Peter J. Bernstein Insights On Investing And Risk
Investopaper
Peter J. Bernstein was an economic and financial historian. He popularized the ‘Efficient Market Theory’ due to his in-depth knowledge of risk. He has authored 10 books on finance and economics. He suggested investors to look into the possibility of loss rather than the gain from the investment.
Here are some of the insights on investing and risk from the investing guru Peter J. Bernstein.
Peter J. Bernstein Insights on Investing and Risk
What if I am wrong? Any rational investment plan has to start with that question.
The greatest risks are the risks that we don’t see and the most difficult problem is in preparing in advance for that kind of thing.
No matter how calm you are, no matter how long term an investor you are, no matter what your horizons, when the market is jumping around, you feel uncertainty in your gut and it’s hard to resist that.
The word ‘risk’ derives from the early Italian risicare, which means ‘to dare’. In this sense, the risk is a choice rather than a fate. The actions we dare to take, which depend on how free we are to make choices, are what the story of risk is all about. And that story helps define what it means to be a human being.
The main thing that experience taught me was a sense of humility and an awareness of the importance of surprise, that is, unexpected things happen.
It would follow that cutting your losses is also a good idea, but investors hate to take losses because tax considerations aside, a loss taken is an acknowledgment of error.
Faith in the long run is the most powerful force that drives investment decisions.
Prices change when events are different from what the market has expected them to be.
The information you have is not the information you want. The information you want is not the information you need. The information you need is not the information you can obtain. The information you can obtain costs more than you want to pay.
Volatility gets you in the gut. There’s no question that when prices are jumping around, you feel different from when they’re stable.
The essence of risk management lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and the linkage between affect and cause is hidden from us.
Your wealth is in many ways depending on what other people will pay for your assets.
I view diversification not only as a survival strategy but as an aggressive strategy because the next windfall might come from a surprising place.
The prospect of getting rich is highly motivating, and few people get rich without taking a gamble.
The most important lesson an investor can learn is to be dispassionate when confronted by unexpected and unfavorable outcomes.
Loss-aversion combined with ego leads investors to gamble by clinging to their mistakes in the fond hope that someday the market will vindicate their judgment and make them whole.
Diversification of risk matters not just defensively, but because it maximizes returns as well because we expose ourselves to all of the opportunities that there may be out there.
Survival as an investor over that famous long course depends from the very first on the recognition that we do not know what is going to happen. We can speculate or calculate or estimate, but we can never be certain.
If the satisfaction to be derived from each successive increase in wealth is smaller than the satisfaction derived from the previous increase in wealth, then the dis-utility caused by a loss will always exceed the positive utility provided by a gain of equal size.
The biggest risk is not knowing what you are doing.
Survival is the only road to riches.
Survival as an investor over that famous long course depends from the very first on the recognition that we do not know what is going to happen. We can speculate or calculate or estimate, but we can never be certain.