Bill Bernstein on Successful Investing

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Bill Bernstein on Successful Investing

Bill Bernstein, author of the “Four Pillars of Investing” (among other things), is both a neurologist and a finance expert. In a news article from over the summer that I somehow missed until now, he provided some guidelines for fighting off your counterproductive instincts.

Here they are:

  1. Be careful with advisors. If you’re not comfortable managing your own money, be very careful to choose one who (legally) has your best interests at heart — i.e., someone with a fiduciary duty to look out for you vs. their employer. Avoid high cost planners (1% or above) as well as those that earn commissions from the products they sell.
  2. Buy, hold, and rebalance. Take the time to write out an investment policy statement that lays our your desired asset allocation — and then stick to it. Don’t allow yourself to follow the whims of the market.
  3. Keep educating yourself. History is important (and it tends to repeat itself), so read, read, read.
  4. Avoid hot new stocks. As the Facebook IPO recently illustrated, chasing hot new stocks is a great way to get burned. Strive to be analytical and don’t let your emotions (or the excitement of the market) rule the day.
  5. Admit your ignorance. I love this one. Admit to yourself that there’s an awful lot that you don’t (and probably never will) know about investing. Buy and hold investing (see above) is a great way to embrace this reality — and it can save a ton of anxiety.

All in all, I’d have to say that I agree with everything on this list. And he closed off the article with a great quote:

“We don’t expect people to fly their own airplanes or take out their kids’ appendixes, and yet we expect them to manage their retirement portfolios. In my careers I’ve done all three, and investing is by far the hardest.”

In this case, the challenge is largely related to keeping your emotions in check (and out of the way).

One Response to “Bill Bernstein on Successful Investing”

  1. Anonymous

    I like #5, Admit your ignorance, as well. One technique to drive this home: Think about an investment mistake or regret you made a few years ago. More than likely you recognize today that you made it because you were critically ignorant of a few facts or strategies. Yes, you may be smarter today, but in another few years the process will repeat: You’ll realize then you’ve again learned a lot between now and then.

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