Four Pillars of Investing Summary
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Four Pillars of Investing The book, The Four Pillars of Investing, by Paul Bernstein is great guide to investing and how to build a winning portfolio for inexperienced investors. This book offers great tips and lessons without becoming too technical or advanced. Instead, Bernstein tries to explain and teach readers the fundamental concepts so that they can make their own decisions by applying the concepts they’ve learned. Bernstein believes that success in investing is built upon four pillars: knowledge of investment theory, an understanding of the history, understanding the role psychology plays in investing, and an awareness of the business aspects of investing. The book starts out with a brief introduction to the “four pillars” and how to apply them. Bernstein then goes into the topic of investment theory. This section talks about the link between risk and reward. The higher the risk the higher the reward will be and vice versa. When political and economic outlook is the brightest, returns are the lowest, when things look the darkest the returns are the highest. The stock market in the short term is very risky, but the longer you hold stocks, the lower the risk of a loss is and the greater the possible gain. Determining whether these stocks will have long-term value is very difficult to assess. A stock is worth the present value of it’s expected future income and a stock can increase in value in two ways: demand increases which causes the price to increase (capital gains), and through paying dividends. Other assets like gold don’t pay dividends and therefore can only gain value through an increase in demand. Past performance is no guarantee of future results. A stock that does well one year may not do so well the next. The book then goes on to discuss how the market is smarter than you and that the market is too random to effectively manage and time in the short term. If you were to take the average returns for mutual fund
Four Pillars of Investing The book, The Four Pillars of Investing, by Paul Bernstein is great guide to investing and how to build a winning portfolio for inexperienced investors. This book offers great tips and lessons without becoming too technical or advanced. Instead, Bernstein tries to explain and teach readers the fundamental concepts so that they can make their own decisions by applying the concepts they’ve learned. Bernstein believes that success in investing is built upon four pillars: knowledge of investment theory, an understanding of the history, understanding the role psychology plays in investing, and an awareness of the business aspects of investing. The book starts out with a brief introduction to the “four pillars” and how to apply them. Bernstein then goes into the topic of investment theory. This section talks about the link between risk and reward. The higher the risk the higher the reward will be and vice versa. When political and economic outlook is the brightest, returns are the lowest, when things look the darkest the returns are the highest. The stock market in the short term is very risky, but the longer you hold stocks, the lower the risk of a loss is and the greater the possible gain. Determining whether these stocks will have long-term value is very difficult to assess. A stock is worth the present value of it’s expected future income and a stock can increase in value in two ways: demand increases which causes the price to increase (capital gains), and through paying dividends. Other assets like gold don’t pay dividends and therefore can only gain value through an increase in demand. Past performance is no guarantee of future results. A stock that does well one year may not do so well the next. The book then goes on to discuss how the market is smarter than you and that the market is too random to effectively manage and time in the short term. If you were to take the average returns for mutual fund