Saturday, July 30, 2016

Must Read Series: The Four Pillars of Investing

Hello all! This is the first of my "Must Read" category, and I am excited to share this content with you. What I would like to do with the "Must Read" page is two things:

1) Provide you a list of investing books that I personally have read and think are very valuable for you to read as well.  I want this list only to be on books that are definitely worth your time reading.

2) Give you an overview of key takeaways so that if you don't have time to read it, you will be much smarter after reading this post.

To start this series, there is almost no better book than William Bernstein's The Four Pillars of Investing.  I have read this book from cover to cover twice and think it is a must read if you want to get serious about understanding finance. 

Difficulty score: 7/10

I give this book a difficulty score of 7, because there is a lot to get through (331 pages) and can be somewhat dry at times. Still, stay with it and you will learn a great amount on investing principles. Don't let it scare you off.

Key Highlights:

1) Bernstein's book is broken down into four key sections, that follow the four pillars title: The Theory Of Investing, the History of Investing, the Psychology of Investing, and the Business of Investing, and one final section on Investment Strategy.

I will give my four favorite, must know quotes from each section:

Pillar One
  1) "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."

2) "But you can state with mathematical certainty that as long as the issuing company does not go bankrupt, the lower the price you pay for it now, the higher your future returns will be; the higher the price you pay, the lower your returns will be."

3) "In the long run, bonds are at least as risky as stocks.  This is because stock returns are 'mean reverting.' That is, a series of bad years is likely to be followed by a series of good ones, repairing some of the damage. Unfortunately this is a two-edged sword, as a series of very good years is likely to be followed by bad ones, as investors have learned."

4) "Losses in excess of 50% are not unheard of.  If you are not prepared to accept risk in pursuit of high returns, you are doomed to fail."

Pillar Two
1) "What is the investor to do during the inevitable crashes that characterize the capital markets? At a minimum, you should not panic and sell out - simply stand pat. You should have a firm asset allocation policy in place."

2) "What separates the professional from the amateur are two things: First, the knowledge that brutal bear markets are a fact of life and that there is no way to avoid their effects. And second, that when times get tough, the former stays the course; the latter abandons the blueprints."

3) "During the good times, it is important to remember that things can go to hell in a hand basket with brutal dispatch. And just as important, to remember that in times of market pessimism that things almost always turn around."

4) "And last, the most profitable thing we can learn from the history of booms and busts is that at times of great optimism, future returns are lowest; when things look bleakest, future returns are highest.  Since risk and return are just different sides of the same coin, int cannot be any other way."

Pillar Three
1) "The most liberating aspect of an indexed approach is recognizing that by obtaining the market return, you can beat the overwhelming majority of investment professionals who are trying to exceed it."

2) "In most cases, the ultimate object of a successful investment strategy is to minimize your chances of dying poor - to obtain portfolio returns that will all you to sleep at night.  In other words, to be...boring."

3) "There is nothing new in the markets, only the history you haven't read."

4) "Remember that the largest investment pools in the nation - the pension funds - are unable to beat the market."

Pillar Four:
1) "Just as the brokerage firms exist to make clients trade as much as possible, the fund companies exist for one purpose: to collect assets, no matter how poorly their funds subsequently perform."

2) "The only real guidance you'll need is in two areas: Your overall asset allocation. Your self-discipline.  That is, you'll need to keep your head while everyone else is losing his."

3) "Finally, never forget that stocks can have zero real returns for periods as long as 20 years."

Only three quotes in that section, but I think they'll suffice as Pillar Four is not as critical as the first three, in my opinion.

In conclusion, this book is packed with wisdom for the diligent investor to heed.  You'll also notice in this book that Bernstein thinks investors should beware of low returns going forward. Check out this fact from chapter 12: 
  • To retire on $50,000 per year (which is nice, but by no means very large), with 30 years left until retirement, at a 4% real return on your portfolio, you will need to diligently save $1,824 a month....for 30 years!  Wow.  Re-read and consider that, are you saving that much, for that long to ensure you have $50,000/yr in retirement???

Thanks and I hope you enjoyed this first book review.  If you've read The Four Pillars Of Investing or found this article interesting please comment below.  And follow my site for more ways to prepare yourself for your future with growing passive income streams!

See the rest of my Must Read Books here!

Passive Income Dude


  1. ver nice information about ways to make money of our financial independence and such a great and wonderfull form to our earn money and book THE FOUR PILLARS OF INVESTING its such nice book and i will very appreciate this.if you are interested in honest best passive income ideas please visit

    1. Mohit, Thanks for stopping by! The Four Pillars is a great book, but takes some time to get through. That's why I tried pulling out the most important quotes I could from each section to save everyone some time! :) Take care!