Investing Lesson from Strawberries? or Is Nausea the Key to Investment Success?
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Bill Bernstein is a neurologist turned investment advisor who owns Efficient Frontier Advisors LLC. His recent book outlines in simple language our investment philosophy... diversify, stick with index funds, keep costs low. His account minimum is $25 million dollars so big money pays attention to his advice. Here are some excerpts.
The Strawberry Corollary
Okay, so what could strawberries possibly have to
do with being able to retire comfortably? Here's Bernstein's take on
the buy low challenge:
"For some reason, we do not purchase
securities in the same way we buy other things. When the price of
strawberries rises to $8 per pound in January, we forego them, and when
they are virtually being given away at the farmers' market in June, we
load up. Not so with stocks: The higher the price, the more attractive
they seem; and the lower they have fallen, the more we are repulsed."
But Bernstein suggests we learn to embrace that repulsion, as do successful value investors:
..."most grizzled veterans will tell you that the best purchases are often made when they feel they are about to throw up." So indeed, nausea may be the key to investment success.
Bernstein One-Liners
On the importance of saving: "Save as much as you can, and do not stop saving until you die."
On performance chasing: "Alas, small investors incessantly chase
returns the same way that dogs chase seagulls up and down the beach."
On glib explanations of market behavior: "The reason that 'guru' is
such a popular word is because 'charlatan' is so hard to spell."
This book is available at Amazon, and is on the Denver Money Manager suggested reading list. Ask Santa Claus to stuff your stocking with this book. You will not regret it.
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