Like many investors, when I first began my journey, I assumed stock-picking was the path to riches.
For some people that may be true but not for most. Asset allocation and how well you behave are by far more important than security selection for the vast majority of investors.
I learned about this from a handful of early mentors. One was my very first boss in this business. Another was former neurologist turned author and investment advisor William Bernstein.
Bill has written number books on financial market history, portfolio theory, behavioral finance, asset allocation, and the right way to view the markets as a long-term investor. Each of his books blends intelligence and common sense, making them must-reads for investors of all shapes and sizes:
- The Intelligent Asset Allocator
- The Four Pillars of Investing
- The Investor’s Manifesto
- The Ages of the Investor: A Critical Look at Lifecycle Investing
- Skating Where the Puck Was: The Correlation Game in a Flat World
- Deep Risk: How History Informs Portfolio Design
- Rational Expectations: Asset Allocation for Investing Adults
- If You Can: How Millennials Can Get Rich Slowly
And if you want to be a true polymath his other books are all about how history has shaped the world of today:
- A Splendid Exchange: How Trade Shaped the World
- The Birth of Plenty: How the Prosperity of the Modern World Was Created
- Masters of the Word: How Media Shaped History from the Alphabet to the Internet
To put the current climate into perspective there’s no one I could think of that I would rather hear from than Bill. So I asked him to join me for a short video chat to discuss the current situation and give some context around how this current crash looks through the lens of financial market history:
We discuss:
- How does a medical background color Bill’s thoughts on the current market environment?
- The difference between deep risk and shallow risk
- Does the Great Depression analogy make sense?
- His answer to “now show Japan”
- Can we still use history even though this crash is completely different?
- Looking at stocks through the lens of market theory to make sense of this situation
- Why risk means different thing to different investors depending on where they are in their investing lifecycle
- Why young people should pray for stocks to go down
- How retirees should think about stock market risk
- How do market crashes impact our behavior?
- Why learning is so important during a crisis
- How do stocks redistribute during a bear market?
- The 3 types of investors
- What happens when correlations go to one during a crash
- Why cash is king
- Can we recover from this?
- What happens if the cost of capital stays low for the foreseeable future?
- Micro efficiency vs macro inefficiency
- The one constant in the markets
- Are there any personal finance lessons from this ordeal?
- How to keep a long-term mindset
- How to think about stocks and bonds in terms of portfolio management and living expenses
- Why bonds still deserve a place in your portfolio even with rates so low
- “The only black swans are the history you haven’t read”
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