.svg)
Latest Business News
Investment Fundamentals Remain Unchanged Despite Technological Advancements, Says Financial Author William Bernstein
Investment Theory: The First Pillar
According to renowned neurologist and best-selling financial author William Bernstein, the evolution of investment products and trading platforms has not impacted the fundamental principles of investing. Bernstein, the author of the classic investment guide "The Four Pillars of Investing," recently discussed his views on CNBC's "ETF Edge." He identified the first pillar of investing as theory, emphasizing the inseparable relationship between risk and return. Bernstein explained that a perfectly safe portfolio would not yield high returns. Conversely, to achieve the high returns associated with equities, investors must be prepared to endure significant losses.
History: The Second Pillar
The second pillar Bernstein identified is history. This pillar is based on the concept that markets tend to overshoot in both directions and only bottom out in hindsight. Bernstein stated that markets do not become extremely expensive or cheap without a valid reason. He stressed the importance of maintaining discipline and understanding that the expected market return is linked to the perceived risk of the market and the environment.
Psychology: The Third Pillar
Psychology is the third pillar of investing, according to Bernstein. He believes that investors often overestimate their ability to select stocks. Comparing investing to a game of tennis against an unseen opponent, Bernstein warned that the unseen opponent is often a formidable one, akin to tennis champion Serena Williams. He also noted that investors frequently overestimate their risk tolerance, a lesson he learned during the 2008 financial crisis and the market downturn in March 2020 due to Covid-19.
Business: The Fourth Pillar
The final pillar of investing, as per Bernstein, is business. He suggests that the primary objective of most fund companies is asset collection rather than money management. This perspective is one reason why Bernstein is optimistic about the exchange-traded funds (ETFs) industry and its role in reducing fees. He pointed out that many investment products can now be purchased at minimal expense.
Conclusion
In conclusion, despite the rapid advancements in technology and the evolution of investment products and platforms, the fundamental principles of investing remain unchanged. Understanding these principles, as outlined by Bernstein, can provide valuable insights for both new and seasoned investors.
Implications for New Businesses
The insights provided by William Bernstein have significant implications for new businesses, especially those in the financial sector. Understanding that the fundamental principles of investing remain unchanged despite technological advancements is crucial for businesses aiming to provide financial services or investment platforms.
Adapting to Technological Advancements
While technology has made trading more accessible and efficient, it hasn't altered the core principles of investing. New businesses should therefore focus on creating platforms that enhance user experience without compromising on the fundamental aspects of investing. This balance can help attract a broad range of investors, from novices to seasoned professionals.
Investor Education
Bernstein's pillars of investing highlight the importance of investor education. New businesses can leverage this by providing educational resources to their users, helping them understand the relationship between risk and return, the historical trends of markets, and the psychological aspects of investing.
Transparent Business Practices
The fourth pillar, business, emphasizes the importance of transparent business practices. New businesses should prioritize managing money over merely accumulating assets. This approach can help build trust with users and contribute to a more sustainable business model.
In conclusion, while technology continues to evolve, the fundamental principles of investing remain constant. New businesses that understand and incorporate these principles into their operations are likely to succeed in the ever-changing financial landscape.
Article First Published at:
Brought to you by ChatGPT for
