Peter Bernstein Quotes

The information you have is not the information you want. The information you want is not the information you need. The information you need is not the information you can obtain. The information you can obtain costs more than you want to pay

The word 'risk' derives from the early Italian risicare, which means 'to dare'. In this sense, risk is a choice rather than a fate. The actions we dare to take, which depend on how free we are to make choices, are what the story of risk is all about. And that story helps define what it means to be a human being.

Our lives teem with numbers, but we sometimes forget that numberss are only tools. They have no soul; they may indeed become fetishes.

Time matters most when decisions are irreversible.

Game theory says that the true source of uncertainty lies in the intentions of others.

life is a collection of similarities rather than identities; no single observation is a perfect example of generality.

Fear of harm ought to be proportional not merely to the gravity of the harm, but also to the probability of the event.

Time matters most when decisions are irreversible. And yet many irreversible decisions must be made on the basis of incomplete information.

Vast ills have followed a belief in certainty.

We are prisoners of the future because we will be ensnared by our past.

This is the essence of risk aversion—that is, how far we are willing to go in making decisions that may provoke others to make decisions that will have adverse consequences for us.

The essence of risk management lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us.

So we pour in data from the past to fuel the decision-making mechanisms created by our models, be they linear or nonlinear. But therein lies the logician's trap: past data from real life constitute a sequence of events rather than a set of independent observations, which is what the laws of probability demand.[...]It is in those outliers and imperfections that the wildness lurks.

Nothing ventured, nothing gained, but don’t put all your eggs in one basket.

Markets look a lot less efficient from the banks of the Hudson than from the banks of the Charles.

In the first sense, probability means the degree of belief or approvability of an opinion—the gut view of probability. Scholars use the term “epistemological” to convey this meaning; epistemological refers to the limits of human knowledge not fully analyzable.

We are by now well into the eighteenth century, when the Enlightenment identified the search for knowledge as the highest form of human activity. It was a time for scientists to wipe the metaphysical dust from their eyes.

Shefrin and Statman hypothesize the existence of a split in the human psyche. One side of our personality is an internal planner with a long-term perspective, an authority who insists on decisions that weight the future more heavily than the present. The other side seeks immediate gratification. These two sides are in constant conflict.

[The] utility resulting from any small increase in wealth will be inversely proportionate to the quantity of goods previously possessed.

The prospect of getting rich is highly motivating, and few people get rich without taking a gamble.

The prevalence of surprise in the world of business is evidence that uncertainty is more likely to prevail than mathematical probability.

As Peter Bernstein has written, nature's pattern emerges only from the chaotic disorder of many random events.

We could turn this assertion around and state that a decision should involve the strength of our desire for a particular outcome as well as the degree of our belief about the probability of that outcome.

The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite. Life is not an illogicality; yet it is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.

One winter night during one of the many German air raids on Moscow in World War II, a distinguished Soviet professor of statistics showed up in his local air-raid shelter. He had never appeared there before. “There are seven million people in Moscow,” he used to say. “Why should I expect them to hit me?” His friends were astonished to see him and asked what had happened to change his mind. “Look,” he explained, “there are seven million people in Moscow and one elephant. Last night they got the elephant.

You never get poor by taking a profit." It would follow that cutting your losses is also a good idea, but investors hate to take losses, because, tax considerations aside, a loss taken is an acknowledgment of error. Loss-aversion combined with ego leads investors to gamble by clinging to their mistakes in the fond hope that some day the market will vindicate their judgment and make them whole.

So we pour in data from the past to fuel the decision-making mechanisms created by our models, be they linear or nonlinear. But therein lies the logician's trap: past data from real life constitute a sequence of events rather than a set of independent observations, which is what the laws of probability demand.[...]Even though many economic and financial variables fall into distributions that approximate a bell curve, the picture is never perfect.[...]It is in those outliers and imperfections that the wildness lurks.

God is, or he is not. Which way should we incline? Reason cannot answer.

We have gold because we cannot trust Governments.

the more refined and intellectual our needs become, the less they are capable of satiety.

The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.

Trade is also a risky business. As the growth of trade transformed the principles of gambling into the creation of wealth, the inevitable result was capitalism, the epitome of risk-taking.

Discontinuities, irregularities, and volatilities seem to be proliferating rather than diminishing. In the world of finance, new instruments turn up at a bewildering pace, new markets are growing faster than old markets, and global interdependence makes risk management increasingly complex. Economic insecurity, especially in the job market, makes daily headlines. The environment, health,

His local campaigns around Macedonia also augmented that absolutely essential economic resource: slaves-slaves to work the mines, slaves to work the fields, slaves to keep the whole economy humming.

