It’s always fun to hear that one of your favorite authors has released a new book. Given that William Bernstein’s The Four Pillars of Investing is quite literally my favorite book on investing, you can imagine how eager I was to read his newest release: The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between.
End result: I might have a new favorite. If nothing else, I have a new favorite to recommend for people just beginning to invest.
The Book’s Message
The Investor’s Manifesto is essentially a more accessible version of Four Pillars. The book’s core messages are that:
- Risk and expected return are related. There’s no escaping it.
- The best potential future returns are available when things are scariest (i.e., when risk is at its highest).
- Picking stocks is a bad idea for individual investors. No, you’re not an exception.
- Picking actively managed funds is perhaps worse than picking stocks.
- With a handful of exceptions, the financial services industry exists to steal your money.
Behavioral Investing Mistakes
Lots of books and articles claim that our brains are hardwired to fail us when it comes to investing. I agree with that general premise, but I’ve always been somewhat hesitant to accept at face value any claims about the workings of a brain–perhaps the single least-understood organ in the human body–written by a financial author/journalist.
However, when the person making the claims is an M.D. (a neurologist in fact), such claims have an entirely different level of credibility. In The Investor’s Manifesto, Bernstein lays out several aspects of human psychology that detract from our ability to invest successfully. For example:
We use stories to understand things once they become too complex. And in the process, we oversimplify things to the point where our understanding is as wrong as it is right.
We want to be entertained. We love picking stocks, especially the high-flying growth stocks of popular companies.
We make too many analogies. We transfer characteristics across categories, even when it’s inappropriate to do so. For example, we assume that a good company must make a great stock, or that a quickly growing economy must mean high market returns. (Jeremy Siegel calls this the “growth trap.”)
We all think we’re better than average. We pick stocks (and expect to succeed!) even though the people we’re trading with are, in all probability, full-time investment professionals with far larger resources of data and computing power.
Highly Recommended
At just under 200 pages, The Investor’s Manifesto is a quick read. Its advice is sound. And it’s entertaining to boot. I can’t recommend this one highly enough.
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{ 3 comments… read them below or add one }
Great review. And I agree that the Investor’s Manifesto is a great book. I like the practical advice, delivered in an entertaining manner.
Thanks for an insightful review. This is definitely a book to put on my wishlist for the holidays.
Like you, I have been reluctant to buy into the “brain” books because even the experts cannot agree. However it now appears they have growing volumes of solid evidence in reference to how our brains work.
Another book I read recently, I believe, supports much of what you reviewed is Management Rewired by Charles S. Jacobs. Fascinating stuff!
seems to be a great read from this review. But unfortunately i dont thing that i will read it because at the moment, i am up to my neck in with finance books and cannot afford to add another on my reading table