Lecture 9 of Robert Shiller's course on Markets is a guest lecture by David Swenson who is the head of the investment committee of Yale.
I particularly enjoyed his responses to the questions at the end, although you couldn't actually hear the questions as there were no microphones in the audience.
The talk is about his approach to investing and he discusses asset allocation, market timing and security selection.
He also talks about what I am looking at on this blog looking at the difference between the time-weighted returns that funds publish and the dollar weighted returns that investors experience. He refers to a morningstar study that also documents not only individual but also institutional investors in their habit of buying high and selling low.
He talks about the '87 crash and how just before the crash a lot of institutions had historically high weightings to equity, and at the bottom increased their weightings to bonds.
He briefly looks at the allocation of the Yale fund and summarises his approach as having an equity orientated and diversified asset allocation, to avoid market timing and to focus your time and energy based on your skill levels and areas where it is possible to add value.
In choosing managers, a major factor is on the qualitative aspects. He looks for people of high integrity, with unimpeachable character who are smart and incredibly hard working. He wants managers who are obsessed with the markets and maniacally focused on beating the market and achieving superior returns rather than gathering assets.
An interesting talk, well worth the watch.
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JOIM Speech
7 years ago
I've just watched the lecture.
ReplyDeleteSo he believes thjat asset allocation accounts for greater than 100% of performance and security selection and market timing are (after costs) net negative.
ReplyDeleteQuote from Keynes might be useful on buy and sell too late (around 22:30 mark).
I have some questions on his comments on time-weighted vs market weighted: for every investor who bought high, someone sold high and for every investor who sold low, someone bought low. It is a zero sum game, except for those who subscribed when the company listed, and those still holding the company when it delists?
And my question is: Protecting Alpha - which Alpha? Stock picking alpha or asset allocation alpha?
ReplyDeleteInterestingly I've just researched the UCT Foundation investments. They have R1.5bn invested in mixture of equity and gilts. They allow a 4% drawing each year with the rest growing the pool. They seem to target inflation+4% but only declare a smoothed return. Not quite as progressive as Yale.
ReplyDeleteSimilarly, Peter Lynch estimates that about half the investors lost money with Magellan
ReplyDeleteI've just read (some of) a book by Guy Fraser-Sampson on Multi Asset Class Investment Strategy. It proports to talk about Swensons approach. It is entertainingly read, but I eventually gave up because of a total lack of technical quality to the book, and lots of wrong conclusions. Looking more carefully, he has not had direct contact with Swenson and is thus just writing a person review of the methodology which he supports, but only to be contrarian!
ReplyDeleteHe also has a go at defined benefit pension funding and goes half way to developing a full funding contribution and investment determination strategy. Of course studying what the actuaries already do would have saved him a lot of time.