William Bernstein ? “Stocks for the Long Run”

William Bernstein is quite a polymath. A former neurologist, he became a writer of books on portfolio management that have become industry standards. He seems most of all however to be a historian manqué. In addition to his books on portfolio management, he has also written well-researched books on a range of other interesting topics, including the history of communication technology, economic history, and the history of world trade. His reading of history is that if you want to build a nest egg and protect against the “four horsemen” that threaten it over the long term, the best thing to do is invest in a globally diversified stock portfolio.

I have felt remiss for a long time in that I have not read a Bernstein book. I intended to, but having read so much about his work as well as snippets from his web site, I felt I probably knew what he said in his books.

This has done him an injustice, which I have now begun to correct.

I recently listened to an interview Bernstein had with Russ Roberts, the inimitable host of EconTalk. It is worth listening to for interesting sparring on philosophy and the analysis of empirical data. Bernstein is an aficionado of expertly prepared empirical statistical studies – in the manner of epidemiological studies, which he would have been immersed in during his medical training and practice.

Bernstein’s historical orientation reveals itself in his latest book, Deep Risk: How History Informs Portfolio Design. He is skeptical of “black swans” — a phrase coined by Nassim Nicholas Taleb to describe hard-to-predict events with big effects. Bernstein argues that black swans “are sighted mainly by those who have not read enough history.”

In other words, nearly everything that will be known to humankind can also be found somewhere in history. (This would not have applied, however, to the actual discovery of black swans in Australia, which were unknown to Europeans at the time.) For example, the 2011 tsunami that devastated Japan’s shoreline and its nuclear power plants near Fukushima might be considered a black swan event, but a similarly large tsunami hit nearby in 1498. Bernstein is a careful reader of history and expects it to repeat itself.

Bernstein’s conclusions may not be much of a surprise — though, as we’ll see, they lead to a more surprising conclusion – but Bernstein is not out to provide any shocking news. His analyses are within the range of conventional wisdom but are not bound by it. Nevertheless, he does subtly wink to the chinks in conventional wisdom.

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