William Bernstein Quotes

The reason that 'guru' is such a popular word is because 'charlatan' is so hard to spell.

Although the modern image of the imperial city is dominated by the ruins of the Coliseum and the Forum, the economic life of ancient Rome centered on side streets filled with apartments, shops, and horrea.

It’s human nature to find patterns where there are none and to find skill where luck is a more likely explanation.

George Bernard Shaw’s famous spelling of “fish” as “ghoti”—the first two letters pronounced as the last two in “tough,” the middle letter as in “women,” and the last two as in “nation.

If you find yourself stimulated in any way by your portfolio performance, then you are probably doing something very wrong. A superior portfolio strategy should be intrinsically boring.

The easiest way to get rich is to spend as little as possible.

The Stoic philosopher and playwright Seneca is said to have owned five hundred tripod tables with ivory legs—no small irony, since he was a vocal critic of the empire's extravagances.

In Battuta's obsession with sharia and the Muslim world and in his lack of interest in nearly everything outside it we clearly see the double-edged sword of Islam so visible in today's world: an ecumenical but self-satisfied faith capable of uniting far-flung peoples under one system of belief and one regime of law, but also severely limited in its capacity to examine and borrow from others.

There are only two kinds of investors: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third kind: those who know they don’t know, but whose livelihoods depend on appearing to know.

BERNSTEIN: “I’ll read you the first few paragraphs.” (He got as far as the third. Mitchell responded, “JEEEEEEEEESUS” every few words.) MITCHELL: “All that crap, you’re putting it in the paper? It’s all been denied. Katie Graham’s gonna get her tit caught in a big fat wringer if that’s published. Good Christ! That’s the most sickening thing I ever heard.” BERNSTEIN: “Sir, I’d like to ask you a few questions about—” MITCHELL: “What time is it?” BERNSTEIN: “Eleven thirty. I’m sorry to call so late.” MITCHELL: “Eleven thirty. Eleven thirty when?” BERNSTEIN: “Eleven thirty at night.” MITCHELL: “Oh.” BERNSTEIN: “The committee has issued a statement about the story, but I’d like to ask you a few questions about the specifics of what the story contains.” MITCHELL: “Did the committee tell you to go ahead and publish that story? You fellows got a great ballgame going. As soon as you’re through paying Ed Williams* and the rest of those fellows, we’re going to do a story on all of you.

As William Bernstein describes in ‘A Splendid Exchange’, ‘The Arabs, invigorated by their conquests, experienced a cultural renaissance that extended to many fields; the era’s greatest literature, art, mathematics, and astronomy was not found in Rome, Constantinople, or Paris, but in Damascus, Baghdad and Cordova.

Would you believe me if I told you that there’s an investment strategy that a seven-year-old could understand, will take you fifteen minutes of work per year, outperform 90 percent of finance professionals in the long run, and make you a millionaire over time?   Well, it is true, and here it is: Start by saving 15 percent of your salary at age 25 into a 401(k) plan, an IRA, or a taxable account (or all three). Put equal amounts of that 15 percent into just three different mutual funds:   A U.S. total stock market index fund An international total stock market index fund A U.S. total bond market index fund.   Over time, the three funds will grow at different rates, so once per year you’ll adjust their amounts so that they’re again equal. (That’s the fifteen minutes per year, assuming you’ve enrolled in an automatic savings plan.)   That’s it; if you can follow this simple recipe throughout your working career, you will almost certainly beat out most professional investors. More importantly, you’ll likely accumulate enough savings to retire comfortably.

What investment banking is to the ambitious and acquisitive today, the pepper trade was to the Romans—the most direct route to great riches.

Personal finance, like most important aspects of life, is a never-ending quest. The competent investor never stops learning.

el valor de una acción o bono es simplemente el valor presente de su flujo de ingresos futuro–,

La mejor época posible para invertir es cuando el cielo amenaza tormenta, puesto que los inversores descontarán los ingresos futuros de las acciones a una tasa muy elevada.

If you want to convince someone, target their System 1 with narrative, not their System 2 with facts and data.

vinyl n. vegetarian leather Drew Bernstein, the Los Angeles clothes designer, sells dresses made of "vegetarian leather.

Only an income-producing possession, such as a stock, bond, or working piece of real estate is a true investment.

Whoever is lord of Malacca has his hand on the throat of Venice.—Tomé

That is, we are hardwired to detect relationships where often none exist, a tendency science writer Michael Shermer has labeled “patternicity.

a high degree of narrative transportation impairs one’s critical facilities.

