| BUSINESSWEEK ONLINE : JULY 19, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| COVER STORY
The Barker Portfolio: Doctor's Orders Bill Bernstein wants to keep your portfolio healthy In this country today, investment advice is as tough to find as a can of Coke. Intelligent investment advice, that's scarcer. And intelligent, disinterested advice? That explains why I've flown 3,343 miles and now find myself in a rental car, climbing a steep, twisting road at the misty east edge of Coos Bay, Ore. Suddenly, a fawn flashes across my path, stopping me short: Could I be any farther from Wall Street? How far starts to come clear at the top of the driveway. There, Bill Bernstein waits to welcome me into his home. Scraggly of beard, mischievous, and a bit abrupt, Bernstein is little known. But that's changing, and the sooner you get to know him, the better off your retirement portfolio is likely to be. This guy has spent years studying how to invest for himself, and he relishes sharing what he's learned. In three years since erecting his homemade Web site, www.efficientfrontier.com, Bernstein has become guru to a peculiarly '90s group: well-educated, Internet-powered people intent on investing well--and with minimal ''help'' from professional Wall Street. ''You make your own financial decisions,'' he tells me shortly after we meet. ''You don't depend on stockbrokers.'' Bernstein's top draw is his downloadable, 187-page book, The Intelligent Asset Allocator: Portfolio Theory for the Small Investor. It's a scholarly but engaging and helpful guide to spreading assets among index funds to balance risk with reward. He also publishes an online journal, Efficient Frontier, with such articles as ''Roll Your Own,'' a review of personal-portfolio software. And he seems daily to fire off E-mails aimed at sundry investing conundrums. In June, he hit both fund manager James O'Shaughnessy, author of the bestseller What Works on Wall Street, and The Motley Fool Web site for their use of statistics. ''He's either brilliant, or close to brilliant,'' says Steve Dunn, a University of Chicago MBA and Southern California attorney who met Bernstein on a mutual fund message board. ''His articles are the highest quality thing on finance on the Net.'' John Rekenthaler, Morningstar's research chief, confesses: ''I go home and tell my wife sometimes, 'I wonder if he doesn't know more than me.' It's humbling.'' Why? Because what's full-time work for him is to Bernstein a hobby. Most times, he is William J. Bernstein, M.D. ''We call him 'fastest neurologist in the West','' says medical partner Dr. Linda Bufton. ''But he doesn't miss much.'' APT PUPIL. Once I knew that, I had to learn more. Bernstein, it turns out, got a head start on the rest of us amid an admittedly nerdy suburban Philadelphia youth: His dad and broker uncle talked finance with him, and by high school he was reading Harry Markowitz, the Nobel laureate who labeled a portfolio's optimal risk-reward balance the ''efficient frontier.'' At college and graduate school, he studied chemistry. After speeding through a PhD, he entered med school, and by 1980 he set up in Oregon as the lone neurologist on a long stretch of coast. Doctoring brought cash flow, and cash brought Bernstein back to finance. He plunged into the academic literature and studied statistics, all in hope of pursuing his personal investments scientifically. Many pros dismiss that approach as woolly-headed. ''This business is much more of an art form than a science,'' says Jeffrey Applegate, chief U.S. strategist at Lehman Brothers. But Bernstein sees that attitude as so much ''mojo magic'' dressed in a $2,000 suit. Instead, Bernstein set out to get hard numbers, past returns of every asset and sub-asset--bonds, stocks, foreign stocks, small foreign stocks, and so on. ''I started begging, borrowing, and stealing data,'' he says. ''I called Nomura for small-stock data on Japanese stocks. I got some on small U.K. stocks from Hoare Govett. I just began collecting data from wherever I could and began looking at asset allocation and figuring out what was efficient.'' It took years, but by 1995 he'd learned enough to fill a book. You may already suspect the conclusions he drew--that stockpicking inevitably fails to beat the market, that keeping costs low is crucial, and, above all, that asset allocation determines most of a portfolio's return. Even if you dispute all that, Bernstein uses statistics and such reader-friendly devices as imaginary Uncle Fred so persuasively, that you won't buy another actively run fund without pausing first. Especially helpful is his thinking on rebalancing a portfolio: ''Sticking by your asset allocation is more important than picking the 'right' one.'' The reason, he notes, is that a perfect allocation is knowable only in hindsight. Better to keep a portfolio on its originally targeted mix than to try calling market moves. ''Constantly shifting your allocation,'' he writes, ''is a recipe for disaster.'' Bernstein sent his first edition of Intelligent Asset Allocator to more than 30 publishers. ''I got responses from four or five. Two said: 'It's very good, but you're nobody.''' Just then, though, something happened: Internet service reached Coos Bay. At a local college, Bernstein studied HTML, the software language needed to create a Web site, and while vacationing in Australia that summer, he designed one on a laptop. On Aug. 25, 1996, it reached cyberspace. ''It's astonishing how fast the world found me,'' he says. The site gets 150 to 200 hits a day--nothing next to Motley Fool, but plenty to keep Bernstein busy in his den emitting midnight E-mails. Half the users are in finance, the other half scientists who enjoy his use of data. Many are IBMers itching to diversify away from Big Blue stock. Everyone's allocation may differ, he thinks, but long-term savers can't go far wrong with a simple 60%-stock, 40%-bond mix, split among four index funds (table). Bernstein's advice is solicited enough that he has succumbed to a new temptation: managing other people's money. Last year, he became partners with a Connecticut adviser, Susan Sharin. They now run upward of $5 million. Even with modest fees--from 0.5% of assets and falling to 0.2%--and a resolve to keep a short client list, this might mean serious cash, enough perhaps to make Bernstein as much Wall Streeter as country doctor. The possibility stops him short: ''I hadn't even thought about that once, that I've become the enemy.'' Later, when I shared Bernstein's plan with Jim O'Shaughnessy, the fund manager Bernstein skewered recently, he burst out laughing. ''It's real easy to throw bricks from the sidelines. It's a completely other thing to be a real money manager,'' he said. I'm betting Bernstein will do well by his investors. But in this much, at least, O'Shaughnessy is right: The education of Bill Bernstein has only just begun. QUESTIONS? COMMENTS? E-mail barkerportfolio@businessweek.com or fax (407) 728-1711 BY ROBERT BARKER _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
 RELATED ITEMS The Barker Portfolio: Doctor's Orders TABLE: Dr. Bernstein's Portfolio Prescription INTERACT E-Mail to Business Week Online | |||
