Peter L. Bernstein

That was first published in 1841.

And and then Against the Gods by Peter L. Bernstein back in 1996.

So I just want to just mention one quote from each of those books that I think in particular resonate with me in this current environment, especially given another area of focus for us that we have talked about a lot on the pod here, Colin, is the blurring of lines that's happened between investing and gambling and us as a firm wanting to really be a loud voice on that subject.

And what Malkiel wrote in the book is it's not hard to make money in the market.

Charles McKay, let us not in the pride of our superior knowledge turn with contempt from the follies of our predecessors.

The study of the errors into which great minds have fallen in the pursuit of truth can never be uninstructive.

And then lastly, Peter L. Bernstein.

Love this one.

It's totally crazy, but here we are people, people, they get the dogma stuck in their head and you know, that's, it's, uh, It's a rough road to walk down, I think.

Peter Bernstein, the late great Peter Bernstein has a quote, and I'll murder it, but you guys stick with me.

It's been my favorite quote of the last few years where he's like, I believe in diversification, you know, is a great thing, not just because of the risk reduction, which is what everyone thinks about.

but basically like that you never know where your returns are going to come from the next big bull market so basically the right tail too and this is what's been happening the last two years everyone focused on u.s stocks and bonds and you've done fine but over here very quietly you know the south korean stock market is now bigger than the stock market of the uk Like, when did that happen? Like, all of a sudden, very quietly, copper's almost seven bucks.

It doesn't mean we have zero governance or monitoring around that, but it has to be taken in the context of that overall goal that, you know, in most cases have been achieved.

And that's the key, right? The key is to pull out that agreement, to use the IPS to resurface the agreement about why certain assets are in the portfolio, even if they're not liked or not loved, to Peter Bernstein's point.

Yeah,

exactly.

And so that's Markowitz.

Now, fun story, Peter Bernstein in his book, Capital Ideas, talks about that story.

That's where I got it.

And Markowitz at the time was at the University of San Diego, old, 90.

So how do you deal with that when you're trying to manage risk and forecasts?

I remember you asking me, what are my favorite books? One of my favorite finance books, in fact, was a book by Peter Bernstein that says Against the Gods, The Remarkable Story of Risk.

And he talked about this constant, shall we say, discussion or debate within the financial world as to whether or not You actually build mathematical models calibrated on past data? Or again, do you actually go out for more fundamental analysis to try and examine what the company's future prospects are, what the individual's future prospects are? And you're right, the building of models based on past data is first of all automatically assuming that somehow past is prologue, that somehow what happened in the past may well be predicting what's going to happen in the future.

But you're right, the data set is changing all the time.

I always find him, he's obviously extremely on the button and he obviously lives through that own environment and stuff like that.

But he also, I find his book extremely interesting.

Obviously, I mentioned earlier about Peter Bernstein.

Again, he's sadly no longer with us, but he was a giant in his time and he he's an incredibly good writer so I really enjoyed him so there was obviously you can't but mention Nassim Taleb although I do find him a bit challenging because he's a rather large ego but you have to try and be willing to accept that and so on like that but no so those ones they're all very interesting and very enjoyable but so as I say it's I mean I would pull down one of those books any day.

In our conversation today, Ellis recounts some of the major figures of the last 60 years, many of whom he knew personally.

Jay Richardson Dilworth, who gave him his start managing Rockefeller Family Wealth, Xerox's Joe Wilson, Goldman Sachs leaders John Whitehead and John Weinberg, quant pioneer Fisher Black and his champion Bob Rubin, Sidney Weinberg and his unlikely friend Paul Cabot, Harvard's Walter Cabot and Jack Meyer, Yale's David Swenson, Vanguard founder Jack Bogle, and mentors Peter Bernstein and Peter Drucker.

The result is a rare firsthand account of how character, culture, and discipline built the institutions that still define the investment world today.

But first, I had to ask him about his art teacher, Joseph Albers, whose famous color theory course at Yale in the 1950s shaped his early thinking on discipline and perception.

But times come and times go, and circumstances change, and the criteria by which people decide what they're going to do change.

And it's a lot easier to understand economic reward than to understand professional reward, which makes it all obviously dangerous.

Who was Peter Bernstein and what did you learn from him?

In a lighthearted way, I'd say Peter was Barbara's husband.

tell investors, particularly the ones that are U.S., focused, U.S. stocks and bonds only.

If you remember the late Peter Bernstein, he had a great quote.

Against the gods.

Go read the book Against the Gods, a pitch for a dead man's book.

Yeah, that's exactly right.

And the article leans on the late Peter Bernstein's work.

What was his key insight, Mark?

Yeah, so Bernstein said the consequences of being wrong are more important than the probabilities of being right.

You'll find this article when you head to their website, soundmindinvesting.org. It's free and available for you.

Again, it's called Focus on Consequences, Not Probabilities.

We talked before the break, Mark, about Peter Bernstein's work.

Just remind us of his big idea.