Quotes from William J. Bernstein

The Austrian economist Eugen von Böhm-Bawerk stated that the cultural and political level of a nation could be discerned by its interest rate: The more advanced the nation, the lower the loan rate.

In short, the Romans conquered most of their known world as much with the deeply institutionalized pen as with the sword, shield, and catapult.

David Sarnoff had predicted, the radio became the ornate mahogany god of the American living room: there were three million sets in 1924, thirty million in 1936, and fifty million by 1940, by which time a simple radio could be had for less than ten dollars.

Such was the pattern employed by the Romans during their centuries of conquest: first, recruit the ablest soldiers from recently pacified local populations overawed by the legionaries' size, military prowess, technology, and literacy; second, teach the new troops not only to fight but also to read and write Latin (or, in the East, Greek); and last, employ these intellectually and physically impressive specimens to conquer, pacify, overawe, and recruit adjoining peoples.

At this point, it's important to clarify the difference between bonds and stocks. A bond is simply a loan. Most often, bonds have a sharply limited upside: the best that you can do is collect your interest payments and principal at maturity. A share of stock, on the other hand, represents a claim on all of the future earnings of the company. As such, its upside is potentially unlimited. It

But whatever allocation you settle on, the key is to stick with it through thick and thin, including rebalancing back to your target percentage on a regular basis.

If done properly, successful investing entertains as much as watching clothes tumble in the dryer window. Always remember that the more exciting a given stock or asset class is, the more likely it is to be over-owned, overpriced, and destined for low future returns.

Treasury securities issued with a maturity of one year or less are called "bills"; from one to 10 years, "notes"; and over 10 years, "bonds." Notes and bonds yield an interest coupon every six months. Bills do not—rather, they are issued at a discount and redeemed at par; the difference is their "yield.")

So the twentieth century has seen three severe drops in stock prices, one of them catastrophic. The message to the average investor is brutally clear: expect at least one, and perhaps two, very severe bear markets during your investing career. Long-term

Paradoxically, in the long run, bonds are at least as risky as stocks. This is because stock returns are "mean reverting." That is, a series of bad years is likely to be followed by a series of good ones, repairing some of the damage.

Arguably the most substantive domestic issue facing the republic is the fate of Social Security, with privatization the most frequently mentioned option. For the first time in history, a familiarity with the behavior of the financial markets has become a prerequisite for competent citizenship, apart from its obvious pecuniary value. Using

The most important investment ability of all is emotional discipline.

Bonds are even worse, since their returns do not mean revert—a series of bad years is likely to be followed by even more bad ones, as happened during the 1970s. This is the point made by Jeremy Siegel in his superb treatise, Stocks For The Long Run. Professor Siegel pointed out that stocks outperformed bonds in only 61% of the years after 1802, but that they bested bonds in 80% of ten-year periods and in 99% of 30-year periods. Looked

Investors cannot earn high returns without occasionally bearing great loss.

Dieting and investing are both simple, but neither is easy.

Eighty years ago, John Maynard Keynes put it best: I do not feel that selling at very low prices is a remedy for having failed to sell at high ones. . . . I would say that it is from time to time the duty of the serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself.

A quote often misattributed to Mark Twain has it that "History doesn't repeat itself, but it does rhyme.

When stocks perform poorly, in order to raise living expenses you will be selling bonds, since their allocation will rise. Just do not forget to replenish the bond bucket with the proceeds of stock sales and to also take your living expenses from the stock bucket as well when times are flush.

all democratic societies based on the rule of law, on the Tinkerbell Principle: it functioned only so long as its participants believed in it.48

If you still crave financial thrills or feel compelled to have exciting investments to talk about with folk at parties, then designate a very small corner of your portfolio as mad money, to be deployed in 'exciting' investments. Just make sure to promise yourself that when it's gone, it's gone.

Whereas theology is the primary driving force behind Christianity and the great Eastern religions, Islam's backbone is a system of law covering all areas of conduct, including commerce. Thus, the new monotheism from Arabia was especially attractive to those engaged in any organized economic activity that flourished wherever rules were plainly visible and vigorously enforced by disinterested parties—again, as in the more secular English common law.

Combating myopic risk aversion is the most difficult emotional task facing any investor. I know of only two ways of doing this. The first is to check on your portfolios as infrequently as possible. ... The other way to avoid myopic risk aversion is to hold enough cash so that you have a certain equanimity about market falls.

In the words of Fred Schwed, one of the most astute observers of the investment scene (and certainly the funniest): There are certain things that cannot be adequately explained to a virgin either by words or pictures. Nor can any description I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.

When all is said and done, there are only two kinds of investors: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third kind: those who know they don't know, but whose livelihoods depend on appearing to know.