The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite. Life is not an illogicality; yet it is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.3

The information you have is not the information you want. The information you want is not the information you need. The information you need is not the information you can obtain. The information you can obtain costs more than you want to pay.

If the satisfaction to be derived from each successive increase in wealth is smaller than the satisfaction derived from the previous increase in wealth, then the disutility caused by a loss will always exceed the positive utility provided by a gain of equal size.

Writing in 1921, the University of Chicago economist Frank Knight uttered strange words for a man of his profession: “There is much question as to how far the world is intelligible at all. . . . It is only in the very special and crucial cases that anything like a mathematical study can be made.

The word “risk” derives from the early Italian risicare, which means “to dare.” In this sense, risk is a choice rather than a fate. The actions we dare to take, which depend on how free we are to make choices, are what the story of risk is all about. And that story helps define what it means to be a human being.

In his 1996 book, Against the Gods: The Remarkable Story of Risk, Peter L. Bernstein wrote, “Regression to the mean motivates almost every variety of risk-taking and forecasting. It is at the root of homilies like ‘What goes up must come down,’ ‘Pride goeth before a fall,’ and ‘From shirtsleeves to shirtsleeves in three generations.

The earliest known work in Arabic arithmetic was written by al-Khowârizmî, a mathematician who lived around 825, some four hundred years before Fibonacci.11 Although few beneficiaries of his work are likely to have heard of him, most of us know of him indirectly. Try saying “al-Khowârizmî” fast. That’s where we get the word “algorithm,” which means rules for computing.12 It was al-Khowârizmî who was the first mathematician to establish rules for adding, subtracting, multiplying, and dividing with the new Hindu numerals. In another treatise, Hisâb al-jabr w’ almuqâbalah, or “Science of transposition and cancellation,” he specifies the process for manipulating algebraic equations. The word al-jabr thus gives us our word algebra, the science of equations.13

Eight years later, Daniel Bernoulli, Jacob’s nephew and an equally distinguished mathematician and scientist, first defined the systematic process by which most people make choices and reach decisions. Even more important, he propounded the idea that the satisfaction resulting from any small increase in wealth “will be inversely proportionate to the quantity of goods previously possessed.” With

Why, given their advanced mathematical ideas, did the Arabs not proceed to probability theory and risk management? The answer, I believe, has to do with their view of life. Who determines our future: the fates, the gods, or ourselves? The idea of risk management emerges only when people believe that they are to some degree free agents. Like the Greeks and the early Christians, the fatalistic Muslims were not yet ready to take the leap.

If the random-walk view is correct, today's stock prices embody all relevant information. The only thing that would make them change is the availability of new information. Since we have no way of knowing what that new information might be, there is no mean for stock prices to regress to. In other words, there is no such thing as a temporary stock price-that is, a price that sits in limbo before moving to some other point. That is also why changes are unpredictable.

Thaler recounts an amusing real-life example of mental accounting.15 A professor of finance he knows has a clever strategy to help him deal with minor misfortunes. At the beginning of the year, the professor plans for a generous donation to his favorite charity. Anything untoward that happens in the course of the year—a speeding ticket, replacing a lost possession, an unwanted touch by an impecunious relative—is then charged to the charity account. The system makes the losses painless, because the charity does the paying. The charity receives whatever is left over in the account. Thaler has nominated his friend as the world’s first Certified Mental Accountant.

The Reformation meant more than just a change in humanity's relationship with God. By eliminating the confessional, it warned people that henceforth they would have to walk on their own two feet and would have to take responsibility for the consequences of their own decisions.

Consider this set of coin-tossing possibilities, proposed by Warren Buffet. Suppose 225 million Americans all join in a coin-tossing contest in which each player bets a dollar each day on whether the toss of a coin will turn up heads or tails. Each day, the losers turn their dollars over to the winners, who then stake their winnings on the next day’s toss. The laws of chance tell us that, after ten flips on ten mornings, only 220,000 people will still be in the contest, and each will have won a little over $1,000. After that, the game heats up. Ten days later, only 215 people will still be playing, but each of them will be worth over $1,050,000. Buffet suggests that this small group of winners will marvel at their own skills. Some of them will write books on “How I Turned a Dollar into a Million in Twenty Days Working Thirty Seconds a Morning.” Or, they will tackle skeptical professors of finance with “If it can’t be done, why are there 215 of us?” But, Buffet goes on to point out, “. . . then some business school professor will probably be rude enough to bring up the fact that if 215 million orangutans had engaged in a similar exercise, the results would be much the same—215 egotistical orangutans with 20 straight winning flips.”22

a Greek epigram about Diophantus states that "his boyhood lasted 1 /6th of his life; his beard grew after 1/12th more; he married after 1 /7th more, and his son was born five years later; the son lived to half his father's age, and the father died four years after his son." How old was Diophantus when he died?7

Whetstone of Witte introduced the symbol "_" because "noe 2 thynges can be more equalle than a pair of paralleles.

