William J Bernstein

William J. Bernstein is an American financial theorist. He is known for his research in the field of Modern Portfolio Theory and for his self-help finance books for individual investors who wish to manage their own equity portfolios.[1][2]. He currently lives in North Bend, Oregon.

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 (McGraw-Hill, 2002; ISBN 0071385290), is aimed for those less comfortable with statistical thought. It also puts asset-class returns into long-term historical perspective.
Bernstein is an exponent of 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.
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 April 2008 by Grove Atlantic, is a history of trade. [3]
Bernstein holds a Ph.D. in Chemistry and an M.D. in neurology; he practiced neurology until retiring from the field.

Benjamin Graham

Benjamin Graham (May 8, 1894 – September 21, 1976) was an influential economist and professional investor. Graham is considered the first proponent of Value Investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book Security Analysis. Well known disciples of Graham include Jean-Marie Eveillard, Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss. Buffett, who credits Graham as grounding him with a sound intellectual investment framework, described him as the second most influential person in his life after his own father. In fact, Graham had such an overwhelming influence on his students that two of them, Buffett and Kahn, named their sons, Howard Graham Buffett and Thomas Graham Kahn, after him.

History:


Graham, who was of Jewish descent and whose original last name was Grossbaum, was born in London and moved to New York with his family when he was one year old. Benjamin Graham's parents changed the family name to Graham during World War I, when German-sounding names were regarded with suspicion. After the death of his father and experiencing the humiliation of poverty, he became a good student, graduating from Columbia, as salutatorian of his class, at the age of 20. He received an invitation for employment as an instructor in English, Mathematics, and Philosophy, but took a job on Wall Street eventually starting the Graham-Newman Partnership.[1]

His book, Security Analysis, with David Dodd, was published in 1934 and has been considered a bible for serious investors since it was written.[citation needed] It and The Intelligent Investor published in 1949 (4th revision, with Jason Zweig, 2003), are his two most widely acclaimed books. Warren Buffett describes The Intelligent Investor as "the best book about investing ever written."[2]
Graham exhorted the stock market participant to first draw a fundamental distinction between investment and speculation. In Security Analysis, he proposed a clear definition of investment that was distinguished from what he deemed speculation. It read, "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."[citation needed]

Graham wrote that the owner of equity stocks should regard them first and foremost as conferring part ownership of a business. With that perspective in mind, the stock owner should not be too concerned with erratic fluctuations in stock prices, since in the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine (i.e. its true value will in the long run be reflected in its stock price).
Graham distinguished between the passive and the active investor. The passive investor, often referred to as a defensive investor, invests cautiously, looks for value stocks, and buys for the long term. The active investor, on the other hand, is one who has more time, interest, and possibly more specialized knowledge to seek out exceptional buys in the market.[citation needed]
Graham recommended that investors spend time and effort to analyze the financial state of companies. When a company is available on the market at a price which is at a discount to its intrinsic value, a "margin of safety" exists, which makes it suitable for investment.
Graham wrote that investment is most intelligent when it is most businesslike, a statement which Warren Buffett regarded as the most important words about investment ever written.[citation needed] Graham said that the stock investor is neither right nor wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.[citation needed]


Graham's favorite allegory is that of Mr. Market, a fellow who turns up every day at the stock holder's door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but often it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or to ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price. The point is that the investor should not regard the whims of Mr. Market as determining the value of the shares that the investor owns. He should profit from market folly rather than participate in it. The investor is best off concentrating on the real life performance of his companies and receiving dividends, rather than being too concerned with Mr. Market's often irrational behavior.[citation needed]
Graham was critical of the corporations of his day for obfuscated and irregular financial reporting that made it difficult for investors to discern the true state of the business's finances. He was an advocate of dividend payments to shareholders rather than businesses keeping all of their profits as retained earnings. He also criticized those who advised that some types of stocks were a good buy at any price, because of the prospect of sustained stock price growth, without a good analysis of the business's actual financial condition. These observations remain extremely relevant today.
In recent years, Graham's "Mr. Market" approach has been challenged by Modern Portfolio Theory, as advanced by such proponents as William J. Bernstein, whose book The Intelligent Asset Allocator is a direct challenge to Graham's The Intelligent Investor. Modern Portfolio Theory posits that it is generally impossible for any individual to outwit the market, and is widely taught in American and British business schools. Nevertheless, Graham's approach retains a widespread and dedicated following. Indeed, numerous academic studies, including "Contrarian Investment, Extrapolation, and Risk"[3], "Good news for value stocks: Further evidence on market efficiency"[4], "The Cross Section of Expected Stock Returns"[5], and many others, have proven that value stocks outperform the market over virtually all multi-year periods.
According to Warren Buffett, Benjamin Graham said that he wished every day to do something foolish, something creative, and something generous.[6] Warren Buffett said that Graham excelled most at the last.[7]

See also


Warren Buffett
Philip Fisher
Value investing
David Dodd
John Burr Williams
Valuation using discounted cash flows
Gordon model
Benjamin Graham formula
William J. Bernstein

