William J. Bernstein on Financial Crowds

In this episode of "Keen On", Andrew is joined by William J. Bernstein, the author of "The Delusions of Crowds", to discuss Bitcoin and the Gamestop/Robinhood saga, as well to touch upon subjects like ISIS and even conspiracy groups like QAnon. William J. Bernstein is a neurologist, co-founder of Efficient Frontier Advisors, an investment management firm, and has written several titles on finance and economic history. He has contributed to the peer-reviewed finance literature and has written for several national publications, including Money Magazine and The Wall Street Journal. He has produced several finance titles, and also three volumes of history, The Birth of Plenty, A Splendid Exchange, and Masters of the Word, about, respectively, the economic growth inflection of the early 19th century, the history of world trade, and the effects of access to technology on human relations and politics. He was also the 2017 winner of the James R. Vertin Award from CFA Institute. Bernstein is a proponent of the equity or index allocation school of thought, believing that all equity selection strategies should be focused on allocating between asset classes, rather than selecting individual stocks and bonds, or from the timing of their sales. Bernstein's first book, The Intelligent Asset Allocator, makes this case in detail; his second book, The Four Pillars of Investing: Lessons for Building a Winning Portfolio, is aimed for those less comfortable with statistical thought. It also puts asset-class returns into long-term historical perspective. Bernstein is an advocate for modern portfolio theory, which stands in stark contrast to the view that skilled managers can succeed in picking particular investments that will outperform the market, whether through market timing, momentum investing, or finding assets whose future value have been underestimated by the market. He argues that the financial research literature shows that most return is determined by the asset allocation of the portfolio rather than by asset selection. In 1996, Bernstein introduced Coward's Portfolio, a popular form of lazy portfolio. He explained "a rational coward might split their equity exposure equally between S&P, EAFE, US small, and foreign small stocks." A contemporary implementation of the Portfolio includes 40% short-term bonds, and 15% international equity evenly divided into Europe, Pacific, and emerging markets funds. Bernstein's third book, The Birth of Plenty, is a history of the world's standard of living; it proposes four conditions that have historically been necessary for it to rise. His fourth book, A Splendid Exchange: How Trade Shaped the World, published in 2008 by Grove Atlantic, is a history of trade. In 2009 his fifth book was published "The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between" which continues the theme of asset allocation in a more accessible way. In 2014 his sixth book, "Rational Expectations: Asset Allocation for Investing Adults" was published. It updated his earlier books on investing to cover the position after the Great Financial Crisis (GFC) of 2008-09, and the most recent research on investing, including that by Elroy Dimson, Paul Marsh, and Mike Staunton, authors of "Triumph of the Optimists". Bernstein holds a PhD in chemistry and an MD; he practiced neurology until retiring from the field. He lives in Portland, Oregon.