Advancements in Investment Products and Trading Platforms Haven’t Altered Long-Standing Investing Fundamentals, Says William Bernstein
Neurologist and financial author William Bernstein believes that despite advancements in investment products and trading platforms, the fundamentals of investing remain unchanged. In a recent interview with CNBC’s Bob Pisani on “ETF Edge,” Bernstein discussed the key pillars of investing that he outlined in his book, “The Four Pillars of Investing.” Here are the main takeaways from his conversation:
1. Theory: According to Bernstein, risk and return are closely linked. If you want high returns, you must be willing to accept the possibility of significant losses. A completely safe portfolio will not generate high returns.
2. History: Markets tend to overshoot on the upside and the downside, and it is only in retrospect that we can identify market bottoms and tops. Bernstein emphasizes the importance of understanding that market returns are influenced by perceived risks.
3. Psychology: Investors often overestimate their ability to pick winning stocks. Bernstein compares investing to playing tennis against an invisible opponent, where the opponent is actually someone as skilled as Serena Williams. He also notes that how investors behave during the worst 2% of market conditions can greatly impact their overall investment performance.
4. Business: Bernstein believes that many fund companies prioritize collecting assets over effectively managing money. He praises the role of exchange-traded funds (ETFs) in reducing fees and making investment products more accessible and affordable.
Hot Take:
While advancements in technology have undoubtedly changed the way we invest, William Bernstein reminds us that the core principles of investing remain the same. Understanding the relationship between risk and return, learning from historical market trends, recognizing our own psychological biases, and being aware of the business interests behind investment products are crucial aspects of successful investing. As the crypto market continues to evolve, it is important for crypto readers to apply these timeless principles to their investment strategies.
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