What may have seemed like one among many success stories in the era before the Internet bubble burst emerges now as a completely unprecedented institutional investment achievement. He provides lucid and penetrating insight into the world of institutional funds management, illuminating topics ranging from asset-allocation structures to active fund management. Swensen employs an array of vivid real-world examples, many drawn from his own formidable experience, to address critical concepts such as handling risk, selecting advisors, and weathering market pitfalls. Swensen offers clear and incisive advice, especially when describing a counterintuitive path. Conventional investing too often leads to buying high and selling low.
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A column about the NFL. Easterbrook typically writes a fairly eclectic column — and an entertaining one that touches on a lot of issues outside of football. Anyway, back to Easterbrook. Why does Yale have so much money? Because its endowment is run by remarkable money manager David Swensen. Swensen is even a decent human being, paying himself far less than he could earn on Wall Street.
A decent human being in the money-management profession, how did that happen? Did the book really merit this kind of glowing review, or is it just another case of overhype?
A Deeper Look at Unconventional Success Overview Unconventional Success opens with an assertion that an individual investor has only three tools to work with when making an investment choice: Asset allocation refers to the general area where you put your money and how you divide it up. Market timing refers to when you make changes in your investment based on the conditions of the market. Security selection refers to the individual choices you make within your asset allocation.
In effect, Swensen argues that all investments boil down to these three decisions, and he spends the book looking at each one in detail.
Asset Allocation So, the first question: where should an individual investor put their money? Core Asset Classes Swenson identifies six general asset types that people should focus on investing in: domestic stocks, foreign stocks from mature economies Europe, Japan, etc. Portfolio Construction Swenson basically ranks the core asset classes by risk, with developing market stocks being the riskiest and the TIPS and treasury notes being the least risky.
A good portfolio should have some of each to hedge against various changes in the investment world. How much of each, though? The further out your time horizon in other words, how much time will pass before you begin tapping it , the more you should have in the riskier investments and the less in the conservative ones.
Non-Core Asset Classes What about other investments, like municipal bonds? For almost every investor, the core asset classes will be enough. Only when you begin to accumulate huge amounts of wealth should you consider other assets.
In a nutshell, Swenson encourages people to invest in stocks, U. Chasing Performance Do not chase performance. Instead, define your philosophy for investing right off the bat and stick to it. What do you do if one of your assets grows faster than the other? Swensen is a big proponent of rebalancing on a regular schedule — in other words, every 3, 6, or 12 months, sit down and make sure that the current proportion of your investments is the same as your original plan.
I have a friend who rebalances every three months. Security Selection For the most part, this final section of the book just argues that actively-managed mutual funds are a poor investment over the long haul. Instead, Swensen encourages people to invest in low cost index funds that match up with your investment goals.
This is basically the same exact philosophy espoused by John Bogle in his strong book Common Sense on Mutual Funds , and a philosophy that shows up again and again in many other books. The only problem is that a lot of books make that same case. Three things: First, Swensen has walked the walk on a big scale. Second, Swensen writes with great intellect. Unconventional Success is written for a well-educated reader.
Swensen uses the richness of language to describe concepts with great depth, something not often seen in personal finance books. For me, this was refreshing. Third, Unconventional Success breaks it down in an interesting way. By focusing on the perspective of three tools asset allocation, market timing, and security selection , he really simplifies something that can be overwhelming for the beginning investor.
Unconventional Success : A Fundamental Approach to Personal Investment
It was designed by David Swensen, chief investment officer of Yale University. Instead, he prescribes a super-simple Lazy Portfolio, ironing out complexity by holding only six index funds. Figure 1. The Unconventional Success Portfolio is actually a fairly conventional example of strategies called Lazy Portfolios. Parts 1 through 9 appeared on June 11 , 13 , 18 , 20 , 25 , 27 , 29 , 30 , and July 9 ,
DAVID SWENSEN UNCONVENTIONAL SUCCESS PDF
Mikabei I skipped large portions of the book as I realized that I want to look at different markets as Swensen. The tables below give annual returns, compound returns, and standard deviations for the Swensen portfolios, using returns for Vanguard investor share fund selections. The author wrote this article themselves, and it expresses their own opinions. Unconventionxl portfolio is more complex than the three fund portfolios reviewed in the first two articles in this series. Makes a lot of interesting points, but is a bit argumentative, and not very understanding about trade-offs between spending all your time worrying about it, and paying others to take care of things.
Unconventional Success: A Fundamental Approach to Personal Investment
Yale University endowment[ edit ] Swensen was tapped to serve as the Yale endowment manager at age 31 in The letter asked them to consider the effect of their investments on climate change, and to refrain from investing in companies that do not make reasonable efforts to reduce carbon emissions. This method was characterized by Swensen as a more subtle and flexible approach, as opposed to outright divestment. Swensen called the editor-in-chief a "coward" for deleting an inaccurate sentence and removing a footnote in an op-ed that he submitted to the paper; his column, which he required to be published unedited, responded to a student teach-in that criticized companies allegedly in the Yale portfolio.