William J. Bernstein, PhD, MD, is a bestselling author known as a grassroots hero to independent investors. Formerly a practicing neurologist, Bernstein approaches the problems of saving and investing as someone who had to figure it out for himself—from first principles up. He is the author of The Intelligent Asset Allocator and The Four Pillars of Investing—highly regarded, plain-spoken guides on how to build a diversified portfolio without the help of a financial advisor—the editor of the asset allocation journal Efficient Frontier, and the founder of the popular website efficientfrontier.com. He has also written two volumes of economic history, The Birth of Plenty and A Splendid Exchange, and is a coprincipal in Efficient Frontier Advisors.

• Foreword ixPreface xiiiChapter 1 A Brief History of Financial Time 1In the Beginning 2Near-Death in Venice 8The Incredible Shrinking Risk Premium 11Summary 12Chapter 2 The Nature of the Beast 13Of Ravens and Returns 13History versus Math 18Mr. Gordon’s Curious Equation 25Math Detail: The Discounted Dividend Model 29Home Sweet Home? 35Adventures in Equity 38Math Detail: Risk 43Throwing Dice with God 47Gene Fama Looks for Angles and Finds None 49Sandbagged by a Superstar 52Jack Bogle Outfoxes the Suits 56It Is Better to Be Lucky Than Smart 63Bond Funds: A Flatter Playing Field 64Summary 65Chapter 3 The Nature of the Portfolio 69Four Essential Preliminaries 71The Asset Allocation Two-Step 74Math Detail: Mean-Variance Analysis 83With Luck, Zigs, and Zags 84Chasing Rainbows 88Summary 93Chapter 4 The Enemy in the Mirror 95Inner Demons 97Behaving Badly 100Bargain-Basement Psychotherapy 116Summary 125Chapter 5 Muggers and Worse 127The World's Largest Bad Neighborhood 128The Fund Funhouse 135Summary 142Chapter 6 Building Your Portfolio 143Financial Planning for a Lifetime: The Basics 143Saving for Retirement: Nuts and Bolts 145How to Save: Dollar Cost Averaging and Value Averaging 152Four Investors, Four Plans 154The Rebalancing Question 166Math Detail: Rebalancing, Momentum, and Mean Reversion 169Teach Your Children Well 172Summary 174Chapter 7 The Name of the Game 179Investment Theory and History: The Short Course 180The Portfolio Theory of Everything 181We Have Met the Enemy, and He Is Us 181Heads I Win, Tails You Lose 182Fire When Ready 182The Books You Need . . . Aged Like Fine Wine 185Notes 188Acknowledgments 193About the Author 195Index 196

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William J. Bernstein, PhD, MD, is a bestselling author known as a grassroots hero to independent investors. Formerly a practicing neurologist, Bernstein approaches the problems of saving and investing as someone who had to figure it out for himself—from first principles up. He is the author of The Intelligent Asset Allocator and The Four Pillars of Investing—highly regarded, plain-spoken guides on how to build a diversified portfolio without the help of a financial advisor—the editor of the asset allocation journal Efficient Frontier, and the founder of the popular website efficientfrontier.com. He has also written two volumes of economic history, The Birth of Plenty and A Splendid Exchange, and is a coprincipal in Efficient Frontier Advisors.

