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.

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.

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.

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.

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.

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

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.

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

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

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

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

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

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

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

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.

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.

nuclei accumbens fire not only with reward, but even more intensely with its anticipation, be it culinary, sexual, social, or financial.

Albert Einstein has it that “Compound interest is the eighth wonder of the world. He who understands it, earns it.

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.

Disconfirmation of deeply held beliefs causes severe psychic pain; what better way of alleviating it than in the company of newly won believers? As put by Festinger, “If more and more people can be persuaded that the system of belief is correct, then clearly it must, after all, be correct.

YouTube also contains a treasure trove of lectures by nearly all of finance’s leading lights, strewn throughout its vast wasteland of misinformation. Tread carefully. A few wrong clicks and you’ll wind up with a QAnon conspiracist or a crypto bro. Of the names I’ve mentioned in this book, I’d search for John Bogle, Eugene Fama, Kenneth French, Jonathan Clements, Zvi Bodie, William Sharpe, Burton Malkiel, Charles Ellis, and Jason Zweig. Worthwhile finance podcasts abound. Start with the Economist’s weekly “Money Talks” and NPR’s Planet Money, although most of the latter’s superb coverage revolves around economics and relatively little around investing. Rick Ferri’s Boglehead podcast interviews cover mainly passive investing. Another financial podcast I highly recommend is Barry Ritholtz’s Masters in Business from Bloomberg. Podcasts are a rapidly evolving area. Lest you wear your ears out, you’ll need discretion to curate the burgeoning amount of high-quality audio. Research mutual funds. All the fund companies discussed in this book have sophisticated websites from which basic fund facts, such as fees and expenses, can be obtained, as well as annual and semiannual reports that list and tabulate holdings. If you’re researching a large number of funds, this gets cumbersome. The best way is to visit Morningstar.com. Use the site’s search function to locate the main page for the fund you’re interested in and click the “Expense” and “Portfolio” tabs to find the fund expense ratio and detailed data on the fund holdings. Click the “Performance” tab to see the fund’s return over periods ranging from a single day up to 15 years, and the “Chart” tab to compare the returns of multiple funds over a given interval. ***

As Gordon’s book The Rise and Fall of American Growth went to press in early 2016 (its publication facilitated by digital technologies), the internet continued to disrupt countless industries while the media fanned fears of an impending ‘second machine age’, in which robots replace human workers. Gordon’s Northwestern colleague Joel Mokyr suggested that a ‘shortfall of imagination [is] largely responsible for much of today’s pessimism’. Mokyr listed a number of revolutionary new technologies then under development, including 3D printing, graphene and genetic engineering, to which might be added autonomous cars and clean energy.19 Finance writer William Bernstein accused secular stagnationists of conflating what they couldn’t conceive with that which was not possible.20 Hansen made the same mistake. The most reliable prediction, Bernstein concluded, is to assume that past economic trends continue.

understand bubbles and crashes in the same way. For example, their pathophysiology involves the vagaries of human psychology and the unstable supply of credit from a modern banking system. Their anatomy consists of the “four ps”: promoters, public, politicians, and press. Finally, their signs and symptoms include the contagious societal infatuation with nearly effortless wealth, the hubris of the promoters, and their veneration by the public.366

A quote often misattributed to Mark Twain has it that “History doesn’t repeat itself, but it does rhyme.

Dieting and investing are both simple, but neither is easy.

economist Henri Truchy noted: We judged it better to content ourselves with the untroubled possession of the domestic market than to risk the hazards of the world market, and we built a solid fortress of tariffs. Within the boundaries of this limited, but assured market, the French live calmly, comfortably enough, and leaving to others the torment of great ambition, are no more than spectators in the struggles for economic supremacy.16

Von Kerssenbrock, a loyal Catholic, sniffed that Rothmann preached “not so much with solid arguments as with clumsy aspersions. The ignorant commoners, however, who cannot distinguish eloquence from bombast, thought that he had spoken excellently.”107

In the words of Fred Schwed, one of the most astute observers of the investment scene (and certainly the funniest): There are certain things that cannot be adequately explained to a virgin either by words or pictures. Nor can any description I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.

When all is said and done, 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.

