Three Longs & Three Shorts

Bernsten: Free Trading Is Like Giving Chainsaws To Toddlers

We would highly recommend the Morningstar’s podcast on personal finance and investing – The Long View which consistently brings in interesting experts and the hosts, Christine Benz and Jeff Ptak do a great job of getting the best insights out of them. In this piece, Robin Powell at TEBI gives a good summary of the podcast with William Bernstein, the author of The Four Pillars of Investing. Whilst the whole podcast is worth the time, here are a few of Robin’s highlights:
We come across a lot of investors who try to maximise their returns from their debt investments. Here’s Bernstein’s advice for them:
“Don’t invest in bonds for the yield
You invest in fixed income not for the return on your capital, but the return of your capital. If you have a Treasury bill that yields close to zero, in the long term, it still may be the highest-yielding asset, the highest-returning asset in your portfolio, because it is the asset that allows you to sleep at night and stay the course. And that’s the real purpose. You’re not looking for yield; you’re looking for safety. Fairly frequently in a Berkshire Hathaway annual report you’ll read Charlie and Warren discoursing about all the bad things about Treasury bills… And then, the final sentence in that paragraph usually is something like, “Nonetheless, Berkshire will continue to invest the large bulk of its liquid reserves in Treasury bills.”
Why most people need an adviser
You need a very specific combination of skill sets to be able to invest well. You don’t just need to know about the basics of finance and the theoretical finance and financial history, so you can stay the course through the bad times. You also need a certain amount of emotional discipline. The people who do the best are the ones who basically are able to sleep through bear markets and don’t even notice them. They don’t look at their brokerage statements; they just keep their money in a low-cost fund and they do fine. Very few people are able to do that. This is a terribly paternalistic thing to say, but I don’t think that the average person has any business managing their own retirement portfolio. They have about as much business doing that as they do stepping into an airliner and flying the plane to Chicago.
What books should people read to learn about investing?
The classic book I recommend to everybody is one of two books by Jack Bogle, either, Common Sense Investing, or The Little Book of Common Sense Investing. And almost anything by people like Larry Swedroe or Rick Ferri is a good place to start as well. Unfortunately, when you go to the bookstore, or you go to Amazon and you see what are the top-selling books, you’re going to find things that are much less nutritious than that. And that’s the problem, is you have to know where to look and most people don’t.”