harry Dent, Henry Blodgett, Mary Meeker, Abby Joseph Cohen, ... and all of their opinions are equally valid. They might also be equally wrong. There's more reading on Bernstein's website, especially about the "Retirement Calculator from Hell".

As for the book, it's about asset allocation instead of managing expectations. If it helps you put together a portfolio that gets you your share of 6% then you won't be tempted to complain if the portfolio returns 10%. If Bernstein had promised 10% and you'd received 6%, however, that would be a different issue.
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Old 05-14-2008, 04:23 PM   #9
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Books? BOOKS!



Heh heh heh - age 64, Target Retirement 2015. Need I say more - nod, nod, wink, wink. There's reading and then there's doing.
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Old 05-14-2008, 05:56 PM   #10
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Books? BOOKS!



Heh heh heh - age 64, Target Retirement 2015. Need I say more - nod, nod, wink, wink. There's reading and then there's doing.
Yeah, I hear you, but I'm 49 and I knew very little about investing up to a few weeks ago. I needed to start somewhere.
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Old 05-14-2008, 06:12 PM   #11
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Need I say more - nod, nod, wink, wink.
Hey, what's that Vanguard fund you mention every now and then?
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Old 05-14-2008, 06:15 PM   #12
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Hey, what's that Vanguard fund you mention every now and then?
You mean the "pssst" fund?
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Old 05-14-2008, 06:24 PM   #13
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statsman, Bernstein is even more dour on his web site:

Quote:
[March 2008]... the investment landscape of the past few weeks has become so bizarre that it needs to be recorded for posterity.

First and foremost, the real yields for Treasuries, at least at the short end, have become negative; it seems highly unlikely that inflation over the next two years, any way you calculate it, is going to be less than the 1.99% yield of the two-year note. (Historical comment: During the Great Depression, because of a quirk in the math, T-bills briefly produced a tiny negative return. However, this occurred during a time of general deflation and thus still resulted in positive real returns.) ...

To complete the picture, stocks, if we are lucky, are still priced for a long-term real return of about 3.5 percent. ...
Darkside of the Moon

Academic articles were written in droves by Robert Merton.
Wanna invest with him instead? Be my guest.

Warren Buffett on rates of return:
Quote:
Things are less lucrative in the stock market, Buffett said, sounding a familiar refrain. "We have more money than ideas," he said, adding that 6% to 7% was a fair rate of return in the current environment. The company has more than $37 billion in cash to invest.

One place the money certainly won't go is derivatives. "There's no place with as much potential for phony numbers as derivatives," he said. Buffett's 78-year-old billionaire vice chairman, Charlie Munger, couldn't resist chiming in. "To say that derivative accounting is a sewer is an insult to sewage."
Buffett's Doomsday Scenario - Forbes.com

There remain few things untouched by derivatives, even Buffett's own insurance holdings. Nords has 1/4 his portfolio in Berkshire Hathaway shares, IIRC. He can deride me to his heart's content, but can imagine he'd pay some heed to Buffett (in the article likened to "Cassandra, mythology's most famous noodge").

Buffett does take the philosophical approach that even a recession or crash offers opportunities. He has $37 billion in cash and I don't, so he can afford to be a leetle more philosophical. I and others here have to invest to fund our lives for the next 30-40 years, or abandon the concept of ER. [We're the lucky ones. Many will have to abandon the idea of R, much less ER.]
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Old 05-14-2008, 06:42 PM   #14
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You mean the "pssst" fund?
Can't for the life of me remember the name... I know it starts with a pssst. has a W in there, and ends with a -ellesly.
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Old 05-15-2008, 10:35 AM   #15
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Ok ok - so I read Four Pillars - but that was before I received my Curmudgeon Certificate and adopted my 'don't read books mantra' (do instead).

In the mythical land of horseshoes and handgrenades:

The new modern lifecycle funds - age 49, Vanguard TR 2025, 80/20ish aka 78/21/? with the modern bells and whistles would probably get you a passing grade name dropping at cocktail parties.

Pssst Wellesley (40/60) would get you branded as an old stick - value/dividend oriented.

Really ancient would be a Ben Graham 50/50 defensive investor from back in the days when defined pension funds held pretty much the 60/40 policy portfolio.

heh heh heh - chasing expected returns for asset classes wasn't consistent over forty years - got a penthouse, sports car, and some dirty blondes which were somewhat fickle in the stretch. Ho hum asset allocation, dollar cost averaging, time in the market got me to retirement - Bogle's Occam's Razor quote and all that there.
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Old 05-15-2008, 12:47 PM   #16
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- got a penthouse, sports car, and some dirty blondes which were somewhat fickle in the stretch.
I thought the only periodical you subscribed to was the Moneypaper.
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Old 05-15-2008, 12:56 PM   #17
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I thought the only periodical you subscribed to was the Moneypaper.
He's too cheap to subscribe. Probably bought one at the local news stand in 1993.
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Old 05-15-2008, 01:26 PM   #18
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Don't look at me. Never read the book, not do I intend to. If you asked me for reading suggestions, I would be pointing you to graduate level finance textboooks, academic articles, etc.
Agreed. Check out the following articles:

Many from Elroy Dimson of the London Business School, including, The Worldwide Equity Premium: A Smaller Puzzle and Irrational Optimism.

Idea exchange b/w Roger Ibbotson and John Campbell

The Policy Portfolio in an Era of Subdued Returns

They div yield on stocks [as represented by Vanguard's TSM fund] is about 2%, so that'd equate to an expected return of about 6-8%, or a real return of about 3-5%, depending on who you talk to. As for TIPS, the current yield on LT TIPS is about 2%, so expected real returns for them is about 2% [before expenses], or 1.8% if using VIPSX.

- Alec
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Old 05-15-2008, 02:23 PM   #19
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or try:

"Retirement Income Redesigned: Master Plans for Distribution: An Adviser's Guide For Funding Boomer's Best Years"

Retirement Income Redesigned: Master Plans for Distribution: An Adviser's Guide For Funding Boomer's Best Years
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