When Vasco da Gama breached the Indian Ocean, the playing field had just been vacated by the one force capable of repelling him.

Venice earned its wealth not only from rare Oriental goods, but also from the pilgrim and crusader traffic to and from the Holy Land.

human phenomenon: our species’ preference for “positively skewed outcomes”—ones with low-probability but enormous payoffs, even if the average of all payoffs is negative.

Do not trust historical data—especially recent data—to estimate the future returns of stocks and bonds. Instead, rely on interest and dividend payouts and their growth/failure rates.

Although the Romans knew Chinese silk, they knew not China. They believed that silk grew directly on the mulberry tree, not realizing that the leaves were merely the worm's home and its food.

The Danish experience remains to this day a powerful, though nearly forgotten, lesson on the appropriate government reaction to the challenge of global competition: support and fund, but do not protect.

Although there is a limit beyond which belief will not withstand disconfirmation, it is clear that the introduction of contrary evidence can serve to increase the conviction and enthusiasm of the believer.

In one of history's most bizarre chains of causation, the brutal, efficient newcomers were driven by a hunger for, of all things, culinary ingredients that today lie largely unused in most Western kitchens.

The ancient incense trade was thus no different from the modern cocaine and heroin trades: relatively safe around the raw agricultural source, but highly risky around the finished product and its ultimate consumers.

Manifestly, man is the ape that imitates, tells stories, seeks status, morally condemns others, and yearns for the good old days, all of which guarantee a human future studded with religious and financial mass manias.

Novelists and historians have known for centuries that people do not deploy the powerful human intellect to dispassionately analyze the world, but rather to rationalize how the facts conform to their emotionally derived preconceptions.

The advent of the written word around 3300 BC lifted history's curtain and revealed an already well-established pattern of long-distance trade, not only in luxury and strategic goods, but in bulk staples such as grain and timber as well.

Psychologist Richard Gerrig defines a narrative as a device that temporarily mentally transports the listener or reader away from their immediate surroundings; when it ends, they return to their surroundings “somewhat changed by the journey.

Athens, while remaining nominally independent, no longer commanded its lifelines or its fate. Just as it had invented many Western institutions and intellectual and artistic endeavors, so did it pioneer a less glorious tradition. In the centuries following the Peloponnesian war, Athens became the first in a long line of senescent Western empires to suffer the ignominious transformation from world power to open-air theme park, famous only for its arts, its architecture, its schools, and its past.

As a general rule, the Chinese seldom ventured west of Sri Lanka, the Indians north of the Red Sea mouth, and the Italians south of Alexandria. It was left to the Greeks, who ranged freely from India to Italy, to carry the greatest share of the traffic.

P. J. O’Rourke: “North Korea has a 99% literacy rate, a disciplined, hardworking society, and a $900 per capita GDP. Morocco has a 43.7% literacy rate, a society that spends all day drinking coffee and pestering tourists to buy rugs, and a $3,260 per capita GDP.”1

For most of the period following the fall of Rome, the adherents of a powerful new monotheistic religion dominated medieval long distance commerce as completely as the West dominates such commerce today; the legacy of that former dominance is still all too visible.

Although the Muslim commercial web possessed many advanced features, including bills of exchange, sophisticated lending institutions, and futures markets, no Islamic state ever established the bedrock financial institution of the modern world: a national or central bank

The highly decentralized nature of the medieval world of Indian Ocean trade produced a bubbling stew of Darwinian economic competition, in which those states whose political "mutations" were best suited to trade and commerce thrived, and those whose institutions were not withered.

Christians and Jews often taunted the Arabs about their polytheistic beliefs and their lack of an overarching creed and an afterlife. Consequently, a sense of religious inferiority arose among the desert dwellers, along with a pent-up desire for a comprehensive belief system of their own.

The coming of the Prophet would sweep away this fragmented and pluralistic pattern of trade in the ancient world. Within a few centuries of Muhammad's death, one culture, one religion, and one law would unify the commerce of the Old World's three continents nearly a millennium before the arrival of the first European ships in the East.

Such high interest rates are prohibitive for long-term projects; at 20% per annum, the amount owed doubles in less than four years. With such a crushing future burden, no rational businessman or corporation borrows to fund a project that will not become profitable for five or ten years, as is the case with most large commercial undertakings.

