Take a Peek Inside Dr. Bernstein's Mind

Physician's Money Digest, October15 2003, Volume 10, Issue 19

Money

William Bernstein, MD, anOregon-based neurologist,parlayed 5 years of intensestudy and research into becoming a successfulfinancial advisor and author of 2bestselling investment books. Accordingto an article in magazine, Dr.Bernstein, who still sees patients and lectureson medicine, manages $70 million ofother people's money with his partner,Susan Sharin, at Efficient Frontier Advisors.How did he do it?

Doctor Transformation

After earning a PhD in chemistry at theUniversity of California at Berkeley and anMD from the University of California atSan Francisco, Dr. Bernstein found himselfthe only neurologist in Coos County, Ore.For 10 years, he worked 80-hour workweeks,eventually experiencing physicianburnout. Thereafter, he cut his medicalworkload in half and set out to learn allhe could about investing.

The Intelligent AssetAllocator

Dr. Bernstein spent the next 5 yearsreading about market returns, analyzingspreadsheets, and ignoring the conclusionsof other researchers. By 1995, hefelt confident enough to write a book,and penned (McGraw-Hill Trade; 2000). Atthe time, however, publishers were notinterested in an investing book writtenby a neurologist.

The Intelligent AssetAllocator

The Four Pillars ofInvesting

However, things changed in 1996 whenDr. Bernstein launched his own Web site,the Efficient Frontier (www.efficientfrontier.com), and posted his book there. Beforelong, he had built a huge following offinance professors and investment experts.In 2000, he saw published; in 2002, Dr. Bernsteinwrote his second book, (McGraw-Hill Trade; 2002).

Eventually, investors wanted Dr. Bernsteinto manage their money. He andSusan Sharin founded Efficient FrontierAdvisors on 3 firm principles: costs arekept low, with the firm's annual fees toppingout at 0.32% of assets; the firminvests exclusively in index funds fromVanguard and Dimensional Fund Advisors;and Dr. Bernstein only accepts clients who,he says, understand what he's doing.

Formula for Success

Not surprisingly, Dr. Bernstein says thatsuccessful investing "is not brain surgery."What it is, he says, is a matter of stickingto a plan. He believes that to be a successfulinvestor, you need to possess the following4 basic skills and character traits:

  • Mathematic ability. It's important, Dr.Bernstein says, that investors understandthe financial implications of the numbersthey're dealing with. If you can't speak thelanguage of numbers, you'll be unable todetermine if the results you're achievingare due to hard work or pure luck.
  • Historical perspective. Dr. Bernsteinpoints out that understanding how marketsmoved in the past will better preparethe individual investor for the cyclesyet to come. As the expression goes,"Studying history should help us learnfrom our mistakes."
  • Emotional toughness. Even with abasic 60% stock/40% bond allocation, Dr.Bernstein notes, investors are likely to see30% of their wealth depleted at least oncea generation when stocks crash. Riding outthe tough losses without panicking andmaking bad investment decisions is key.
  • Independence. Investors need to stickto their game plan. Dr. Bernstein admitsthat this can be difficult in the face of brokers,advisors, and mutual fund companieswho hawk the importance of "making amove now." However, investors need toignore that advice and avoid makingunnecessary moves.