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A Book Review- Four Pillars of Investing by William Bernstein

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books by Dawn Endico at http://www.flickr.com/photos/candiedwomanire/The funny thing about investing is that the more you read, the more you realize that it is actually a very simple concept. The more you think you can beat the market, the more it comes to bite you back.

I had been tasked to take up more roles in my day job and it has taken a toll on me so for I haven't been updating the blog as much as I wanted to. So this post is about a book that I've been reading for a while.

This has been the best book that I have read for quite a while, the "Four Pillars of Investing" by William Bernstein. A medical doctor, he learned about investment through reading and learning. He explains clearly the investment concepts, pitfalls to avoid and reinforces the lessons I gained from reading masters such as Burton Malkiel and John C. Bogle about the markets being a random walk and no one being able to time or judge the market direction consistently.

The main structure of the book revolves around the four pillars that the author, Dr Bernstein, believes that investment is supported by.

  • The First Pillar is The Theory of Investing. Here, he delves into the maths of risk and rewards, portfolio theory, how returns should be measured etc. All the basic things that an investor should be equipped with.
  • The Second Pillar talks about The History of Investing where he looks at the past manias, the cycle of boom and bust, bulls and bears, peaks and troughs. As one famous philosopher, I think it is George Santayana once said, "Those who cannot remember the past are condemned to repeat it".
  • The Third Pillar is the The Psychology of Investing where he goes into irrational behaviour of investors who panics when market is down and sells off investment and chase after more profits when market is right at its peak. He examines the great stock fallacy where people chase after the great companies even though their prices maybe 50 times its earnings.
  • The Fourth Pillar looks at The Business of Investing. Here is a sad look at the present state of the Investment business where the people in the industry buy index funds but sell to the consumers managed funds, hedge funds, structured products or some other products with a nice name and where the fund manager will take a cut of your funds as management fees. Here, he also mentions about the rise of low cost index funds by the Vanguard group which made it possible for small investor to achieve market returns which are not eaten up by all the fees which a managed fund will be laden with.

I borrowed it from the library and have returned it, but it is so good that I think I'd probably buy it when the market is better so that I will return to read it and remember all the valuable advice that this book is filled with. Instead of spending time watching CNBC telling you to buy this or sell that, the time would be better spent reading and learning more about where to put your next $1000, $5000, $10,000 or more.

I'd rate this book as the second best investment book that I have read after "The Intelligent Investor" by Benjamin Graham.

You can get the book on Amazon.com here. Start your first step towards financial freedom by learning about the basics of investment.

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