As we’ll see, the 4% Roman rate of return is about the same as the aggregate return on capital (when stocks and bonds are considered together) in the U.S. in the twentieth century, and perhaps even a bit more than the aggregate return expected in the next century. (The 4% Roman rate was gold-based, so the return was a real, that is, after-inflation, return.) The

Nestorian Christians, expelled for their heresies from the Byzantine Empire but tolerated in the Muslim world as "people of the book," began to arrive from the West via the overland route. It is easy to see how a splinter Christian movement, repelled by the savage intolerance of the Catholic Church and attracted by the relative tolerance of Islam, spread ever eastward.

Dramatic conquests often lead to startling serendipities: the most momentous Muslim acquisition at Talas was not territory or silk, but a commodity at once prosaic and precious. Among the Chinese prisoners taken at Talas were papermakers, who soon spread their wondrous craft into the Islamic world, and then to Europe, changing forever human culture and the course of history.

While religious and financial manias might seem to have little in common, the underlying forces that give them rise are identical: the desire to improve one’s well-being in this life or the next. And the factors that amplify the contagion of financial and religious mass delusions are also similar: the hardwired human propensity to imitate, to fabricate and consume compelling narratives, and to seek status.

Within a few decades after the conquests of Cortés and Pizarro, the cattle population of Spanish America doubled as rapidly as every fifteen months. From Mexico to the pampas of Argentina, the vast open spaces of the New World swarmed black with livestock. One French observer in Mexico wrote in wonderment at the "great, level plains, stretching endlessly and everywhere covered with an infinite number of cattle.

As populations grow beyond Dunbar’s number, face-to-face contact no longer suffices to maintain political control. At this point, writing supplies the best mechanism for communicating among large numbers of people, and power naturally accrues to the literate. Consequently, societies with high rates of literacy, such as Athens, tend to have more smoothly running republics than those with low rates, such as the late Roman one.

Whereas theology is the primary driving force behind Christianity and the great Eastern religions, Islam's backbone is a system of law covering all areas of conduct, including commerce. Thus, the new monotheism from Arabia was especially attractive to those engaged in any organized economic activity that flourished wherever rules were plainly visible and vigorously enforced by disinterested parties—again, as in the more secular English common law.

It is precisely Battuta's lack of interest in peoples outside Dar-al- Islam—the world of Islam—that testifies to Muslim dominance of medieval Asian trade. In the fourteenth century, Battuta could travel 74,000 miles through Morocco, East Africa, India, central Asia, Southeast Asia, and China and remain entirely within the Muslim cultural envelope, never having to interact in a meaningful manner with those outside it in order to survive, to travel, or even to make a living.

By the fourth millennium BC, the Fertile Crescent was not the only region of coalesced communities; organized agricultural, military, religious, and administrative activity had also begun to appear in the Indus Valley, in what is now Pakistan. Even before written records, there is evidence of trade between these two regions. Archaeologists have discovered lamps and cups in Mesopotamia dating from the late fourth millennium BC and made from conch shells found only in the Indian Ocean and the Gulf of Oman.

Within a few generations, the Chinese allowed their naval and merchant fleets to wither; in 1500, an imperial edict made the construction of vessels with more than two masts a capital offense. In 1525, another decree forbade the building of any oceangoing vessel. Where navies are absent, pirates pillage. By the middle of the sixteenth century, Japanese wako marauders so terrorized China's coastline that to this day women in Fujian province hide their faces with blue scarves originally designed to shield the wearer from the lecherous gaze of foreign bandits

Humans can maintain only so many functioning relationships; when group size exceeds about 150 members, it becomes impossible to remember not only their individual preferences and peculiarities, but also the complexities of the group’s internal dynamics. Thus, with group sizes larger than 150, direct, face-to-face interaction no longer produces adequate social control, and members tend to drift off and form new tribes. Among behavioral scientists, the 150-person limit is known as “Dunbar’s number,” after the anthropologist/evolutionary psychologist who first proposed it.35

Western notions of individual autonomy and rule of law simply do not apply in the desert. An attack on one tribesman is an attack on all, and in a landscape where a murderer can quickly and quietly slip away, it matters little whether the accused is guilty or innocent. His entire clan is held accountable for thar—retribution. The resulting skein of honor and revenge, so familiar in the modern Middle East, is eternal, seemingly without beginning and without end. When the first recourse of victims is to their cousins, and not to the police or to an independent judicial system, poverty and political instability are the usual outcomes.