La palabra "riesgo" procede del italiano risicare, que significa "atreverse". En este sentido, el riesgo es más bien una elección que un destino.... La idea de la gestión de riesgos solo surge cuando las personas creen que hasta cierto punto son agentes libres.

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In December 1972, Polaroid was selling for 96 times its 1972 earnings, McDonald’s was selling for 80 times, and IFF was selling for 73 times; the Standard & Poor’s Index of 500 stocks was selling at an average of 19 times. The dividend yields on the Nifty-Fifty averaged less than half the average yield on the 500 stocks in the S&P Index. The proof of this particular pudding was surely in the eating, and a bitter mouthful it was. The dazzling prospect of earnings rising up to the sky turned out to be worth a lot less than an infinite amount. By 1976, the price of IFF had fallen 40% but the price of U.S. Steel had more than doubled. Figuring dividends plus price change, the S&P 500 had surpassed its previous peak by the end of 1976, but the Nifty-Fifty did not surpass their 1972 bull-market peak until July 1980. Even worse, an equally weighted portfolio of the Nifty-Fifty lagged the performance of the S&P 500 from 1976 to 1990.

All journalists stand on the shoulders of giants, whether they admit it or not. In many cases, my book was vastly enhanced by the superlative work of other journalists, writers, and financial historians, who have themselves explored some of the subjects and themes I have tried to knit together in one sweeping narrative. Peter Bernstein is a huge inspiration, and his books were of tremendous help for some of the earlier chapters, as was Colin Read’s The Efficient Market Hypothesists. Lewis Braham’s biography of Jack Bogle is essential reading for anyone interested in the tumultuous life of Vanguard’s founder. Ralph Lehman’s The Elusive Trade was exhaustively detailed on the genesis of ETFs, and Anthony Bianco’s The Big Lie vividly tells the story of WFIA/BGI in the Pattie Dunn era. I have also learned an enormous amount from working with or admiring from afar financial journalists like John Authers, Gillian Tett, James Mackintosh, Philip Coggan, and Jason Zweig, as well as industry experts such as Deborah Fuhr, Ben Johnson, Eric Balchunas, and David Nadig. They are all titans upon whose shoulders I nervously perch.

The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than a whim of the gods and that men and women are not passive before nature. Until human beings discovered a way across that boundary, the future was a mirror of the past or the murky domain of oracles and soothsayers who held a monopoly over knowledge of anticipated events.

Peter Bernstein and Robert Arnott reflected on this question in a recent article in the Journal of Portfolio Management: “Bull Market? Bear Market? Should You Really Care?” They concluded that “for most long-term investors, bull markets are not nearly as beneficial, and bear markets not nearly as damaging as most investors seem to think.” They noted, correctly, that “a bull market raises the asset value, but delivers a proportionate reduction in the prospective real yields that the portfolio can deliver from that point forward, while a bear market does the reverse, reducing portfolio value, which is largely offset by an increase in prospective yields, other things being equal.

But therein lies the logician's trap: past data from real life constitute a sequence of events rather than a set of independent observations, which is what the laws of probability demand.

If they had kept quiet, and lain low for a time, things might have fizzled out as another unreal Wortstreist, blown up by a few ambitious authors of the party press. As it was, they decided to counter-attack the noisy, irrepressible outsiders--foreigners, to boot--and so forced a reluctant leadership to turn its full, slow, wrath against them; and against Bernstein too. For the most practical manifestation of revisionism was indiscipline and disobedience, a door opened to centrifugal forces of bourgeois influence.

[T]he “Law Of Frequency Of Error”. . . reigns with serenity and in complete self-effacement amidst the wildest confusion. The huger the mob . . . the more perfect is its sway. It is the supreme law of Unreason. Whenever a large sample of chaotic elements are taken in hand . . . an unsuspected and most beautiful form of regularity proves to have been latent all along.13