Skip to Main Content
The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between
book

The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

by William J. Bernstein
November 2009
Beginner content levelBeginner
201 pages
4h 40m
English
Wiley
Content preview from The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between
CHAPTER 3
The Nature of the Portfolio
Because we cannot predict the future, we diversify.
—Paul Samuelson1
Picture, if you can, a Japanese investor nearing retirement in December 1989. The Land of the Rising Sun is ascendant; appraisers value the land surrounding the Imperial Palace at more than all the real estate in California, and Japanese businessmen are gobbling up American companies and land like potato chips. Japanese manufacturers are devastating their European and American competitors with an endless supply of attractively priced cars and consumer goods. Within two decades, Toyota will sell as many vehicles in the United States as General Motors does.
Not surprisingly, Japanese equities have provided Japanese retirees with more than agreeable returns. In the preceding 20 years, $1 invested in the stocks trading in Tokyo grew to $57.23. Our hypothetical Japanese retiree should have looked forward to a retirement lush with family time, a Hawaiian condo, and all the material goods his heart could desire.
His story, unfortunately, does not end happily. Over the following 19 years, between 1990 and 2008, $1 invested in Japanese stocks fell in value to less than 60 cents, even with dividends reinvested. Since Japanese stocks were so ludicrously overvalued in 1989, there really were not many dividends anyway.
Unless you diversify, you risk suffering the fate of post-1989 Japanese investors.
Consequently, his portfolio did not survive as long as he did. He withdrew what seemed ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Start your free trial

You might also like

Great Investors, The

Great Investors, The

Glen Arnold

Publisher Resources

ISBN: 9780470505144Purchase book