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This book repeats itself so often that 100 pages could be trimmed easily from it. I understand that he 'modified' it to adjust for some biases he noted, and threw in the warnings, showing that he knows as well as anyone that return volatility is a crap shoot in the short run, but it still rubbed me the wrong way. Since the 1970s, REITs have averaged nearly an 11% return. The reason international stocks are an essential slice of the Swensen Portfolio pie is they don’t always follow the ups and downs of the US stock market. He and Charlie argue that market players routinely overpay for liquidity -- so an investor should maintain holdings in relatively illiquid securities to capture extra returns. In other words, if price movements were rescaled down…so as to be less variable, then price would do a better job of forecasting fundamentals.” Shiller’s self-described “controversial claim” provides “evidence of a failure of the efficient markets model.” Anyone attempting to understand October 1987’s market crash from a fundamental perspective sees merit in Shiller’s position. Swensen, along with Dean Takahashi, invented The Yale Model. With an eye toward cost control, Swensen proposed a six-asset portfolio… "-Page 135 "Thoughtful investors strike a balance between respect for history and concern for analytical consistency. He is notable for inventing The Yale Model which is an application of modern portfolio theory. To hedge against inflation, Swensen prefers 15% of the total Swensen Portfolio to be in TIPs while 15% is in US Treasury bonds. We’d love your help. Pioneering Portfolio Management is probably considered the closest thing to a textbook one could find in the field of Investment Management. What makes Swensen’s volume a classic is the clarity and accessibility with which he explains highly complex and often technical matters. The basic Swensen Portfolio uses six securities. Given their freedom of choice, managers prefer to work for and with clients they like and admire, and they like and admire David Swensen very much. This book reads like an college financial studies textbook, very dry and colorless. Pioneering Portfolio Management. They help diversify a portfolio while still generating decent returns. Portfolio Management Welcome to the Portfolio Management Program at Morgan Stanley. There’s more money than certified talent in the world of investing, so outstanding investment managers have many choices because so many investors want to be their clients. A rising equity glide path may be the answer to maintaining a portfolio in today’s low-bond economic environment for the retiree. Swensen’s 2005 book, Unconventional Success, boiled down his investment approach for the individual investor. David F. Swensen is the chief investment officer of Yale University and the bestselling author of Pioneering Portfolio Management. For those who would rather not live through enormous drops, the Swensen Portfolio model consistently generates excellent returns (without the colossal downside potential of a 100% stock portfolio). That is, security prices tend to fluctuate more than necessary to respond to fundamental factors, such as earnings and interest rates, that determine intrinsic value. I just thought it was a little elementary. With a nearly 10% rate of return since 1900, having a large portion of your portfolio in US stocks isn’t controversial. The appendix is all about fixed income but isn't considered an actual chapter, which seemed very strange. But you can model the Swensen Portfolio. DR 163: The David Swensen Unconventional Success Portfolio Advertiser Disclosure This article/post contains references to products or services from one or more of our advertisers or partners. Ah yes, the allure of new love! Swensen, along with Dean Takahashi, invented The Yale Model. During a bear market, treasury bonds and TIPs will likely outperform (along with the bond market as a whole). Few institutions and even fewer individuals exhibit the ability and commit the resources to produce risk-adjusted excess returns.”, “John Maynard Keynes criticized fiduciaries for preferring to “fail conventionally” rather than taking, as Swensen so often does, direct responsibility for independent, even pioneering thought and action.”, The 52 Most Popular Romances of the Past Three Years. Though there is a lot of discussion that specifically relates to Yale, I think one could either skip those sections or read them to get a better sense of where Swensen is coming from. The Swensen model advocates for investing outside of US stocks in international developed equities. It was also full of blow-up stories. It was about as engaging as a textbook. In the years since the now-classic Pioneering Portfolio Management was first published, the global investment landscape has changed dramatically -- but the results of David Swensen's investment strategy for the Yale University endowment have remained as impressive as ever. I would recommend this to anyone working directly in the field of finance or active fund management. Be the first to ask a question about Pioneering Portfolio Management. His book echoes similar themes to texts by Charlie Ellis, someone else in the investment profession whom I admire. however, the various stories and examples of other funds he tells are really interesting. 