The four pillars of Investing PDF

The four pillars of Investing PDF

The four pillars of Investing PDF (Lessons for Building a Winning Portfolio) has become a staple for the independent-minded investor looking to make better-informed investment decisions. Written by noted financial expert and neurologist William Bernstein, this time-honored investing guide provides the knowledge and tools for achieving long-term profitability.

Category: Stock

Author: William J. Bernstein 

Language: English

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Since its initial publication, The Four Pillars of Investing has become a staple for the independent-minded investor looking to make better-informed investment decisions. Written by noted financial expert and neurologist William Bernstein, this time-honored investing guide provides the knowledge and tools for achieving long-term profitability.

Bernstein bridges the four fundamental topics successful investors use to generate exceptional profits on a consistent basis:

  • The Theory of Investing: “Do not expect high returns without risks.”
  • The History of Investing: “About once every generation, the markets go barking mad. If you are unprepared, you are sure to fail.”
  • The Psychology of Investing: “Identify the era’s conventional wisdom and assume that it is wrong. More often than not, it is.”
  • The Business of Investing: “The stockbroker services his clients in the same way that Bonnie and Clyde serviced banks.”

From the essential soundness of classic portfolio theory through the inherent wisdom of investing in multiple asset classes, The Four Pillars of Investing provides a distinctive blend of market history, investing theory, and behavioral finance to help you become a successful, self-sufficient investor.



In the mid-1990s, I began writing a small book, The Intelligent Asset Allocator, which ultimately became a “successful failure”: successful because it attracted positive notice and sold enough copies to please my publisher and myself, and a failure because it did not accomplish its ultimate goal. My aim had been to explain modern portfolio theory, a powerful way of understanding investing, to the general public. What I instead produced was a work comprehensible only to those with a considerable level of mathematical training and skill.

After initially failing to interest any publishers, the original electronic version of the book was placed on my Web site,, at the end of 1996. Following a slow start, it gradually elicited much positive comment. The only problem was that almost all of its readers were scientists, engineers, or finance professionals.

Closer to home, my family and friends uniformly gave up on it with alarming dispatch: “Bill, you’ve got to be kidding. I fell asleep after five pages; this stuff is way over my head.” The dividing line seemed to be slightly north of Statistics 101; if you never took it, or did but hated it, the book might as well have been written in Tamil. Eventually, in a show of unalloyed courage, McGraw-Hill did print it as a trade publication—aimed at professionals, not the general public.

The book was a methodical mathematical exercise. First, the behavior of multiple asset classes was statistically analyzed. Next, the theoretical basics of portfolio theory were examined. Ultimately, these two foundations, as well as a practical tour of the investment industry, were synthesized into a coherent investment strategy. The small minority of investors who thrive on such fare felt well rewarded. But, as with the electronic versions, most considered it more sedative than informative. Fortunately, The Intelligent Asset Allocator’s limited success allowed me a second chance to write a book about investing for the general audience.

My watchwords in producing The Four Pillars of Investing were accessibility and enjoyment; I’ve used engaging historical vignettes wherever possible to illustrate key financial concepts and kept mathematical detail to a minimum. A well-known rule among scientists is that each successive mathematical formula cuts a book’s popular readership in half; I’ve done my best to keep the math simple and the graphs as spare as possible. Now, almost a decade later, this title is in its seventeenth printing; so I suppose I’ve succeeded.


William Bernstein
Portland, Oregon

Table of Contents- The four pillars of Investing PDF

Preface vii

Introduction xi

Pillar One: The Theory of Investing 1

Chapter 1. No Guts, No Glory 3

Chapter 2. Measuring the Beast 43

Chapter 3. The Market Is Smarter Than You Are 75

Chapter 4. The Perfect Portfolio 107

Pillar Two: The History of Investing 127

Chapter 5. Tops: A History of Manias 129

Chapter 6. Bottoms: The Agony and the Opportunity 153

Pillar Three: The Psychology of Investing 163

Chapter 7. Misbehavior 165

Chapter 8. Behavioral Therapy 181vi The Four Pillars of Investing

Pillar Four: The Business of Investing 189

Chapter 9. Your Broker Is Not Your Buddy 191

Chapter 10. Neither Is Your Mutual Fund 203

Chapter 11. Oliver Stone Meets Wall Street 219

Investment Strategy: Assembling the Four Pillars 227

Chapter 12. Will You Have Enough? 229

Chapter 13. Defining Your Mix 243

Chapter 14. Getting Started, Keeping It Going 281

Chapter 15. A Final Word 295

Bibliography 299

Index 305

2010 Postscript 317


A must read for any investor– I have started devoting time to understanding personal finance and retirement over the past year. I’ve listened to multiple pod casts and read about six books on the subject. I avoided this book because it was written in 2002 and obviously, now, out of date (the 2010 update was a short, and rather useless, post-script). The investment strategies that I have gravitated to have been simplicity and indexed funds, especially Vanguard. I have not looked into whether or not this was one of the foundational books which made an argument for this strategy or not, but no book has been close in quality. Until completing the book I was honestly skeptical that a good knowledge of theory, history, and understanding of the financial business was important to me. I see now that I was wrong. Even after reading other books, I have evaluated investment options completely wrong. I finished the book one day ago, so I would rather wait a year before making this statement, but presently I feel this is one of the top 5 most important books I have read. An absolute game changer. I could not suggest more strongly that you read this book, regardless of how much you buy his advice at the end of the book, I think the foundational knowledge you receive in the first three quarters is absolute gold. Regarding the antiquity of the book, its actually irrelevant and surprisingly improves its punch. The book was written during the dot com meltdown and before the housing bubble. In retrospect, yet again nothing is new and the solid foundations discussed in the book have held true. My only criticism is the last section felt very much like 2002 advice and not generalized enough, which I think can be problematic. It is touched on in his post script, but I think a complete revision would be more appropriate when describing the book as a new edition.”– RWM


About the author

William J. Bernstein Ph.D., M.D., is a neurologist and the cofounder of the investment management firm Efficient Frontier Advisors. He is the author of three finance books―The Intelligent Asset Allocator, The Four Pillars of Investing, and The Investor’s Manifesto―and two volumes of economic history, The Birth of Plenty and A Splendid Exchange. Bernstein is currently working on a history book exploring the effects of access to technology on human relations and politics

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