Rating  - An excellent book
This book should be on your book shelf. I would critize the book in that although it recommends against portfolios of individual securities it does not warn the investor against professional portfolio managers.
By way of example:Piscaqua Research in a study covering the period 1987-96 found that only 10 out of 145 major pension funds, or just seven percent, out performed a portfolio consisting of a simple 60%/40% mix of the S&P 500 index and the Lehman Bond index respectively.
Or is it logical I ask for you to believe that you can predict which actively managed funds will out perform, or are you overconfident of your skills? If you are trying to find the great fund managers who will out perform in the future ask yourself: what am I going to do differently in terms of identifying the future winning fund managers, than did the pension plans and their advisors? And if you are not going to something different what logic is there in playing a game at which others with superior resources have consistently failed?
If you a really serious in finding an investment technique that will provide you with reasonable return with less risk I suggest the following little book. This is a little book that I have written and contains the essential of how to invest. Just click on the title to find the book. How to Make Money in the Stock Market-Buy 2,500 Different Stocks-Pay no Commission
Rating  - It's the uncertainty versus risk problem all over again-2.5 stars
Bernstein still is not able( or willing) to carefully weigh the additional historical and empirical evidence that has been presented since 1996,when his " Against the Gods " appeared,concerning the reliance of " modern " finance theory on the assumption that price changes in all financial markets can be modeled on the normal distribution.Nowhere , in his previous books or in this book, is there any report of any economist/econometrician/financial analyst doing any basic goodness of fit test on the time series data from financial markets showing that it fits the normal distribution.
Bernstein seems to be unaware that Benoit Mandelbrot(Mandelbrot appears not to have been mentioned anywhere in the book) has demonstrated time and again, for well over fifty years, that the data DOES NOT fit the normal distribution.If all of the goodness of fit tests demonstrate that the time series data does not fit the normal distribution but the cauchy distribution,what scientific defense can be provided to support the continued use of (a)the mean-variance model,(b)the Beta model,or (c)the Black-Scholes model ? The problem that Bernstein,and the financial analysts he supports, faces is the same problem faced by the Ptolemaic astronomers at the beginning of the 17th century when confronted publicly by Galileo .They successfully silenced Galileo in the short run but were simply destroyed intellectually in the long run as it became increasingly apparent,even to the average citizen, that the earth was not the center of the Universe,that there was no such thing as retrograde movements by the stars,and that the sun did not revolve around the earth but the earth around the sun.Apparently,Bernstein believes that the main conclusion that follows from the application of the normal distribution in portfolio analysis,that diversification of one's portfolio is the rational way to reduce risk,is so important to maintain that it is worthwhile to continue to analyze financial market price movements " as if " they were normally distributed even if all of the evidence shows this to be false.This is not the case.Many centuries before the normal distribution came to be the foundation of portfolio analysis,decision makers had been relying on the old adage that it was unwise to put all your eggs in one basket.One does not need to rely on a theoretically false characterization of price movements to come to the conclusion that diversification is a wise choice for the average investor who lacks the time,training,and experience to emulate Warren Buffet or John Maynard Keynes.
Bernstein appears to be unaware that this issue, of correctly modeling the financial markets, is not a new one.There appears to be very little difference ,at least to this reviewer,between the current controversy that Bernstein ascribes to the "new behavioral finance school"(Shiller-Tversky-Kahneman) and the 1939-40 debate between Keynes and Jan Tinbergen in the pages of the Econmic Journal concerning Tinbergen's belief that he could use the method of a least squares(ordinary least squares)based multiple correlation and regression analysis to predict turning points in the business cycle by analyzing changes in the demand for investment and expectations.Keynes pointed out to Tinbergen that, due to technological change,advance(decay /obsolescence),innovation, and constant changes in expectations of the future,the time series data would not be "...uniform,stable,constant,or homogeneous" over time.The mechanism or propagation machine,which can be represented by some type of probability distribution,generating the time series data would be changing over time.Keynes politely asked Tinbergen to apply some type of goodness of fit test to establish the dynamic stability of the time series(Keynes,in his 1921 A Treatise on Probability,suggested the Lexis-Q test in chapter 33).Tinbergen never supplied Keynes,or anyone else in his life time,with any goodness of fit test.This is certainly a strange reaction from an individual who liked to call himself an economic scientist.
Bernstein is a very good writer.This book is well written.Unfortunately,Bernstein has chosen to serve up " more of the same " type of exposition that was acceptable in his earlier works but now simply begs the question.Bernstein appears to be unable to consider the possibility that advocating the mean -variance approach, when all the statistical evidence shows that the distributions are not close to being normal,is not just unscientific but anti scientific.
Finally, there are a number of important contributors to the risk versus uncertainty debate that are either not mentioned or mentioned in one liners.I find it incredible that the work of D. Ellsberg on ambiguity is omitted.Frank Knight's views on the primacy of dealing effectively with the uncertainty,as opposed to the riskiness ,of the future appears not to have been discussed.Joseph Schumpeter's views on the impact of uncertainty on the business cycle ,and the inapplicability of relying on a normal distribution, due to the "regular irregularity"of technological change over time that is not predictable, are not mentioned.Keynes is given a few irrelevant one line comments in the introductory pages of the book.Mandelbrot's work is not discussed or mentioned.Taleb's work is not covered.Bernstein attempts to fill this gap by substituting Shiller,Lo,Tversky,and Kahneman.However,long before Shiller,Lo,Tversky,and Kahneman were born,Keynes and Knight were discussing these problems in great detail in their books, simultaneously published in 1921, A Treatise on Probability and Risk,Uncertainty,and Profit.
Rating - The Theory and Practice of Finance in the nutshell
This is a required book for any student of finance. It captures all the essence of finance theory in the most intuitive fashion. The very special treat of this book is the ending chapters: how people on Wall Street apply the theory to the real world--and how they make money.
I would assign this book for any finance major student.
If you read this book and would like to see exactly and in more technical details what Bernstein is talking in this book, try these two books:
(i) The Theory of Business Finance: A Book of Readings (Hardcover)
by Stephen H. Archer (Author) and
(ii) Modern Developments in Investment Management: A Book of Readings (Paperback)
by James H. Lorie (Compiler)
They are compilations of the original papers published by those founders of modern finance.
Buy these used, out of print, and old books (yet they are a pilar of what Wall Street has been built on). They are cheap in price but invaluatble in values.
Rating - Demystifies investing and the stock market
This is a very well written book which looks at the stock market from a statistical and empirical perspective. It presents overwhelming scientific evidence that it is very unlikely that stock picking adds any value. He presents very interesting evidence that mutual fund managers and portfolio managers of actively managed portfolios on average do not earn their fees.
Despite this clear evidence the asset management industry continues to grow and flourish. This book taught me to manage my own money and to seek to reduce fees to the bare minimum. If more people understood this basic message they would get better returns on their hard earned money.
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