Beginning in the eighteenth century, entire nations would seek succor not from God, but rather from Mammon, as a succession of financial mass delusions swept through Europe. On their surfaces, the religious and financial events appear to represent different phenomena, but they were powered by the same social and psychological mechanisms: the irresistible power of narratives; the human proclivity to imagine patterns where there were none; the overweening hubris and overconfidence of both their leaders and followers; and, above all, the overwhelming proclivity of human beings to imitate the behavior of those around them, no matter how factually baseless or self-destructive.

century. The most visible legacy of the wealth and splendor generated by the medieval spice trade still dazzles the eye today in Venice, whose grand palazzi and magnificent public architecture were built largely on profits from pepper, cinnamon, nutmeg, mace, and cloves. A hundred pounds of nutmeg, purchased in medieval Alexandria for ten ducats, might easily go for thirty or fifty ducats on the wharves of Venice. Even after payments for shipping, insurance, and customs duties at both ends, profits well in excess of 100 percent were routine; a typical Venetian galley carried one to three hundred tons between Egypt and Italy and earned vast fortunes for the imaginative and the lucky. During the medieval period, a corpulent Croesus was called a “pepper sack,” not a thoroughgoing insult, since the price of a bag of pepper was usually higher than that of a human being.

William J. Bernstein and Robert D. Arnott, “Earnings Growth: The Two Percent Dilution,” Financial Analysts Journal 59:5 (September/October, 2003): 47–55.

Because we cannot predict the future, we diversify. —Paul Samuelson

If you decide to buy bonds or a bond fund, make sure the average maturity is less than the time horizon of the savings.

Always favor expected returns calculated from the Gordon Equation over past returns, no matter how long of a period they cover.

A good rule of thumb is to never, ever pay more than 15 years fair rental value for any residence.c This computes out to a 6.7 percent (1/15th) gross rental dividend, or 3.7 percent after taxes, insurance, and maintenance, which is about what you might expect from a mixed portfolio of stocks and bonds.

The incense trade catalyzed the birth of Islam, whose military, spiritual, and commercial impacts transformed medieval Asia, Europe, and Africa. Riding on a rising tide of global trade along the land and sea routes of Asia, Islam came to dominate that continent's spiritual as well as its commercial life.

But despite the ferocity and technical sophistication of the Muslim navies, they would ultimately prove no match for the alumni of the rough schools of the Hellespont, the Kattegat, Gibraltar, and the Channel.

Investment wisdom, however, begins with the realization that long-term returns are the only ones that matter. Investors who can earn an 8 percent annualized return will multiply their wealth tenfold over the course of 30 years, and if they have half a brain, they will care little that many days, or even years, along the way their portfolios will suffer significant losses. If they are, in fact, anguished by the bad days and years, they can at least comfort themselves that the rewards of equity ownership are paid for in the universal currencies of financial risk: stomach acid and sleepless nights.

Treasury securities issued with a maturity of one year or less are called “bills”; from one to 10 years, “notes”; and over 10 years, “bonds.” Notes and bonds yield an interest coupon every six months. Bills do not—rather, they are issued at a discount and redeemed at par; the difference is their “yield.”)

The forces that drove Britain and the United States to control the world's shipping lanes in the nineteenth and twentieth centuries, respectively, first saw light of day in Greece's need to feed itself with imported wheat and barley.

Since the canal cut only one hundred miles off the Cape route between Sydney and London, most Australian traffic remained open to sail.

Royal Adventurers into Africa,

Investors cannot earn high returns without occasionally bearing great loss.

Our urge to trade has profoundly affected the trajectory of the human species. Simply by allowing nations to concentrate on producing those things that their geographic, climatic, and intellectual endowments best enable them to do, and to exchange those goods for what is best produced elsewhere, trade has directly propelled our global prosperity.

I see the supposed convenience of being able to trade ETFs throughout the day as a psychological disadvantage. Unless you are able to predict intraday market moves—a fool’s errand if ever there was one—you are faced with the oftentimes paralyzing choice of exactly when to buy or sell.

Eighty years ago, John Maynard Keynes put it best: I do not feel that selling at very low prices is a remedy for having failed to sell at high ones. . . . I would say that it is from time to time the duty of the serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself.

When stocks perform poorly, in order to raise living expenses you will be selling bonds, since their allocation will rise. Just do not forget to replenish the bond bucket with the proceeds of stock sales and to also take your living expenses from the stock bucket as well when times are flush.

The most important investment ability of all is emotional discipline.

Never forget that the portfolio’s the thing: Inevitably, it will contain poorly performing asset classes—there will always be at least one—but its identity will change from year to year.

For example, assume that you are getting $30,000 per year from Social Security. As we saw with In-Between Ida, the present value of all those future checks is $30,000 divided by 7 percent, or about $400,000.

