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David Swensen is a hero among the elite institutional class of investors. His record is outstanding.
I read his “Unconventional Success” book in 2005. In its introduction, Swensen admits that he made a major revision to the book’s planned outline soon after he started the project.
His investment success had indeed come from an unconventional approach. At Yale, he eschewed the common 60/40 mix of equities and fixed income investments in favor of more exotic and illiquid private placements, venture capital, real estate, timber, and hedge fund alternatives. This approach took very specialized experts and extensive research typically not accessible to the individual investor.
So, what worked for Yale was simply not likely to work for his prospective readership. Swensen revised the thrust of his book to accommodate these differences in capability and the result was a hugely successful book that the average individual investor could easily execute.
Swensen is obstinately opposed to active investing by amateur investors. Swensen observes that only a handful of super professionals can clear the hurdle of common benchmarks. This small group does it with esoteric, often costly, and historically ephemeral techniques. It’s a tough nut even for this exceptionally talented cohort.
In the end, he strongly endorses passive Index investing for individual investors.
Here is a Link to an 11 minute NPR interview conducted by Motley Fool Profiles with him soon after his book’s release:
In the interview, Swensen disagrees with the Peter Lynch position that private investors hold an edge over professionals. He concludes that the necessary research is just too demanding for the individual. I propose that Lynch’s most prescient decision was to retire when he did. His edge disappeared as the size of his fund grew to an unmanageable magnitude; his latter year returns were not especially impressive.
After Swensen’s name and fame surfaced in recent MFO discussions, I retrieved my copy of his book. I usually make a few notes during the reading and I found a few scribbles that I made at the time. I reproduce some of these notes here. I hope they’re accurate; my handwriting is only semi-legible at best.
“Regression to the mean, one of the most powerful influences in the world of finance, explains the tendency for reversal of fortune.”
“Thousands upon thousands of professionally managed funds routinely fall short of producing even market-matching results.”
“Individuals who attempt to compete with resource-rich money management organizations simply provide fodder for large institutional cannon.”
“Poor asset allocation, ill-considered active management, and perverse market timing lead the list of errors made by individual investors.”
“Overconfidence contributes to a litany of investor errors, including inadequate diversification, overzealous security selection, and counterproductive market timing.”
“Instead of concentrating on the central issue of creating sensible long-term asset-allocation targets, investors too frequently focus on the unproductive diversions of security selection and market timing.”
“As a general rule of thumb, the more complexity that exists in a Wall Street creation, the faster and farther investors should run.”
“Unfortunately, as asset size increases, active portfolio management becomes increasingly difficult.”
“Sensible investors prepare for a future that differs from the past, with diversification representing the most powerful protection against errors in forecasts of expected asset-class attributes.”
“Well-informed investors avoid lining brokers’ pockets with unproductive fees and enjoy higher expected returns from buying no-load funds.”
“Sensible investors avoid speculating on currencies.”
“A modest allocation to emerging markets stocks contains the potential to enhance the risk and return characteristics of most investment portfolios.”
“With its inflation-sensitive nature, real estate provides powerful diversification to investor portfolios.”
And finally,
“Ultimately, a passive index fund managed by a not-for-profit investment management organization represents the combination most likely to satisfy investor aspirations.”
“Sensible taxable investors reach an obvious conclusion: invest in low-turnover, passively managed index funds.”
These sayings are not especially groundbreaking. Many of them had been expressed earlier by the likes of Ellis, Bogle, Malkiel, and many others.
I guess I owe a belated acknowledgement to Swensen. I was at least partially informed and guided by Swensen on many of the positions that I now advocate within the MFO exchanges. After reviewing my notes, I realize that Swensen served as one of my book mentors.
I hope you enjoyed the brief listing of Swensen quotes.
Comments
David Swensen is a hero among the elite institutional class of investors. His record is outstanding.
I read his “Unconventional Success” book in 2005. In its introduction, Swensen admits that he made a major revision to the book’s planned outline soon after he started the project.
His investment success had indeed come from an unconventional approach. At Yale, he eschewed the common 60/40 mix of equities and fixed income investments in favor of more exotic and illiquid private placements, venture capital, real estate, timber, and hedge fund alternatives. This approach took very specialized experts and extensive research typically not accessible to the individual investor.
So, what worked for Yale was simply not likely to work for his prospective readership. Swensen revised the thrust of his book to accommodate these differences in capability and the result was a hugely successful book that the average individual investor could easily execute.
Swensen is obstinately opposed to active investing by amateur investors. Swensen observes that only a handful of super professionals can clear the hurdle of common benchmarks. This small group does it with esoteric, often costly, and historically ephemeral techniques. It’s a tough nut even for this exceptionally talented cohort.
In the end, he strongly endorses passive Index investing for individual investors.
Here is a Link to an 11 minute NPR interview conducted by Motley Fool Profiles with him soon after his book’s release:
http://www.npr.org/templates/story/story.php?storyId=4965681
In the interview, Swensen disagrees with the Peter Lynch position that private investors hold an edge over professionals. He concludes that the necessary research is just too demanding for the individual. I propose that Lynch’s most prescient decision was to retire when he did. His edge disappeared as the size of his fund grew to an unmanageable magnitude; his latter year returns were not especially impressive.
After Swensen’s name and fame surfaced in recent MFO discussions, I retrieved my copy of his book. I usually make a few notes during the reading and I found a few scribbles that I made at the time. I reproduce some of these notes here. I hope they’re accurate; my handwriting is only semi-legible at best.
“Regression to the mean, one of the most powerful influences in the world of finance, explains the tendency for reversal of fortune.”
“Thousands upon thousands of professionally managed funds routinely fall short of producing even market-matching results.”
“Individuals who attempt to compete with resource-rich money management organizations simply provide fodder for large institutional cannon.”
“Poor asset allocation, ill-considered active management, and perverse market timing lead the list of errors made by individual investors.”
“Overconfidence contributes to a litany of investor errors, including inadequate diversification, overzealous security selection, and counterproductive market timing.”
“Instead of concentrating on the central issue of creating sensible long-term asset-allocation targets, investors too frequently focus on the unproductive diversions of security selection and market timing.”
“As a general rule of thumb, the more complexity that exists in a Wall Street creation, the faster and farther investors should run.”
“Buying yesterday’s winners and selling yesterday’s losers inevitably hurts tomorrow’s performance.”
“Unfortunately, as asset size increases, active portfolio management becomes increasingly difficult.”
“Sensible investors prepare for a future that differs from the past, with diversification representing the most powerful protection against errors in forecasts of expected asset-class attributes.”
“Well-informed investors avoid lining brokers’ pockets with unproductive fees and enjoy higher expected returns from buying no-load funds.”
“Sensible investors avoid speculating on currencies.”
“Sensible investors avoid non-core asset classes.”
However,
“A modest allocation to emerging markets stocks contains the potential to enhance the risk and return characteristics of most investment portfolios.”
“With its inflation-sensitive nature, real estate provides powerful diversification to investor portfolios.”
And finally,
“Ultimately, a passive index fund managed by a not-for-profit investment management organization represents the combination most likely to satisfy investor aspirations.”
“Sensible taxable investors reach an obvious conclusion: invest in low-turnover, passively managed index funds.”
These sayings are not especially groundbreaking. Many of them had been expressed earlier by the likes of Ellis, Bogle, Malkiel, and many others.
I guess I owe a belated acknowledgement to Swensen. I was at least partially informed and guided by Swensen on many of the positions that I now advocate within the MFO exchanges. After reviewing my notes, I realize that Swensen served as one of my book mentors.
I hope you enjoyed the brief listing of Swensen quotes.
Best Regards.