The New York Times recent feature story about David Swensen, “The money management gospel of Yale’s endowment guru,” paints a picture of one of the hardest-working and most ethical institutional investors on the planet.

The article, however, fails to point out that the type of investing depicted in the article, with a palette of  hedge fund managers selected by a committee of astute market analysts, isn’t what Swensen would recommend for individual investors. For us, Swensen’s advice is far simpler.

Swensen’s book for everyday investors, Unconventional Success—not mentioned in the article, but covered by the Times back in 2005—is a cornerstone for understanding how to assemble a reasonable and low cost investment strategy.

Bogleheads has a good one-page summary of this strategy, which is one of the so-called “lazy” portfolios, since the investor can set it up and then tune-out market news. Once or twice a year, funds can be re-balanced by buying and selling holdings to their strategic allocation.

The allocation, in a nutshell, per Bogleheads, is:

  • US equity:  30%
  • Foreign developed equity: 15%
  • Emerging market equity: 5%
  • US REITS: 20%
  • US Treasury bonds: 15%
  • US TIPS: 15%

I follow this allocation for all of my investments, with one slight tweak. Since the Vanguard Total International Stock Index Fund contains a proportional amount of the word’s emerging market stocks, I invest 20% in that fund, which makes my investing that much simpler.

You can learn to put together this portfolio without reading the book, but the advantage of reading Swensen is the strategy begins to make sense. Each of the elements is there for a reason, and in concert these elements work together nicely (except perhaps in a market free-fall, where everything is losing value, but the only words that matter in that situation are ‘stay the course’). Since the allocation makes sense, it’s easier to stick to it.

This echoes Warren Buffet’s maxim not to invest in anything you cannot understand. Buffet, perhaps the word’s most successful investment manager, also unironically advises everyday investors to keep it simple by buying index funds.

Unconventional Success is also kind of fun to read if you can get past Swensen’s dry prose style and the formulaic (like class notes) way the chapters are structured. He is absolutely brilliant at skewering rip-off artists in the market, and he does so plainly with a certain vehemence I enjoy. You can see shades of this in the recent Times article when Swensen criticizes how the interplay of a hedge fund and a pharmaceutical company (Valeant) resulted in skyrocketing drug prices.

Although I wish the article contained a bit more education for the general reader, I welcomed its appearance nonetheless. Having read that Swensen’s been battling cancer for a few years, I wish him well. Our nation needs more wise teachers like him.

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