Peter Bernstein - A Man to Whom We Owe so Much.... RIP

Peter Bernstein, author of Capital Ideas: the Improbable Origins of Wall Street, Against the Gods: the Remarkable Story of Risk and editor of the Journal of Portfolio Management recently passed away. Mr Bernstein was a towering intellect, a grand researcher and summariser but most of all a brilliant communicator. I have long lost count of the ideas which were clarified for me by reading his work.... I have just received the obituaries written in the JOPM and I reproduce some from the "big names" - and his admirers were many and all "big". Their words are worth reading for all of us who are students of finance and investment.

Of course if you haven't read the Bernstein books (and they are in my recommended list!!!) go do yourself a big favour !!!

Paul A. Samuelson

William James observed that some people are born “with a bottle of champagne to their credit” and that is why they can perform so energetically. Peter was just that. He lived a long-achieving life. And he was able to live well by doing good for society.

For The Journal of Portfolio Management he was one of the principal founders. Always it was his precious baby. For it he wrote a monthly introductory column. As I learned, he was a persuasive recruiter. At the same time his fortnightly newsletter, “Economics and Portfolio Strategy,” was subscribed to by savvy bankers, economists, and Wall Street money managers.

At TIAA-CREF, where tens of billions of dollars were being invested, elected trustees tended to be divided between Wall Street biggies and academic finance owls. In my decades on the CREF Finance Committee, thanks to staunch allies such as Peter, Bill Sharpe, Myron Scholes, and others, we prevailed in a “carnation revolution” to diversify further, both internationally and into a large core of stock indices.

Peter’s family was comfortably New York middle class. His father, Allen, was co-partner with clever Frederich Macaulay in the Wall Street firm Bernstein-Macaulay. Peter’s schooling was typical of that class: first, Ethical Culture School; then Horace Mann; then the Harvard (1940 class) where he earned a magna cum laude degree.

His Harvard stay was in the Conant Golden Age when top stars were Alvin Hansen (“the American Keynes”) and John H. Williams (who moonlit at the New York Fed as vice president in charge of research). Peter’s peers (and mine as well) were no less than Jim Tobin, Lloyd Metzger, Richard Musgrave, and other stars. Understandably we were eclectic “cafeteria Keynesians” who felt only pity for libertarian Milton Friedman’s 1911 money-only crochets.

Like a Charlie Kindleberger, Peter’s year at the New York Fed terminated when he joined the Donovan-Mason OSS spy group (predecessor to the later CIA) along with Robert Roosa, Sidney Alexander, Carl Kaysen, and the rest of that Harvard econ gang. Before Peter stumbled into his life career, he taught briefly at Williams College, and later learned about real-world risk in a stint as a loan officer at a New York bank.

After his father’s death, Peter was pressed to carry on the Bernstein-Macaulay effort. Apparently this did not at first tempt him. But when as a good soldier he signed up for a limited term, to his surprise and delight what he had been resisting was actually just what he came to enjoy most. The rest was history.

His quill ached to be used. For a varied clientele—family fortunes, and the general public—he analyzed current and prospective trends.

For brevity I mention only his bestsellers—Against the Gods: The Remarkable Story of Risk and Capital Ideas: The Improbable Origins of Modern Wall Street. Others might select the Bernstein take on gold, and even his tale about the Erie Canal.

Peter managed the impossible—he distrusted active high-turnover, high-load, and high-expense charges, but at the same time he nominated and measured (along with Mark Kritzman) new descriptive dynamic trends. Unlike most seers, when Peter proved to be wrong he admitted to that truth.

Barbara and Peter Bernstein were teammates who will long be remembered in avant garde investment circles.

Theodore R. Aronson

Peter’s death is a day I knew would come, no matter how much I hoped it wouldn’t. My association with Peter dates back to the founding of Aronson+Johnson+Ortiz (née Aronson+Fogler) 25 years ago. Our paths crossed in a big way when I was chairman of CFA Institute. I could never summarize all his wisdom over those years—heck, it covers numerous books and decades of newsletters and issues of The Journal of Portfolio Management.

