Comments on: Review: The Investor’s Manifesto

By: Forextraderforums

Forextraderforums — Mon, 12 Jul 2010 10:26:08 +0000

What type of degree do I need to pursue to become a real estate investor?

By: Vinoy

Vinoy — Tue, 06 Jul 2010 13:40:04 +0000

Thanks for the review trent!

@Doug Warshauer – any recommendations on investing books that incorporate Behavioral finance info?

By: Macke

Macke — Mon, 05 Jul 2010 22:49:50 +0000

@Dough

The book has a chapter of about 30 pages of behavioral finance, but that was not so clear from the review.

By: Landon

Landon — Mon, 05 Jul 2010 18:56:30 +0000

@Rob Bennett
Risk doesn’t *guarantee* a high return but it has a greater probability of a high return. Think a small cap stock vs. 30 year US treasury bond. One can possibly triple in price or go to zero, another will only earn a few % a year but will never go to zero.

Nobody knows the future and you might get burned in the short term (like the bubble we just had), but long term it makes sense for a younger person who can take on risk to have riskier investments in his portfolio.

There is no such thing as a sure signal for high returns; otherwise we would all be rich. I hope I am not misunderstanding you.

By: Doug Warshauer

Doug Warshauer — Mon, 05 Jul 2010 18:37:40 +0000

@Rob Bennett

That’s an outstanding point. When Bernstein and other proponents of modern portfolio theory and efficient markets talk about the correlation between risk and return, they equate risk to the standard deviation expected returns, and ignore fundamental factors such as PE ratios.

The investing books that incorporate the knowledge from Behavioral Finance do a better job avoiding that mistake.

By: Rob Bennett

Rob Bennett — Mon, 05 Jul 2010 13:41:49 +0000

I am both a fan and a critic of Bernstein. Chapter Two of “Four Pillars” is the best chapter of any investing book I have ever read. I have re-read it four times. I always learn something new from doing so. I find that the advice in the other chapters of the book is often in conflict with the strong common-sense arguments made in Chapter Two. I find a good bit of that advice dangerous.

The root of his confusion (in my view!) is his believe that it is by taking on more risk that one earns higher returns. If that were so, stocks should have been paying the highest returns in history from 2000 forward because stocks were the riskiest they have ever been in 2000 (when valuations were the highest they have ever been). The reality is that it is perceived risk that signals high returns (perceived risk was the lowest it has even been at the top of the bubble — that’s why there was a bubble!). if Bernstein straightens out his thinking on this point, I think he will be one of the best in this field.

Rob