Category: 2 – BUY it! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)
Comments: William Bernstein deals with the very basics of investing and dispels some commonly held myths. An excellent book. May not interest everyone but if you are interested in understanding personal finance and investing, it’s a great book.
Top 3 learnings:
1. You don’t invest to get rich, you invest so as to not die poor. Great investments are not risky investments that produce prolific returns. They produce steady returns and avoid worst case scenarios. Of course, you cannot get great returns without great risk.
2. Understanding financial history is critical for a good investor. Long term capital management’s famous failure was because their equation did not take financial history into account.
3. You are your worst enemy. You cannot time the market. Don’t try. And don’t look for patterns in the financial markets. There are none.
A collection of other conclusions I put together – if it interests you
A pre condition to being a successful investor is a firm grasp of financial history
– High returns can only be achieved with high risk
– losing money in a bear market is a part of being investor
– study and understand the Gordon equation to calculate real returns
– whenever you buy or sell an individual stock or bond, you are competing against the best in the world
– Stocks: a growth company stock generally pays out less than a collection of bad company stocks
– primary decision as investor is overall mix of stocks and bonds. Diversify diversify.
– focus on the portfolio. Do not pay too much attention to best/worst. They change.
– You are your worst enemy. You cannot time the market. Don’t try.
– Don’t look for patterns in the financial markets. There are none.
– Stock brokers are out to fleece you. It’s the nature of the business
– Mutual funds aren’t different unless they are owned by stakeholders/ are private
– Live as modestly as you can and save as you can for as long as you can
– The best gift to your heirs is not cold hard cash. Rather its the ability to save, spend wisely and invest prudently
– Remember pascal wager – goal of investing is not to get rich but to not die poor
– index fund – consistent 8/10. It will never hit 10/10 but it won’t be a 1/10 either. Returns are proportional to risk…..
– Pro Tip – House: Whenever you go to a realtor, find out what the house rents at and multiply by 150. If you are charged above that, you are paying too much.