If done properly, successful investing entertains as much as watching clothes tumble in the dryer window. Always remember that the more exciting a given stock or asset class is, the more likely it is to be over-owned, overpriced, and destined for low future returns.

It costs more to transact abroad, and many foreign governments tax stock dividends; although you can recover this cost in a taxable account through the foreign tax credit on your U.S. tax return, you cannot do so in a retirement account.

Among his many accomplishments was inventing the “efficient market hypothesis” (EMH) which states, more or less, that all known information about a security has already been factored into its price.f This has two implications for investors: First, stock picking is futile, to say nothing of expensive, and second, stock prices move only in response to new information—that is, surprises. Since surprises are by definition unexpected, stocks, and the stock market overall, move in a purely random pattern.

The Umayyad and Abbasid empires were in effect large free-trade areas in which old borders and barriers had been swept away, especially along the Euphrates River, since remotest antiquity the traditional frontier between the East and West. No longer were the three great routes to Asia—the Red Sea, the Persian Gulf, and the Silk Road— competing alternatives; rather, they were an integrated global logistic system available to all parties who recognized the suzerainty of the caliphate.

Investing is a journey of lifelong learning

Arguably the most substantive domestic issue facing the republic is the fate of Social Security, with privatization the most frequently mentioned option. For the first time in history, a familiarity with the behavior of the financial markets has become a prerequisite for competent citizenship, apart from its obvious pecuniary value. Using

At one time or another, most of us have seen a plot of capital wealth looking something like Figure 1-1, demonstrating that $1 invested in the U.S. stock market in 1790 would have grown to more than $23 million by the year 2000. Unfortunately,

First, we invest now so that we may spend later. In fact, this is the essence of investing: the forbearance of immediate spending in exchange for future income. Because of the mathematics of compound interest, spending even a tiny fraction on a regular basis devastates final wealth over the long haul.

There is, in fact, a rich and informative scientific literature about what works and what doesn’t in finance; it is routinely ignored. Instead of depending on the Journal of Finance (the investing equivalent of The New England Journal of Medicine), they get their advice from USA Today or worse, from their stockbroker. Of

The most fundamental characteristic of any investment is that its return and risk go hand in hand. As all too many have learned in the past few years, a market that doubles rapidly is just as likely to halve rapidly, and a stock that appreciates 900% is just as likely to fall 90%.

Whether you invest in stocks, bonds, or for that matter real estate or any other kind of capital asset, you are rewarded mainly for your exposure to one thing—its risk. We’ll learn just how to measure that risk and explore the interplay of risk and investment return. Over

Most of what we fondly call “human nature” becomes a deadly quicksand of maladaptive behavior when allowed to roam free in the investment arena.

Investors tend to be touchingly naïve about stockbrokers and mutual fund companies: brokers are not your friends, and the interests of the fund companies are highly divergent from yours.

La rentabilidad elevada en la inversión no puede obtenerse sin asumir un riesgo sustancial. Las inversiones seguras producen escasos beneficios.

What about real estate? In general, it holds its real value and yields rental income, but owning property isn’t so much an investment as it is a job. If you like fixing toilets and dealing with drug-addled, gun-toting deadbeat tenants, be my guest.

The demise of cuneiform was largely the work of an obscure Semitic tribe living on the western fringes of the great Mesopotamian empires. Modern people dimly remember that Jesus spoke Aramaic, but few, even among contemporary practicing Jews, recall that so did the majority of his fellow Jews.13 Fewer still realize that the modern “Hebrew alphabet” is actually Aramaic. The silent tragedy of the Aramaeans is that they created a language and alphabet that long outlived their culture and civilization.

the reason why Gilgamesh needed the assent of his elders to defend his city was probably that he did not have at his disposal the writing tools necessary to command absolute political control over large numbers of citizens. By the same token, Uruk’s literate, scribal elite was not yet able to disempower its illiterate masses.

In ancient societies, the law functioned as a two-edged sword; while standardizing procedure and bringing it out into the open, the law also concentrated power in those few who could read and write.

Mesopotamian cities identified closely with their deities, and their temples functioned as the main social and economic engines. The king served as the intermediary between the city and its deity, and his palace operated side by side with the temple. Both palace and temple commanded the key function in any society: the production and distribution of food.

the best fishing is done in the most stormy waters.

market history shows that when there’s economic blue sky, future returns are low, and when the economy is on the skids, future returns are high;

In short, the Romans conquered most of their known world as much with the deeply institutionalized pen as with the sword, shield, and catapult.