A New Edition of a Classic Finance Book by William Bernstein
The Math–and the Shakepeare–of Investing
Available from McGraw-Hill July 11, 2023
I’m pleased to announce the second edition of The Four Pillars of Investing. Two decades, 75,000 copies, and multiple translations later, the time has come for a nearly complete rewrite in an investment landscape unrecognizable in many ways to that which greeted the book upon its 2002 first printing:
The expected returns of both stocks and bonds saw precipitous falls over the decades since publication but have partially reversed recently. Until about a year ago, interest rates were lower than at any other time in the five millennia of recorded financial history, and stock valuations stood at near historic highs.
Exchange traded funds (ETFs) have grown from an exotic oddity to the world’s major investment wrapper, available at no commission and often minuscule spreads at even the bad old wirehouses.
At one end of the media spectrum, the purveyors of twenty-four hour financial cable news have honed their output into a blade capable of lacerating your savings faster than you can say “earnings growth expectations,” while at the other end of the spectrum financial pundit-hood awaits teenagers with cell phone cameras and older wannabees with web software. Worse, social media and a rapacious new breed of financial entrepreneur can convert your mobile phone into a casino whose gamification would make a Las Vegas resort mogul blush.
The global financial system, juiced by almost continuous central bank largess for nearly a generation, saw successive bubbles in tech stocks, real estate, cryptocurrencies, and tech stocks yet again, an orgy that may or may not have ended in 2022. This in turn gave perceptive investors the opportunity to observe in real time the cardinal signs of a bubble first described by Scotsman Charles Mackay nearly two centuries ago in Memoirs of Extraordinary Popular Delusions and the Madness of Crowds.
While the vicissitudes of financial irrationality have gained increasing popular attention, their social psychological and evolutionary underpinnings remain underappreciated. I’ve endeavored to close this gap.
Finally, I’m nearly a quarter of a century older than when I banged out the book’s first edition, and I’ve learned a thing or two about investors, including myself. I’ve come to appreciate the limitations of a largely mathematical approach to finance and lifecycle investing, and further to understand that the single most important determinant of one’s long-term success is one’s behavior in the worst two percent of the time. In other words, a suboptimal strategy you can execute is superior to an optimal one you’re unable to stick with when the financial ground beneath your feet appears to crumble. Or put another way, less math, more Shakespeare.
Both the hardback and kindle version of the book are now available for preorder at Amazon and should appear in bookstores in late July 2023. With the kind permission of McGraw-Hill Education, I’ve posted Jonathan Clements’ Foreword and the book’s Introduction.
Found a typo? Email me and you'll receive ten efficientfrontier.com bonus points, plus my hearty thanks!