Those who ignore financial history are condemned to repeat it.

Why the correlation between popular interest and subsequent low returns? Simple: Driving the price of any asset higher requires the entry of new buyers, and when everyone is invested in stocks, real estate, or gold, there’s no one left to join the party; the entry of naïve, inexperienced investors usually signals the end.

The point here is that runs of 4 or more heads or tails are perceived as a nonrandom pattern, when in fact they are in fact the rule in random sequences, not the exception. Stock market participants frequently make this mistake, and an entirely bogus field of finance known as “technical analysis” is devoted to finding patterns in random financial data.

Act as if every broker, insurance salesman, mutual fund salesperson, and financial advisor you encounter is a hardened criminal, and stick to low-cost index funds, and you’ll do just fine.

Finance is not a hard science like physics or engineering; rather, it’s a social science. The difference is this: a bridge, electrical circuit, or aircraft will always respond in exactly the same way to a given set of circumstances, while the financial markets do not,

Tell yourself every day that the object of investing is not to maximize the odds of getting rich, but to minimize the odds of dying poor,

When, and only when, you’ve gotten rid of all your debt are you truly saving for retirement.

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

Tasa de descuento alta = riesgo percibido elevado, alta rentabilidad, cotización de acciones depreciada. Tasa de descuento baja = riesgo percibido bajo, baja rentabilidad, cotización de acciones elevada.

Investing is a journey of lifelong learning

My rule of thumb is that if you spend 2 percent of your nest egg per year, adjusted upward for the cost of living, you are as secure as possible; at 3 percent, you are probably safe; at 4 percent, you are taking real risks; and at 5 percent, you had better like cat food and vacations very close to home. For example, if, in addition to Social Security and pensions, you spend $50,000 per year in living expenses, that means you will need $2.5 million to be perfectly safe, and $1.67 million to be fairly secure. If you have “only” $1.25 million, you are taking chances; if you are starting with $1 million, there is a good chance you will eventually run out of money.

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

If you are such an individual and become upset when one of your asset classes does poorly, even when the rest of your portfolio is doing well, then you should not be managing your own money.

If your portfolio risk exceeds your tolerance for loss, there is a high likelihood that you will abandon your plan when the going gets rough.

But whatever allocation you settle on, the key is to stick with it through thick and thin, including rebalancing back to your target percentage on a regular basis.

The concept that all useful information has already been factored into a stock's price, and that analysis is futile, is known as 'The Efficient Market Hypothesis' (EMH).

Risk, like pornography, is difficult to define, but we think we know it when we see it.

But in the investment arena, our social instincts are poison.

How do you avoid overconfidence? By telling yourself at least a few times per year, 'The market is much smarter than I will ever be.

Combating myopic risk aversion is the most difficult emotional task facing any investor. I know of only two ways of doing this. The first is to check on your portfolios as infrequently as possible. ... The other way to avoid myopic risk aversion is to hold enough cash so that you have a certain equanimity about market falls.

If you still crave financial thrills or feel compelled to have exciting investments to talk about with folk at parties, then designate a very small corner of your portfolio as mad money, to be deployed in 'exciting' investments. Just make sure to promise yourself that when it's gone, it's gone.

Although you should not let your emotional responses dictate your allocation, you do need to sleep at night, and your personal preferences are an important part of your asset class structure.

I'm amused when financial planners and academics talk about methods that predict a 40-year success rate of, say, 95%. If you think about it, this implies that our political and financial institutions will remain intact for about the next millenium (40 years divided by a failure rate of 5% equals 800 years). Considering the history of human civilization, this is a pretty heroic assumption.

most paleographers now believe that the “idea of writing” must have spread along with commerce, most likely from Sumer to Egypt.33

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.

Sargon’s grandson, Naram-Sin, who became the first Mesopotamian ruler to assume divine status and proclaimed himself “king of the four corners of the world.

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 scribe was no mere linguistic technician, but rather the sole possessor of the skill set that made civilization hum, a sort of investment banker, engineer, and diplomat all rolled up into one. Or, in the words of the linguist Ignaz Gelb, “Writing exists only in a civilization, and a civilization cannot exist without writing.”47