The Investors Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

Praise for The Investor′s Manifesto "Bill Bernstein′s impassioned new book is indeed a manifesto—a call to action for Main Street investors to free themselves from exploitation by Wall Street money moguls; to understand the brute principles that ultimately determine stock market returns; and to establish the sound and simple strategies necessary for investment success. The Investor′s Manifesto is a grand–slam home run." — John C. Bogle , founder of the Vanguard Group, Inc. "This is the investment book that my kids, step–kids, and sisters will read, remember, and thank me for. Bernstein′s way with ideas and words means that for all of them, practical investment is no longer too hard or too dull to master. The aha! moment for me was finding out what Bernstein is recommending to his readers now." — Ed Tower , Professor of Economics, Duke University "The Investor′s Manifesto is packed with wisdom and charmingly written. It belongs on every investor′s bookshelf." — Burton G. Malkiel , author of A Random Walk Down Wall Street "There is no better writer on investing than William Bernstein. If he has written it, it is a must–read. Whether you are just beginning your journey or already in retirement, this book is an invaluable guide filled with pearls of wisdom." — Larry Swedroe , Principal and Director of Research, The Buckingham Family of Financial Services, author of Wise Investing Made Simple and The Only Guide You′ll Ever Need series "In The Investor′s Manifesto , author William Bernstein, PhD, MD, has condensed his long experience and intellectual wisdom into an easy–to–read and easy–to–understand book that deserves to be on the bookshelf of every serious investor." — Taylor Larimore , coauthor of The Bogleheads′ Guide to Investing and The Bogleheads′ Guide to Retirement Planning " The Investor′s Manifesto brilliantly lays out timeless investment strategies in a clear, easy–to–understand manner. Whether an investing novice or an experienced investor, Bill Bernstein helps you recover from the market decline and build a solid financial future. Longtime Bernstein fans will find the answer to the question ′What would Bill do?′" — Laura F. Dogu , coauthor of The Bogleheads′ Guide to Retirement Planning

Foreword ix Preface xiii Chapter 1 A Brief History of Financial Time 1 In the Beginning 2 Near–Death in Venice 8 The Incredible Shrinking Risk Premium 11 Summary 12 Chapter 2 The Nature of the Beast 13 Of Ravens and Returns 13 History versus Math 18 Mr. Gordon’s Curious Equation 25 Math Detail: The Discounted Dividend Model 29 Home Sweet Home? 35 Adventures in Equity 38 Math Detail: Risk 43 Throwing Dice with God 47 Gene Fama Looks for Angles and Finds None 49 Sandbagged by a Superstar 52 Jack Bogle Outfoxes the Suits 56 It Is Better to Be Lucky Than Smart 63 Bond Funds: A Flatter Playing Field 64 Summary 65 Chapter 3 The Nature of the Portfolio 69 Four Essential Preliminaries 71 The Asset Allocation Two–Step 74 Math Detail: Mean–Variance Analysis 83 With Luck, Zigs, and Zags 84 Chasing Rainbows 88 Summary 93 Chapter 4 The Enemy in the Mirror 95 Inner Demons 97 Behaving Badly 100 Bargain–Basement Psychotherapy 116 Summary 125 Chapter 5 Muggers and Worse 127 The World′s Largest Bad Neighborhood 128 The Fund Funhouse 135 Summary 142 Chapter 6 Building Your Portfolio 143 Financial Planning for a Lifetime: The Basics 143 Saving for Retirement: Nuts and Bolts 145 How to Save: Dollar Cost Averaging and Value Averaging 152 Four Investors, Four Plans 154 The Rebalancing Question 166 Math Detail: Rebalancing, Momentum, and Mean Reversion 169 Teach Your Children Well 172 Summary 174 Chapter 7 The Name of the Game 179 Investment Theory and History: The Short Course 180 The Portfolio Theory of Everything 181 We Have Met the Enemy, and He Is Us 181 Heads I Win, Tails You Lose 182 Fire When Ready 182 The Books You Need . . . Aged Like Fine Wine 185 Notes 188 Acknowledgments 193 About the Author 195 Index 196

William J. Bernstein , PhD, MD, is a bestselling author known as a grassroots hero to independent investors. Formerly a practicing neurologist, Bernstein approaches the problems of saving and investing as someone who had to figure it out for himself—from first principles up. He is the author of The Intelligent Asset Allocator and The Four Pillars of Investing —highly regarded, plain–spoken guides on how to build a diversified portfolio without the help of a financial advisor—the editor of the asset allocation journal Efficient Frontier , and the founder of the popular website efficientfrontier.com. He has also written two volumes of economic history, The Birth of Plenty and A Splendid Exchange , and is a coprincipal in Efficient Frontier Advisors.