Sunday, July 19, 2009
Consuelo Mack from Yesterday
Prior Interviews of Peter Bernstein
Died this summer. June. Age of 90.
Recognized expert on risk.
Against the Gods
Weighing of the Waters
2005 interview
Pascal’s Wager, 1654
French mathematician; compulsive gambler
He invented probability
Very religious man; a nut
Life of sin
Then Retired to a monastery
Is there a God? Can’t reason this.
If I believe in God and lead a virtuous life
I can decide how to lead my life. If I lead a bad life of sin and lust, and there is a God, I’m in bad trouble.
Very often you have to forget the probabilities because the consequences are so serious.
Doesn’t always mean you make the cautious decision. Woman…in airplane crash.$100,000 settlement. All she had in the world. Young, in her 20’s. We would put ½ in bonds, with the other ½ we would shoot the moon. She didn’t have enough anyway and if she lost it she was a goner anyhow.
Late 1970’s when bonds were yielding 15-16%. Inflation also 15-16%
Take a big position in bonds. (Early ‘80’s).
2005 interview (continued)
In a low-return environment…
Believe in diversification.
US is worked over as an investment opportunity.
You should not be “comfortable” with everything you own.
Go overseas.
Disagrees with mantra re US stocks.
No more than ½ in assets in US at most if I were starting fresh.
Etfs -- Will offer a whole big piece.
Ishares, msci
All the world stocks except the us.
Similarly bonds outside the US. Similarly Gold.
2005 interview (continued)
Dividends matter.
Still matter. Cash in your pocket. You know what it is.
Tax rate is same as on capital gains now. Payouts are so low. Dividends will increase faster than earnings.
Optimist…problems do get solved.
A lot of youth in this country.
Vitality you get in the equity markets. Outside the us. I’m a big believer in funds. If people manage that money themselves I know they would have done worse.
2007 interview
Wrote book: “Capital Ideas”
Academics. Most never owned a share in their lives. Risk.
Methods to try to maximize the trade-off between risk and return. Overwhelming importance of diversification. Reduces your risk.
How much risk do I want to take? Really think that question through.
Can I live with volatility.
The efficient markets hypothesis. Mark Hulbert. A five or 10-year
track record means a lot more than…
Own index funds too.
Cost of doing it. Management fee. Jack Bogel.
I won no actively-managed mutual funds. Only index funds. A lot in index funds.
Decisions that human beings are making now that repr opportunity or risk.
Risk is the centerpiece. We can’t manage returns; we can manage our risk.
How much can I stand the heat of the oven.
Harry Markowitz. “But I have to think about risk as well as return.”
Yale: if everything goes wrong, what will the effect be on Yale, etc.
Individuals should do the same.
Once you have it made it’s silly to take more risk. Risk means you might lose.
2007 interview (continued)
…shoot the moon.
International, commodities.
Thing that worries me the most is the dollar. Foreigners will say “enough is enough.”
Very easy to move out of the currency to somewhere else.
Odds are small but the consequences are enormous.
Own securities denom in other currencies. Short term treasuries. Gold. Very expensive to own but a little goes a long way.
