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The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

ISBN: 978-1-118-07376-6
224 pages
August 2012
The Investor


A timeless approach to investing wisely over an investment lifetime

With the current market maelstrom as a background, this timely guide describes just how to plan a lifetime of investing, in good times and bad, discussing stocks and bonds as well as the relationship between risk and return.

Filled with in-depth insights and practical advice, The Investor's Manifesto will help you understand the nuts and bolts of executing a lifetime investment plan, including: how to survive dealing with the investment industry, the practical meaning of market efficiency, how much to save, how to maintain discipline in the face of panics and manias, and what vehicles to use to achieve financial security and freedom.

  • Written by bestselling author William J. Bernstein, well known for his insights on how individual investors can manage their personal wealth and retirement funds wisely
  • Examines how the financial landscape has radically altered in the past two years, and what investors should do about it
  • Contains practical insights that the everyday investor can understand
  • Focuses on the concept of Pascal's Wager-identifying and avoiding worst-case scenarios, and planning investment decisions on that basis

With The Investor's Manifesto as your guide, you'll quickly discover the timeless investment approaches that can put you in a better position to prosper over time.

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Table of Contents

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

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Author Information

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.

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Press Release

August 21, 2012
THE INVESTOR'S MANIFESTO: Preparing for Prosperity, Armageddon, and Everything in Between

The financial meltdown has tossed millions of Americans onto a turbulent investment sea. The waters are more dangerous than they have been in living memory, but by the perverse calculus of finance, they are also more rewarding. THE INVESTOR’S MANIFESTO: Preparing for Prosperity, Armageddon, and Everything in Between by William J. Bernstein, author of the timeless investment classics The Intelligent Asset Allocator and The Four  Pillars of Investing, will teach readers what they need to make it to shore.

As Bernstein explains, successful investors need four abilities: an interest in the process; math horsepower, including an understanding of the laws of probability and a working knowledge of statistics; a firm grasp on financial history; and the most vital quality of all, the emotional discipline to execute their planned strategy faithfully. Bernstein believes that only a small percent of the population possesses these qualities and is therefore qualified to manage their own money. However, with the proliferation of 401(k)s, 403(b)s, and 457s, where does this leave those who have to manage their own investments whether they like it or not?

THE INVESTOR’S MANIFESTO provides a roadmap to millions of individual investors who have found themselves unwillingly thrust into the role of portfolio manager. After delving into the history of financial disasters in order to illustrate the need to diversify risks, Bernstein addresses the greatest enemy facing investors—themselves. He then advises how readers can use the investment industry to execute the devised investment strategies.

Written in a straightforward and accessible style, THE INVESTOR’S MANIFESTO:

  • Explains the relationship between risk and return
  • Explores the theoretical basis of investing and designing portfolios, drawn in large part from the financial history
  • Offers insights on dealing with the emotions and attitudes that routinely cripple investors
  • Discusses how to deal with the investment industry when executing strategies designed for anything from saving for retirement to putting a child through college
  • Addresses ways in which individual investors can construct diversified portfolios that can blunt potentially damaging market forces
  • Covers the concept of Pascal’s Wager—which enables investors to indentify and avoid worst-case scenarios

The current market maelstrom makes this the perfect time for investors to take control of their finances. With Bernstein’s theories of investing and designing portfolios—using his three main principles: don’t be too greedy; diversify as widely as possible; and always be wary of the investment industry—the future is looking brighter already. 

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