7 Full PDFs related to this paper. Swensen discusses the three tools of portfolio management: 1) asset allocation -- responsible for ~90% of portfolio returns 2) market timing -- mostly a fool's game, and 3) security selection -- contingently appropriate dependent on the strategy and time horizon. I also enjoyed Swensen’s open antagonism of credit (corporate credit, high yield credit, non-US sovereign credit, and even asset backed or structured credit) as an asset class. History has shown that for a retiree, a 30/70 portfolio rising to a 70/30 portfolio has less volatility and risk than a portfolio that begins and ends with a 60/40 split. Much of what Mr. Swensen details in this book are still quite relevant I found the writing style quite easy to read. In 2014, Warren Buffett provided his ETF portfolio recommendation, and we immediately compared it to David Swensen’s recommendation from 2005. This book lays out fundamentals of portfolio management from the perspective of one of the most successful and credible practitioners in the market: David Swensen of Yale's Endowment. Within bonds, he splits it evenly at 15% between TIPS (Treasury Inflation-protected securities) and US Treasury Bonds. David F. Swensen (born 1954) is an American investor, endowment fund manager, and philanthropist.He has been the chief investment officer at Yale University since 1985.. Swensen is responsible for managing and investing Yale's endowment assets and investment funds, which total $25.4 billion as of September 2016. David Swensen is the President and Chief Investment Officer of Yale’s endowment. You may find less value in it if you have no experience or education in asset management, but he does a nice job summing up basics of asset classes and the typical pitfalls faced by many institutional investors. Kasheeban Sureshan. This paper. Swensen taught me how to do investment in the right way. With the Yale Model Portfolio, you have to be an institutional investor or a large university endowment to gain access. The Larry Portfolio (LP) has become fashionable for those looking to limit their potential downside even further. The Swensen Portfolio favors stable, well-known international stocks as investment options (that happen to be outside the US). The other piece of the Swensen Portfolio puzzle is the ability of ordinary investors to replicate it. He then wrote a book called Unconventional Success detailing how individual investors can … David F. Swensen (born 1954) has been the Chief Investment Officer at Yale University since 1985. Welcome back. Listen Money Matters is reader-supported. This is valuable for understanding how strong portfolio managers think about various types of alternative investing. For example, 100% invested in VTSAX. The book is essentially a guide to Yale’s model, which Swensen … M1 Finance is a Robo-Advisor that makes personal investment portfolio management easy. In his 14 years as Yale's chief investment officer, David Swensen has propelled the university's investment portfolio into the top one per cent of institutional funds. It's a great book! Much of what Mr. Swensen details in this book are still quite relevant I found the writing style quite easy to read. Just a moment while we sign you in to your Goodreads account. Swensen, creator of this portfolio is the mastermind behind the Yale Endowment investment strategy. He spent a full two pages running Jim Cramer through th. (In particular I like how he classifies them all as “impure fixed income”) Furthermore, Swensen does actually dive into a variety of strategies, markets, and return streams. Hopefully, you catch a wave and make a strong return with minimal risk to your overall portfolio. (source: Nielsen Book Data) Is the Swensen Portfolio Model Right for You. The Swensen Portfolio is one of the most copied investment models in the world. Forecasts of variances place second in importance, while assumptions regarding correlations prove least crucial. Markets often drop because of global situations, but occasionally, the US market falls because of conditions only affecting the US economy. When managed on a sustainable basis, the productive capacity of the forest remains intact, preserving value across generations. May 22nd 2000 While he doesn’t dive too deep into the weeds, or go into Yale’s portfolio in too much length, he does provide a lot of helpful commentary on his own views. Hard to knock the "Father" of portfolio management. First chapter is really the most important. Every asset class in the Swensen Portfolio is available through low-cost ETF and mutual fund vehicles for anyone to copy. Asset class management; Investment process. Swensen discusses the three tools of portfolio management: 1) asset allocation -- responsible for ~90% of portfolio returns 2) market timing -- mostly a fool's game, and 3) security selection -- contingently appropriate dependent on the strategy and time horizon. Pioneering Portfolio Management. While it’s a popular model, it isn’t the only show in town. While 100% stocks, such as with the Vanguard VTSAX index fund will have the highest rate of return in a bull market, Swensen believes his model will perform better over the long run without the gut-wrenching drops of an all-stock portfolio. The book title says it's for institutional investment but at times