William Bernstein: If You've Won the Game, Stop Playing

Our guest this week is noted author and advisor, William Bernstein. Bill’s background and entree to finance is unique—a neurologist by training, Bill self-taught himself the principles of investing and asset allocation, eventually parlaying that knowledge into a successful financial advisory practice and a series of influential, critically acclaimed books such as "The Intelligent Asset Allocator." In this conversation, we explore Bill’s background and how it shaped his development and thinking as an investor and how he applies those lessons in working with clients who are trying to meet goals like a comfortable, secure retirement.

• “I had to figure out how to save and invest on my own”: Bill’s crash course into investing and constructing a portfolio (1:29)

•  “I had to figure out how to save and invest on my own”: Bill’s crash course into investing and constructing a portfolio (1:29) 

• “I had to figure out how to save and invest on my own”: Bill’s crash course into investing and constructing a portfolio (1:29)
• Separating the wheat from the chaff: How Bill decides what investing research matters and what doesn’t (4:30)
• Top of the list: Books that profoundly influenced Bill’s investment philosophy and approach (5:45)
• “The overwhelming science of investing does not speak well of active management”: Bill on why empirical data ought to settle most questions (and why active-share doesn’t hold up to scrutiny) (7:02)
• “You approach it with extreme caution”: Bill explains why investors should be skeptical of most factors they encounter in the “factor zoo”, save a few (9:27)
• A question that’s giving Bill pause: Is value too crowded a trade? (10:33)
• Is low-volatility the most attractive factor from a behavioral standpoint? Bill worries it’s gotten too expensive. (12:02)
• Fingers (and toes) crossed: Bill thinks value is cheap enough to stick with (12:55)
• “Really, not very much”: Bill on how his approach to asset allocation has evolved over time (13:43)
• “The riskiness of stocks is not an intrinsic characteristic of stocks; it’s more a characteristic of the investor”: Why stocks’ volatility doesn’t fluster younger investors, but freaks out older investors (14:38)
• On how we tend to overrate our risk tolerance: “The difference between being able to see (losses) in a spreadsheet and actually manage (through losses) in real time is the difference between crashing an airplane in a flight simulator and in the real world” (15:38)
• “If you’ve won the game, stop playing”: How to shake older investors out of their complacency with equity risk and recency bias (16:53)
• “The very best physicians are consumed by self-doubt”: How a high ratio of “rumination-to-celebration” can help investors constructively reckon with shortcomings in their approach and improve (19:26)
• Getting it wrong and therefore right: Bill explains how advisors can use their own fallibility and uncertainty to fortify their relationship with clients (versus scaring them to death) (21:12)
• An argument with Jack Bogle: How a debate with the Vanguard founder about foreign-stock investing became an object lesson in how reality intrudes on theory (and how that informs Bill’s approach to managing clients) (22:56)
• “You don’t appreciate it until bad things happen”: On whether the rally in riskier bonds has changed Bill’s tune on limiting fixed-income investments to short-term, high-grade fare (24:25)
• “Investment is a process that transfers wealth to people that have a strategy and can execute it from those who don’t and can’t” (26:22)
• “A reasonable hypothesis, but it got tested” (and failed): Bill on the argument for active bond investing (27:02)
• Earthquakes and execrable returns: Why the best investing and economic gains have been realized in English-speaking countries. (Hint: It’s the law.) (27:48)
• Emerging-markets stocks: Why they’re only a bargain when they’re cheap relative to their own history and developed markets (and still might not be inexpensive even in that case) (30:23)
• Potential hazards: “The US markets are significantly overvalued relative to the rest of the world” (31:36)
• “You’d have your head handed to you”: On the impermanence of investment measures, why it’s dangerous to extrapolate, and the implications for investors (32:54)
• “When I think about my tombstone, ‘investment adviser’ is not one of the things I want to see up there” (34:00)
• “We’re extremely choosy in who we take on. So we have a very enjoyable practice as a result of that” (35:49)
• On retirement preparedness: “A slow-moving and fairly impressive disaster” (37:13)
• “I don’t think the system needs nudges. I think the system needs dynamite”: Steps to radically redefine the retirement system (39:20)
• “It would be nice if we had