The real value of history in the world of investing

William Bernstein writes in his classic Four Pillars of Investing – Lessons for building a winning portfolio: “The real value of the historical record is as a gauge of risk, not return.”

Still, majority of discussions focus on which asset class has outperformed or underperformed which other asset class. The focus is too much on the returns generated rather that the risks taken or avoided.

Read history to understand the risks. Read history to understand what can go wrong. Read history to understand what you can do to protect and nurture your investment portfolios.

#RidingTheRollerCoaster – 140


If you cannot predict, protect …

We have written time and again on this blog the inability of most forecasters to predict the exact events, especially the extent and the timing. However, we as humans want predictability, though we must learn to live in ambiguity and uncertainty.

Once we accept our inabilities, we start looking at the solutions differently.

In financial markets, the big lesson from the history is that most experts and common men alike have failed to predict the future, especially at the turning points. Majority of them have resorted to extrapolation of the past, which fails them exactly when the events take a turn.

In such a case, history also teaches us that in the absence of the ability to predict, one must protect what one has. Diversification is one such protection available to common investors.

#RidingTheRollerCoaster – 101

Read the history …

“… memory serves as a protection against financial illusion or stupidity” – John Kenneth Galbraith


#RidingTheRollerCoaster – 24