Comments on: The Four Pillars of Investing http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/ personal finance that makes cents Sun, 05 Jul 2009 04:45:18 +0000 http://wordpress.org/?v=2.7.1 hourly 1 By: MillionDollarJourney http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139364 MillionDollarJourney Wed, 09 Jul 2008 11:21:34 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139364 Great review J.D. As most investors aren't inclined to do a lot of investment research, their best bet is to simply index and ride it out. As mentioned in the book, this approach will beat the majority of actively managed mutual funds. Great review J.D. As most investors aren’t inclined to do a lot of investment research, their best bet is to simply index and ride it out. As mentioned in the book, this approach will beat the majority of actively managed mutual funds.

]]> By: Mark http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139331 Mark Tue, 08 Jul 2008 23:25:16 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139331 Warren Buffett, arguably the world's greatest investor, disagrees with what you call the most important concept in investing -- i.e. that risk and return are inextricably intertwined. With all due respect to William Bernstein, I agree with Buffett. Here is what Buffett had to say: “I would like to say one important thing about risk and reward. Sometimes risk and reward are correlated in a positive fashion. If someone were to say to me, “I have here a six-shooter and I have slipped one cartridge into it. Why don’t you just spin it and pull it once? If you survive, I will give you $1 million.” I would decline – perhaps stating that $1 million is not enough. Then he might offer me $5 million to pull the trigger twice – now that would be a positive correlation between risk and reward! The exact opposite is true with value investing. If you buy a dollar bill for 60 cents, it’s riskier than if you buy a dollar bill for 40 cents, but the expectation of reward is greater in the latter case. The greater the potential for reward in the value portfolio, the less risk there is.” - The Superinvestors of Graham-and-Doddsville http://www.tilsonfunds.com/superinvestors.pdf Warren Buffett, arguably the world’s greatest investor, disagrees with what you call the most important concept in investing — i.e. that risk and return are inextricably intertwined. With all due respect to William Bernstein, I agree with Buffett.

Here is what Buffett had to say:
“I would like to say one important thing about risk and reward. Sometimes risk and reward are correlated in a positive fashion. If someone were to say to me, “I have here a six-shooter and I have slipped one cartridge into it. Why don’t you just spin it and pull it once? If you survive, I will give you $1 million.” I would decline – perhaps stating that $1 million is not enough. Then he might offer me $5 million to pull the trigger twice – now that would be a positive correlation between risk and reward!

The exact opposite is true with value investing. If you buy a dollar bill for 60 cents, it’s riskier than if you buy a dollar bill for 40 cents, but the expectation of reward is greater in the latter case. The greater the potential for reward in the value portfolio, the less risk there is.”
- The Superinvestors of Graham-and-Doddsville
http://www.tilsonfunds.com/superinvestors.pdf

]]> By: MITBeta @ Don't Feed the Alligators http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139313 MITBeta @ Don't Feed the Alligators Tue, 08 Jul 2008 19:33:21 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139313 This sounds like a great book -- perhaps a somewhat scaled down version of A Random Walk Down Wall Street. It should probably be noted that Buffet isn't really so much an investor in stocks as he is in companies themselves. Sure, he ultimately ends up owning a lot of stock in companies, but that's not really the same thing as being a stock investor. This sounds like a great book — perhaps a somewhat scaled down version of A Random Walk Down Wall Street.

It should probably be noted that Buffet isn’t really so much an investor in stocks as he is in companies themselves. Sure, he ultimately ends up owning a lot of stock in companies, but that’s not really the same thing as being a stock investor.

]]> By: Mark Nelson http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139312 Mark Nelson Tue, 08 Jul 2008 19:27:40 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139312 When I see somebody recommend a book about investing I kind of cringe. This however seems like a good book. The only investing in mutual funds I do is in index funds. That is pretty sound advice. I personally invest through other vehicles but that would be another post. When I see somebody recommend a book about investing I kind of cringe. This however seems like a good book. The only investing in mutual funds I do is in index funds. That is pretty sound advice. I personally invest through other vehicles but that would be another post.