I do recall more personal moments between us:

■ I was honored—deeply honored—that Peter asked me to review the manuscript that became Against the Gods. I was bowled over by the text and could contribute virtually nothing to correct or improve the incredible book Peter wrote. He asked, then, for ideas on a title. I thought my suggestion was the epitome of wittiness, Wizards of Odds. (Thank goodness he didn’t take my advice.)
■ When Capital Ideas arrived in 1992, I happened to be in our mailroom and cracked open the package. I started reading, was mesmerized, and finished about half the book before I realized I was still in the mailroom—hours later.
■ I vividly recall joking with Peter that, only after finishing Capital Ideas, had I realized I joined the investing profession at the very start of the quantitative revolution in 1974. (Who knew?)
■ I also remember Peter telling me he made his biggest mistakes after he was right.
■ I will always remember his mantra: Never cease believing the future is unknowable.

Peter was legendary for his generosity of spirit and time. He was also legendary for his kindness and warmth. Many years ago, out of the blue, a package arrived with cancelled (and defaulted) stocks and bonds from early in the 1930s. I didn’t recognize the name of the registered owner. At the end was a note from Peter explaining that he thought I might want these for my collection of “antique” scripophily. He discovered them collecting dust in an old file; they belonged to his first wife, Shirley, who died in 1971.

Robert D. Arnott

The thing I most fondly remember about Peter, my mentor and friend, is his warm and broad smile. He loved, loved, loved life. A few days before he died, he asked me to sub for him on an upcoming speech. Remarkably, this was the first time in a 30-year friendship that he ever asked for a favor. I called immediately to agree to help out, and to see how he was faring with his broken hip. He actually apologized that he was in enough pain that he wasn’t “quite up to chatting about the speech or investment ideas.”

He had an unwavering devotion to ideas, to family, and to friends. His relationship with his wife, Barbara, was extraordinary. After 9/11, they decided to always be together. When Peter went to the dentist, Barbara was with him. When she went to the hairdresser, Peter was with her. His participation in our advisory panel was a two-fer, and Barbara would often chip in her own insightful observations.
He was the best writer in the world of finance. Who, but Peter Bernstein, could write a book on the history of probability theory and its role in understanding investment risk, and have it reside on the New York Times best-seller list for over a year? With Against the Gods, he managed just that. I felt deeply honored when he asked me to proof his brilliant opus The Power of Gold. His 10 books are all classics, and half were written after age 75. He was working on his eleventh when he died.

While he respected the power of quantitative models and methods, and loved the elegance of modern finance theory enough to write Capital Ideas, he also recognized that theory is theory. It’s an approximation of the real world; it’s not reality. He relished poking holes in our industry’s overreliance on theory and historically rooted models. Although he’s been my hero and mentor in that role, he managed it with such charm that he annoyed no one in the process.

Of his countless articles, several are among my all-time favorites. In one, he aptly compared dividends with fresh orange juice and retained earnings to frozen orange juice. What a great way to highlight the gap between Miller–Modigliani and the real world. He was probably the world’s leading expert on risk, focusing on the distinction between uncertainty—the probabilistic range of possible outcomes—and risk—the truly unknowable. Ninety years had taught him how suddenly change can arrive and how little we can predict. He was viscerally aware of the ephemeral nature of wealth or success, expressing a profound humility in the face of the unfathomable future.

He served in World War II, aptly in military intelligence; thankfully, and against his wishes, the military was not going to waste him on the front lines. Evidently, in World War II, military intelligence was no oxymoron. He taught economics at university. He co-managed his father’s firm, Bernstein–Macaulay, with Frederick Macaulay, who not only was the inventor of the concept of bond duration, but also was credited by Peter as the best source of naughty jokes that he ever knew. He was founding editor of The Journal of Portfolio Management with which he remained active until he died. His newsletter “Economics and Portfolio Strategy” was a must-read for investment managers for 35 years as it delved into the nuances of the economy and the markets.

