Book Report: The Four Pillars of Investing

I just finished an excellent book on investing: The Four Pillars of Investing, by William J. Bernstein. His style is very engaging, especially for a subject that is inherently technical. There are a lot of ideas and I especially like learning about the theory of investing (pillar 1). Here's a brief synopsis of the pillars:

Pillar 1: The Theory of Investing

Risk and reward are inexorably linked no matter what the asset class (stocks, bonds, etc.) and it is relatively easy to determine long term expected returns. Results touted by money managers and mutual funds are almost all due to luck, not to skill. Portfolio theory and diversification are the names of the game.

Pillar 2: The History of Investing

Markets can become irrational with both optimism and pessimism. As recent events have shown, this boom/bust cycle has not ended (nor will it). And the counter intuitive point "is that at times of great optimism, future returns are the lowest; when things look bleakest, future returns are highest." Just like risk and return predict.

Pillar 3: The Psychology of Investing

The biggest obstacle to success in investing is you the investor, and our nature of of looking for the next Microsoft or lottery ticket. This leads to high trading churn (enriching traders rather than ourselves) and making poor buy/sell decisions.

Pillar 4: The Business of Investing

The incentives of most brokers and mutual fund companies are not aligned with the interests of the investor. They exist to make money - your money.

Investment Strategy: Assembling the Four Pillars

Most small investors are deficient in the areas of theory and psychology. As defined benefit plans (pensions) are being replaced by contribution plans (401k) it is increasingly important for 'average investors' to educate themselves on investing.

Health Rules

I read this article of Health Rules by Jane Brody in the New York Times. She quoted Michael Pollan, which I will recycle:

"Eat food. Not too much. Mostly plants."
"If it came from a plant, eat it; if it was made in a plant, don’t."
"Cook"
"Stop eating before you’re full"
"No snacks, no seconds, no sweets — except on days that begin with the letter S."

All good advice. But the last one is terrible. I do love Sthursdays though.

RLOTW: Farmstand

I have not heard good things about Farmstand. Nobody I know has had a good experience at this self proclaimed "Urban Country Food" establishment. So with some amount of trepidation my coworkers and I decided to go after one coworker expressed his desire to eat somewhere "with salads" since he's on his annual cleanse. Despite the fact that my word of mouth reviews were positive, yet the the Yelp reviews are all decidedly okay, and the fact that I love the mixed-use building in downtown El Segundo, I successfully lobbied to go.

The results definitely exceeded my expectations. I knew we were in for a treat when the hostess who greeted us looked like she just got done taping an exercise video. I've never seen such fit arms in my life. And I don't have an arm fetish (chicken wing maybe). Anyway, we sat down, took a gander at the menu and ordered. I got a chicken sandwich and side of greens, coworkers ordered salads, and we split an order of fries. The fries were just a tad cold because they had probably sat out for a minute but they were super tasty - they were the uber-thin shoestrings, sprinkled with Parmesan, and served with a red sauce that tasted and smelled like ketchup to me but my coworkers swore it was not. After our meal (which I alone did not finish), we were pleasantly surprised when the steel armed hostess offered us a complimentary mousse. I'm not a super giant dessert fan but wow was that good.



After the meal one coworker, who was especially vociferous relating her prior bad experiences, proclaimed it the best meal she had ever had. Hyperbole aside Farmstand was definitely someplace where I would dine again.

Book Report: Siddhartha

I don't have much to talk about. I started reading Siddhartha, by Hermann Hesse, last year after I stole it from my mom. I remember reading parts of it in high school and it's a thought-provoking story. But my brain is full so all I have is this quote:

I have had many thoughts, but it would be difficult for me to tell you about them. But this is one thought that has impressed me, Govinda. Wisdom is not communicable. The wisdom which a wise man tries to communicate always sounds foolish. (p. 142)

Maybe that's why nobody in DC listens to Paul Krugman?

Book Report: The Virginian

My fourth book of 2010 was The Virginian, by Owen Wister (free ebook!). Self proclaimed "The Most Famous Western Novel Ever Written." The copy I had was published in 1970 but it was originally published in 1902. Accordingly the dialogue is a bit hard to follow. However this really is an excellent book. Wikipedia tells me that "the character is seen as the first real cowboy character that has set the standard for the cowboy character stereotype. The book is seen as one of the first great western novels about cowboys."

An instructive lesson was to do a cursory look at the old US history book (aka Wikipedia) to find out what was going on in the country. We had exited the gilded age and in the early 1890's suffered through a long depression (worst in the country at that time). Our president (McKinley) had just been assassinated and Teddy Roosevelt (the author's friend) had just been sworn in. A tumultuous time to say the least.

With that in mind I thought there were a number of interesting quotes that really resonated with both my personal beliefs and current events:

I have thought that matter of dress and speech should not carry with them so much distrust in our democracy. (p. 25)

I know a man that mostly wins at cyards. I know a man that mostly loses. He says it is his luck. All right. Call it his luck. I know a man that works hard and he's gettin' rich, and I know another that works hard and is gettin' poor. He says it is his luck. All right. Call it his luck. I looked around and I see folks movin' up or movin' down, winners or losers everywhere. All luck, of course. But since folks can be born that different in their luck, where's your equality? No, seh! call your failure luck, or call it laziness, wander around the words, prospect all yu' mind to, and yu'll come out the same old trail of inequaility." He paused for a moment and look at her. "Some holds four aces," he went on, "and some holds nothin', and some poor fello' gets the aces and no show to play 'em; but a man has got to prove himself my equal before I'll believe him." (p. 103)

Now cyards are only one o' the manifestations of poker in this hyeh world. One o' the shapes yu' fool with it in when the day's work is oveh. If a man is built like that Prince boy was built (and it's away down deep beyond brains), he'll play winnin' poker with whatever hand he's holdin' when the trouble begins. Maybe it will be a mean, triflin' army, or an empty six-shoter, or a lame hawss, or maybe just nothin' but his natural countenance. Most any old thing will do for a fello' like that Prince boy to play poker with. (p. 111)

"It's might hard to do what your neighbors ain't doin." (p. 137)

"Anthing a man's bread and butter depends on, he's going to care about." (p. 138)

"It is not praying nor preaching that has ever caught me and made me ashamed of myself, but one or two people I have knowed that never said a superior word to me. They thought more o' me than I deserved, and that made me behave better than I naturally wanted to." (p. 152)

"As for salvation, I have got this far; somebody," he swept an arm at the sunset and the mountains, "must have made all that, I know. But I know one more thing I would tell Him to His face: if I can't do nothing long enough and good enough to earn eternal happiness, I can't do nothing long enough and bad enough to be damned. I reckon He plays a square game with us if He plays at all, and I ain't bothering my haid about other worlds." (p. 157)

The latter half of the book deals more with how the plot unravels so unfortunately no more quotes that I wrote down. Until next book!