]]> By: James M http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139309 James M Tue, 08 Jul 2008 18:45:31 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139309 I highly recommend this book. My personal favorite on the topic. Read it and suggest it to your personal finance friends. I give it as a college graduation gift. (Is that lame? :) ) I highly recommend this book. My personal favorite on the topic. Read it and suggest it to your personal finance friends. I give it as a college graduation gift. (Is that lame? :) )

]]> By: ThatGuy http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139308 ThatGuy Tue, 08 Jul 2008 18:39:38 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139308 While this was a good summary and probably a very informative book, I would like to say that it isn’t entirely true. Specifically, risk vs. reward isn’t as linked as we have been lead to believe. Not to mention that the way the finance community defines risk is through volatility and not through actual capital loss. This type of thinking is seen in “The Intelligent Investor”, which is a book that Buffet recommends. Further, you might want to check some of Buffett’s letters found at http://www.berkshirehathaway.com/letters/letters.html Graham and Buffet do a much better job explaining why risk and reward are not as linked as the finance community would like us to believe. That Guy While this was a good summary and probably a very informative book, I would like to say that it isn’t entirely true. Specifically, risk vs. reward isn’t as linked as we have been lead to believe. Not to mention that the way the finance community defines risk is through volatility and not through actual capital loss. This type of thinking is seen in “The Intelligent Investor”, which is a book that Buffet recommends. Further, you might want to check some of Buffett’s letters found at http://www.berkshirehathaway.com/letters/letters.html Graham and Buffet do a much better job explaining why risk and reward are not as linked as the finance community would like us to believe.

That Guy

]]> By: RacerX http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139294 RacerX Tue, 08 Jul 2008 16:15:20 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139294 Great point about highs and lows. Things are usually not as good as it looks during peaks, nor as bad during Bear markets. Good arguments for being a contrarian investor! Great point about highs and lows. Things are usually not as good as it looks during peaks, nor as bad during Bear markets. Good arguments for being a contrarian investor!

]]> By: Ed http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139291 Ed Tue, 08 Jul 2008 15:26:22 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139291 Nothing like a serious Couch Potato portfolio using Index Funds, leave it alone, re-balance once a year and forget about it. It works! Nothing like a serious Couch Potato portfolio using Index Funds, leave it alone, re-balance once a year and forget about it. It works!

]]> By: Don http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139289 Don Tue, 08 Jul 2008 14:50:17 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139289 You cannot adequately review a Bernstein book without using the word "rebalance." Most of the risk reduction you expect to get from your diversified portfolio comes as a consequence of rebalancing. Admittedly this is more apparent in his other book "The Intelligent Asset Allocator," but I personally think it can't be repeated enough. Unless you rebalance periodically, you aren't getting the reduction in risk that you think you are. You cannot adequately review a Bernstein book without using the word “rebalance.” Most of the risk reduction you expect to get from your diversified portfolio comes as a consequence of rebalancing.

Admittedly this is more apparent in his other book “The Intelligent Asset Allocator,” but I personally think it can’t be repeated enough. Unless you rebalance periodically, you aren’t getting the reduction in risk that you think you are.

]]> By: Jeff http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139283 Jeff Tue, 08 Jul 2008 14:17:58 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139283 I second that, my favorite investment book out there. I read it about four years back and it was life changing, from a financial perspective. I recommend it to everyone who is trying to learn about investing, even recommend it to people who think they already know about investing; like my Financial Advisor brother in law. I second that, my favorite investment book out there. I read it about four years back and it was life changing, from a financial perspective.

I recommend it to everyone who is trying to learn about investing, even recommend it to people who think they already know about investing; like my Financial Advisor brother in law.

]]> By: Mo Money http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139281 Mo Money Tue, 08 Jul 2008 14:07:21 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139281 This sounds like a great book. I will definitely get it after reading this post. This sounds like a great book. I will definitely get it after reading this post.

]]> By: Curt http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139277 Curt Tue, 08 Jul 2008 13:34:18 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139277 Sounds like a great book. I will have to read it. I realize that Warren Buffett is you investing idle, but as the stock market sinks even Warren is losing money. This year is going to be one of the worst years for stocks in 30-years. --Got gold? Sounds like a great book. I will have to read it. I realize that Warren Buffett is you investing idle, but as the stock market sinks even Warren is losing money. This year is going to be one of the worst years for stocks in 30-years.
–Got gold?

]]> By: Four Pillars http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139276 Four Pillars Tue, 08 Jul 2008 13:31:12 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139276 Definitely my favorite investment book! If you believe in managed funds then read it. Mike Definitely my favorite investment book!

If you believe in managed funds then read it.

Mike

]]> By: Amanda http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/#comment-139273 Amanda Tue, 08 Jul 2008 13:10:48 +0000 http://www.getrichslowly.org/blog/?p=1906#comment-139273 JD, thanks for the comments about this book. I just picked it up with the goal of tackling it on my summer vacation. Can't wait to read- sound like it'll be great! JD, thanks for the comments about this book. I just picked it up with the goal of tackling it on my summer vacation. Can’t wait to read- sound like it’ll be great!

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