Paul Samuelson liked to affectionately refer to Peter as a feisty, young whippersnapper. Paul is 94. To me, Peter was a friend and mentor, one of my heroes. I will deeply miss his empathetic humanity, his joie de vivre, his profound insights, his lucid writing, and his incisive wit.

John C. Bogle

The financial sector of our American society is hardly overpopulated with Renaissance men—human beings of great intellect, prodigious works, wide-ranging vision, scholarly wisdom, multidisciplinary focus, entrepreneurial spirit, and a commitment to raising our standards of professional conduct. With the death of Peter Bernstein, that microscopic portion of our field has been severely diminished. I hope and pray we shall see his like again, but I see few today in a position to replace him.

That I’ve been reading his regular “Economics and Portfolio Strategy” essays for as long as I can remember may not be surprising—I’m often told that my reading list is ridiculously long (and I’d be hardpressed to disagree). But of all of the publications I read, his is the only one of which I’ve saved every copy. I’ve also read—and have in my library—all of his books, including Capital Theory, The Power of Gold, Against the Gods, Wedding of the Waters, and all the rest, a remarkable output in and of itself, even more remarkable in the range of its subject matter (the Erie Canal, for heaven’s sake!). It is hard to imagine the volume of research he must have invested in each one of his books.

Replete though the record of his works may be, the man behind all of those words was a warm, witty, and wise human being. I’ve known Peter for some three decades, worked with him at industry events, discussed with him the issues of the day, and even had the temerity to challenge his thinking and debate these issues with him.

Nonetheless, when in 2003 he declared that “policy portfolios are obsolete”—favoring instead a policy of short-term opportunism using many unconventional asset classes—I fear that my elbows may have been a bit sharp, and I fired back. In a speech before the Investment Analysts Society of Chicago, I described his new position as “wide of the mark, even ill-begotten,” words that may have overstated my convictions in this field where uncertainty is the watchword.

Peter handled my criticism with equanimity and respect, but his kind response did little to ease my feelings of guilt (not about my convictions themselves, but about how I expressed them), so I offered a peace pipe of sorts and sported Peter and Barbara, his wonderful wife and omnipresent partner, to a delightful luncheon. (He chose the toney Hotel Pierre. I winced when the check arrived, but felt good about paying the bill!)When we parted company, we were better friends than ever.

But, for me, the substance of Peter was much more than his incredible range of accomplishments. The descriptive phrase that best describes him is generous grace. How many writers of essays, and studies, and papers, and books in our profession did Peter inspire with his endorsements, his compliments, his encouragement—and even his use of a keen editorial pen? Scores of us were the beneficiaries of his comments, public and private, and I was surely among the most favored.

When I wrote my first book, Bogle on Mutual Funds, in 1993, Peter’s back-cover endorsement read: “This book sets the standard for all how-to-invest books … even over Benjamin Graham’s The Intelligent Investor.” (Peter, bless his soul, was not above hyperbole!) And in endorsing my most recent book, Enough., he created his own title, Never Enough of Jack Bogle. (Ditto.)

We all need strength to carry on. Peter Bernstein’s generous grace gave those of us who write and think about investing the strength to keep going and to keep going in the direction of truth and reason. That is, for me, his greatest legacy, even greater than his own preeminent intellectual standing and his prodigious outpouring of words and ideas, all impeccably organized and articulated with precision—for he would have it no other way!

When we stand on the shoulders of Peter Bernstein, we stand on the shoulders of a true investment giant of our era. While those shoulders are no longer there for us in physical form, they remain in spiritual form, ever available to support us, and to provide perspective, wisdom, and inspiration for generations yet to come.