• Foreword ixPreface xiiiChapter 1 A Brief History of Financial Time 1In the Beginning 2Near-Death in Venice 8The Incredible Shrinking Risk Premium 11Summary 12Chapter 2 The Nature of the Beast 13Of Ravens and Returns 13History versus Math 18Mr. Gordon’s Curious Equation 25Math Detail: The Discounted Dividend Model 29Home Sweet Home? 35Adventures in Equity 38Math Detail: Risk 43Throwing Dice with God 47Gene Fama Looks for Angles and Finds None 49Sandbagged by a Superstar 52Jack Bogle Outfoxes the Suits 56It Is Better to Be Lucky Than Smart 63Bond Funds: A Flatter Playing Field 64Summary 65Chapter 3 The Nature of the Portfolio 69Four Essential Preliminaries 71The Asset Allocation Two-Step 74Math Detail: Mean-Variance Analysis 83With Luck, Zigs, and Zags 84Chasing Rainbows 88Summary 93Chapter 4 The Enemy in the Mirror 95Inner Demons 97Behaving Badly 100Bargain-Basement Psychotherapy 116Summary 125Chapter 5 Muggers and Worse 127The World's Largest Bad Neighborhood 128The Fund Funhouse 135Summary 142Chapter 6 Building Your Portfolio 143Financial Planning for a Lifetime: The Basics 143Saving for Retirement: Nuts and Bolts 145How to Save: Dollar Cost Averaging and Value Averaging 152Four Investors, Four Plans 154The Rebalancing Question 166Math Detail: Rebalancing, Momentum, and Mean Reversion 169Teach Your Children Well 172Summary 174Chapter 7 The Name of the Game 179Investment Theory and History: The Short Course 180The Portfolio Theory of Everything 181We Have Met the Enemy, and He Is Us 181Heads I Win, Tails You Lose 182Fire When Ready 182The Books You Need . . . Aged Like Fine Wine 185Notes 188Acknowledgments 193About the Author 195Index 196

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William J. Bernstein, PhD, MD, is a bestselling author known as a grassroots hero to independent investors. Formerly a practicing neurologist, Bernstein approaches the problems of saving and investing as someone who had to figure it out for himself—from first principles up. He is the author of The Intelligent Asset Allocator and The Four Pillars of Investing—highly regarded, plain-spoken guides on how to build a diversified portfolio without the help of a financial advisor—the editor of the asset allocation journal Efficient Frontier, and the founder of the popular website efficientfrontier.com. He has also written two volumes of economic history, The Birth of Plenty and A Splendid Exchange, and is a coprincipal in Efficient Frontier Advisors.

• Foreword ixPreface xiiiChapter 1 A Brief History of Financial Time 1In the Beginning 2Near-Death in Venice 8The Incredible Shrinking Risk Premium 11Summary 12Chapter 2 The Nature of the Beast 13Of Ravens and Returns 13History versus Math 18Mr. Gordon’s Curious Equation 25Math Detail: The Discounted Dividend Model 29Home Sweet Home? 35Adventures in Equity 38Math Detail: Risk 43Throwing Dice with God 47Gene Fama Looks for Angles and Finds None 49Sandbagged by a Superstar 52Jack Bogle Outfoxes the Suits 56It Is Better to Be Lucky Than Smart 63Bond Funds: A Flatter Playing Field 64Summary 65Chapter 3 The Nature of the Portfolio 69Four Essential Preliminaries 71The Asset Allocation Two-Step 74Math Detail: Mean-Variance Analysis 83With Luck, Zigs, and Zags 84Chasing Rainbows 88Summary 93Chapter 4 The Enemy in the Mirror 95Inner Demons 97Behaving Badly 100Bargain-Basement Psychotherapy 116Summary 125Chapter 5 Muggers and Worse 127The World's Largest Bad Neighborhood 128The Fund Funhouse 135Summary 142Chapter 6 Building Your Portfolio 143Financial Planning for a Lifetime: The Basics 143Saving for Retirement: Nuts and Bolts 145How to Save: Dollar Cost Averaging and Value Averaging 152Four Investors, Four Plans 154The Rebalancing Question 166Math Detail: Rebalancing, Momentum, and Mean Reversion 169Teach Your Children Well 172Summary 174Chapter 7 The Name of the Game 179Investment Theory and History: The Short Course 180The Portfolio Theory of Everything 181We Have Met the Enemy, and He Is Us 181Heads I Win, Tails You Lose 182Fire When Ready 182The Books You Need . . . Aged Like Fine Wine 185Notes 188Acknowledgments 193About the Author 195Index 196

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