Swensen seems to go off into the retail/individual space. You can get his book Unconventional Success: A Fundamental Approach to Personal Investment on Amazon here. David F. Swensen is the chief investment officer of Yale University and the bestselling author of Pioneering Portfolio Management. Five percent in emerging markets is the icing on the cake. Wish I could give it 4.5 stars, but I'm rounding down. It’s unrealistic to expect the same returns produced by Yale’s endowment portfolio. Dave Swensen is a modern legend and though he might not admit it, the forefather of the dominant investment style found in endowments, foundations, and family offices around the world. During his fourteen years as Yale's chief investment officer, David F. Swensen has transformed the management of the university's portfolio. ‘Developed’ refers to being in a similar economic development to the US. My only critique was that he warns the reader in earnest about the inherent flaw in using historical volatility as a measure of risk (a la Nassim Taleb), then turns around and bases his entire capital allocation model on expected returns and expected volatility. But he agreed to go to New Haven and chat with Brainard. Dave Swensen is a modern legend and though he might not admit it, the forefather of the dominant investment style found in endowments, foundations, and family offices around the world. Instead of investing directly in brick and mortar real estate, the Swensen Portfolio advises 20% to be put into REITs (Real Estate Investment Trusts). The book was written in 2005, and Swensen didn't include cash as an asset, possibly because Yale's portfolio (and the other major college funds) actually showed a negative allocation to cash. I found The Four Pillars of Investing by Bernstein a better read. Because you can purchase all of these asset classes through ETFs or mutual funds, your expense ratio will be small. David Swensen is manager of Yale University's endowment fund where he's generated returns in the range of 16% annually the past couple decades. Like “Three themes surface repeatedly in the book. Pioneering Portfolio Management. Summary In his 14 years as Yale's chief investment officer, David Swensen has propelled the university's investment portfolio into the top one per cent of institutional funds. He is responsible for managing and investing the University's endowment assets and investment funds, which total $23.9 billion. I found his descriptions of the incentive structures of small vs large managers, and of his claim that all fixed income other than treasuries is “impure fixed income” particularly fascinating. ― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated. It was an instant best-seller among professional investors who … However, for the rest of us investors, the content is a bit much. Given their freedom of choice, managers prefer to work for and with clients they like and admire, and they like and admire, My fav quotes (not a review):-Page 11 |"The sixth secret is that, as Charles Darwin tried to explain, survival of the fittest is not determined by competitive strength, but rather by social desirability. And liquidity only exists when you need it least -- consider the air pocket of liquidity in 1987 during the October crash or 1998 during the Russian debt crisis. The big takeaway is to customize to your institution's needs. "-Page 43 |"The high risk, high return investment policy best suited to serve asset preservation conflicts with the low risk, low return investment approach more likely to produce stable distributions to the operating budget. But that's probably a good thing. The Yale Endowment manages billions of dollars and invests in all kinds of exotic assets only available to large institutions. The Yale Portfolio invests in exotics only available to institutional investors, putting it out of reach for most. During a bull market, US and international stocks will do well. "-Page 143 "Real estate constitutes the core of Yale’s real assets portfolio with a weight of 50 percent. The Swensen Portfolio is the easiest way for individual investors to copy the world-famous Yale Model. This book is not yet featured on Listopia. Pay for patience in the timber arena contrasts with the depletion characteristic of oil and gas investments.". Pioneering Portfolio Management. I thought it overall was a pretty good book, but the writing style left a little to be desired. There is a good amount of time dedicated to the specifics of running a large endowment, including how to treat fund managers, reviewing past endowments, and other specific things that do not apply to the every day investor. Probability of Depletion Conclusion Swensen isn’t totally against risk. It was also full of blow-up stories. Refresh and try again. Swensen discusses the three tools of portfolio management: 1) asset allocation -- responsible for ~90% of portfolio returns 2) market timing -- mostly a fool's game, and 3) security selection -- contingently appropriate dependent on the strategy and time horizon. The below represent the weightings, core components, and asset classes involved when building this model. Download PDF. Fantastic book. Like TIPs, real estate increases when inflation rises so they also do well as a hedge. Let us know what’s wrong with this preview of, Published Swensen's book ranges from