U.S. Economy: Consumer Sentiment, New York Manufacturing Gain

By Timothy R. Homan and Courtney Schlisserman
Aug. 15 (Bloomberg) -- Confidence among American consumers gained in August and manufacturing in New York grew the most since January as a slide in gasoline, oil, metals and grain prices eased cost pressures on households and companies.
The Reuters/University of Michigan preliminary index of consumer sentiment rose to 61.7, from 61.2 in July. The Federal Reserve Bank of New York's general economic index climbed to 2.8, from minus 4.9 a month earlier. A separate Fed report showed industrial production increased in July, boosted by the end of a strike at an auto-parts supplier.
Gasoline has retreated 6 percent since the start of last month, copper is down 14 percent and corn prices have slumped 26 percent, diminishing some of the threat to the economy of elevated commodity costs. At the same time, rising unemployment and falling property values mean consumers are unlikely to pick up spending, which economists project will stagnate next quarter for the first time since 1991.
``We're a little less pessimistic than we were a month ago,'' Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, said in a Bloomberg Radio interview. ``But we still think consumer spending in real terms could be negative in the second half.''
Stocks erased their advance in the minutes after the release of the consumer sentiment index, which was lower than economists had forecast, before recouping gains. The Standard & Poor's 500 Stock Index rose 0.5 percent to 1,299.34 at 10:56 a.m. in New York.

By Timothy R. Homan and Courtney Schlisserman
Aug. 15 (Bloomberg) -- Confidence among American consumers gained in August and manufacturing in New York grew the most since January as a slide in gasoline, oil, metals and grain prices eased cost pressures on households and companies.
The Reuters/University of Michigan preliminary index of consumer sentiment rose to 61.7, from 61.2 in July. The Federal Reserve Bank of New York's general economic index climbed to 2.8, from minus 4.9 a month earlier. A separate Fed report showed industrial production increased in July, boosted by the end of a strike at an auto-parts supplier.
Gasoline has retreated 6 percent since the start of last month, copper is down 14 percent and corn prices have slumped 26 percent, diminishing some of the threat to the economy of elevated commodity costs. At the same time, rising unemployment and falling property values mean consumers are unlikely to pick up spending, which economists project will stagnate next quarter for the first time since 1991.
``We're a little less pessimistic than we were a month ago,'' Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, said in a Bloomberg Radio interview. ``But we still think consumer spending in real terms could be negative in the second half.''
Stocks erased their advance in the minutes after the release of the consumer sentiment index, which was lower than economists had forecast, before recouping gains. The Standard & Poor's 500 Stock Index rose 0.5 percent to 1,299.34 at 10:56 a.m. in New York.
Commodities Drop
The Reuters/Jefferies CRB Index of 19 commodities has dropped 17 percent since the start of last month, a period when crude oil dropped 19 percent.
Consumers' expectations for inflation receded this month, the Reuters/University of Michigan survey showed. They expect consumer prices to rise an average of 4.8 percent over the next 12 months, down from a 5.1 percent forecast in the July survey.
Economists had forecast the confidence index would rise to 62, according to the median of 64 projections in a Bloomberg News survey. Estimates ranged from 56 to 69.
A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy cars and other big-ticket items, decreased to 69.3 from 73.1 the prior month.
Retail Sales
Sales at U.S. retailers dropped in July for the first time in five months, the Commerce Department said this week. Wal-Mart Stores Inc., the world's largest retailer, this week said that sales at stores open at least a year might not rise more than 1 percent in the third quarter as the boost from the federal tax rebates fades.
Output at factories, mines and utilities rose 0.2 percent last month after a 0.4 percent gain in June, the Fed reported today in Washington. Capacity utilization, which measures the proportion of plants in use, increased to 79.9 percent from 79.8 percent.
Demand for autos increased for a third month, reflecting a continued rebound from a strike at an auto-parts supplier. Gains elsewhere signal demand from overseas continued to boost orders even as U.S. consumer and business spending weaken.
``While export growth looks set to remain solid at least over the near term, an increasingly constrained consumer, deepening woes for the housing sector, and a desire to pare inventories will all weigh on manufacturing output,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.
Strike Impact
Gains in auto output were ``due to rebounds after the end of a strike'' and did ``not reflect fundamental strength,'' he said.
Output was forecast to be unchanged, according to the median estimate of 79 economists.
Production of motor vehicles and parts increased 3.6 percent after rising 4.8 percent in June.
The resolution of a three-month strike at American Axle & Manufacturing Holdings Inc., General Motors Corp.'s largest axle supplier, may explain the rise in output even as sales slump. The walkout, which ended May 26, had halted production of about 330,000 units at GM plants.
Factories in New York were more optimistic about their prospects, according to the state's Fed Bank report. The index measuring the outlook for six months from now jumped 34.6, the highest level this year, from 15.6 in July. Readings of zero are the dividing line between growth and contraction.
The so-called Empire State index's measure of prices paid dropped by the most in more than two years.
Economists forecast the index would be little changed, rising to minus 4 this month, according to the median of 50 projections in a Bloomberg News survey. Estimates ranged from minus 11 to zero. The New York Fed started the gauge in 2001.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net