a dry, almost textbook-like description of the mechanics of portfolio assembly to gory war stories of greed and mismanagement. Professor William Goetzmann is the Faculty Director of the MBA for Executives Asset Management track and currently teaches MGT807E Portfolio Management: Alternative Portfolios. Recommended for its contrarian view, especially around fixed-income investing. He spent a full two pages running Jim Cramer through the wringer too. He believes corporate bonds don’t offer high enough returns for the increased risk. In fact, the forestland owner receives a bonus in the form of an additional year’s biological growth as the payment for patience. He’s specifically interested in US Treasury bonds. At Salomon Brothers, he structured the first swap, a currency transaction involving IBM and the World Bank. Overall very solid book. David Swensen Teaches Asset Management Students About "The Yale Model" January 13, 2020 . David Swensen is the President and Chief Investment Officer of Yale’s endowment. As a result, his investment style has been emulated by … Very illuminating book - it gave a great macro overview of how university endowments should think about their portfolios, in terms of balancing the decisions of what percent of the endowment should be spent each year versus what the portfolio should be invested in to ensure preservation of purchasing power. He serves on the boards of TIAA, The Brookings Institution, Carnegie Institution, and Hopkins School. Sustainable forest management does not require lockstep harvesting of a single year’s biological growth. As of September 2019 the total amount is $29.4 billion. It's actually fairly clear to see the principles that should (in principle) underlie one's own personal portfolio allocation decisions, while also providing insight into the eagle's eye view institutional investors take when making their decisions. As I did with the Ivy 5, I’ll lay out the standard “Swensen Six” model and then expand it to make use of the Tranche Model. He then wrote a book called Unconventional Success detailing how individual investors can mirror The Yale Model in their portfolios. Here, he articulates his philosophy and strategies of portfolio management. The LP favors a bond allocation of 70% while using small-cap stocks to increase its upside. M1 Finance sticks out among Robo-advisors by offering pre-made funds mirroring the strategies of top investors. In the years since the now-classic Pioneering Portfolio Management was first published, the global investment landscape has changed dramatically - but the results of David Swensen's investment strategy for the Yale University endowment have remained as impressive as ever. Great starter book for anyone getting into indirect fund investing. Although timber shares the characteristic of inflation sensitivity with real estate and oil and gas, because timber plays less of a role in the general economy, timber prices exhibit less correlation with general price levels. If timber prices appear to be relatively low, the cutting program can be curtailed, deferring current year harvests to future years. David Swensen believes in investing in market-cap-weighted US equities. The Swensen Portfolio is well diversified; you shouldn’t have those gut-wrenching drops investors feel with a 100% stock portfolio. When you buy through links on our site, we may earn an affiliate commission. The best lesson I learned from this book was the importance of asset allocation in addition to great investment idea generation. The Swensen Portfolio divides the bulk of its asset allocation between US stocks and Intermediate bonds. The final product is what’s known as the Swensen Portfolio. Emerging markets are economies that are starting to enter the world stage. However, be ready to endure a few massive dips along the way. There comes a point when managing one’s assets turns into a full-time job. At first, Swensen begged off: All he knew about portfolio management was the Markowitz and Tobin he’d studied in grad school. There’s more money than certified talent in the world of investing, so outstanding investment managers have many choices because so many investors want to be their clients. In the subsequent three decades, he has produced superlative returns (including a 20-year winning streak of positive returns from 1988-2007). Still, the Swensen model is nearly dummy-proof and an excellent way for the lazy investor to limit risk while maximizing returns. Financially astute timber owners manage holdings on a sustainable basis, cutting the amount of wood produced each year through biological growth. You’ll have REITs and TIPs to protect against inflation. David Swensen took over management of Yale’s endowment in 1985. Favorite quote from the book: “[S]uccssful investment cultures encourage professionals to find new mistakes to make, instead of simply repeating old errors.” (page 304). S endowment Treasury Inflation-protected securities ) and US Treasury bonds better read regarding prove... Subsequent three decades, he has produced superlative returns ( including a winning... A single company, REITs have averaged nearly an 11 % return to whether most folks outperform! All of this seems too much to think about you can always invest 100 % stock Portfolio every asset.... 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