Pioneering Portfolio Management: Institutional Investing - David Swensen

[A_Hamilton]

[amazonsearch]Pioneering Portfolio Management: Institutional Investing - David Swensen[/amazonsearch]

 

Hands down the best book on asset allocation out there.

[Liberty]

Could you elaborate a bit on what makes it good and what is approach is? Is it as useful to an individual investor? Thx.

[stahleyp]

Could you elaborate a bit on what makes it good and what is approach is? Is it as useful to an individual investor? Thx.

 

Liberty, I think this one is more geared to individual investors:

 

http://www.amazon.com/Unconventional-Success-Fundamental-Approach-Investment/dp/0743228383

[Liberty]

Thanks. Is his approach value investing? I have to say that the first review scared me:

 

Swensen lays out six "core" asset classes that should form the basis of an individual investor's portfolio, each of which should comprise between 5% and 30% of the portfolio. Below is the "generic" target portfolio outlined in the book:

1. Domestic Equity (30%)

2. Foreign Developed Market Equity (15%)

3. Emerging Market Equity (5%)

4. Real Estate (20%)

5. U.S. Treasury Bonds (15%)

6. U.S. Treasury Inflation-Protected Securities (15%)

 

Swensen also discusses "non-core" asset classes and why each should not be a part of an individual investor's portfolio. These "non-core" asset classes include:

1. Domestic Corporate Bonds, 2. High Yield (Junk) Bonds, 3. Tax Exempt (Municipal) Bonds, 4. Asset-backed securities, 5. Foreign Bonds, 6. Hedge Funds, 7. Leveraged Buyouts, and 8. Venture Capital. We spent so much time in business school glorifying these assets that I found the rationale for why they have no place in an individual's portfolio quite useful. 

 

This seems to make sense if you are passively indexing, but I'm not sure what I would do with this information considering my portfolio is 100% equity and has ranged between 3-9 stocks so far (I'm Mungerian that way)...

[Kraven]

Thanks. Is his approach value investing? I have to say that the first review scared me:

 

Swensen lays out six "core" asset classes that should form the basis of an individual investor's portfolio, each of which should comprise between 5% and 30% of the portfolio. Below is the "generic" target portfolio outlined in the book:

1. Domestic Equity (30%)

2. Foreign Developed Market Equity (15%)

3. Emerging Market Equity (5%)

4. Real Estate (20%)

5. U.S. Treasury Bonds (15%)

6. U.S. Treasury Inflation-Protected Securities (15%)

 

Swensen also discusses "non-core" asset classes and why each should not be a part of an individual investor's portfolio. These "non-core" asset classes include:

1. Domestic Corporate Bonds, 2. High Yield (Junk) Bonds, 3. Tax Exempt (Municipal) Bonds, 4. Asset-backed securities, 5. Foreign Bonds, 6. Hedge Funds, 7. Leveraged Buyouts, and 8. Venture Capital. We spent so much time in business school glorifying these assets that I found the rationale for why they have no place in an individual's portfolio quite useful. 

 

This seems to make sense if you are passively indexing, but I'm not sure what I would do with this information considering my portfolio is 100% equity and has ranged between 3-9 stocks so far (I'm Mungerian that way)...

 

 

My recollection of Swensen is that he's a hero of the indexing crowd and that groups like the Bogleheads love him.  I could be remembering wrong, but he's kind of the patron saint of those who manage large pension funds, endowments, etc. for moving away from generally a strictly fixed income portfolio and small "blue chip" bucket to include other major asset classes.  I don't recall whether he strictly is a passive investor through indexes and the like, but I believe he is.  Could be wrong about that.  His views have generally been taken by this crowd to fall into the when one asset class is down another is up and what do you care as you've got them all covered!

[A_Hamilton]

Could you elaborate a bit on what makes it good and what is approach is? Is it as useful to an individual investor? Thx.

 

I don't think there is a ton of value for an individual investor in this book. The book is simply the best if you are tasked with running significant sums of money. The book gets into some great detail about various asset classes and how they function. A lot of criticism has been heaped on Swensen because many peoples' takeaway from his book was that endowments and pensions should move their money into private equity and real estate deals. Swensen didn't say this at all. In fact he said that most institutions should avoid PE and real estate because the dispersion in returns between good and bad managers is so much greater than in traditional long only equity or fixed income. Small institutions typically have difficulty identifying and gaining access to the best managers so they should normally avoid these categories. In any case he gives some significant thought about being flexible in managing significant sums of money and moving money to asset classes that have been out of favor for several years as a way to get outsized returns for a large institutional client.

[A_Hamilton]

Thanks. Is his approach value investing? I have to say that the first review scared me:

 

Swensen lays out six "core" asset classes that should form the basis of an individual investor's portfolio, each of which should comprise between 5% and 30% of the portfolio. Below is the "generic" target portfolio outlined in the book:

1. Domestic Equity (30%)

2. Foreign Developed Market Equity (15%)

3. Emerging Market Equity (5%)

4. Real Estate (20%)

5. U.S. Treasury Bonds (15%)

6. U.S. Treasury Inflation-Protected Securities (15%)

 

Swensen also discusses "non-core" asset classes and why each should not be a part of an individual investor's portfolio. These "non-core" asset classes include:

1. Domestic Corporate Bonds, 2. High Yield (Junk) Bonds, 3. Tax Exempt (Municipal) Bonds, 4. Asset-backed securities, 5. Foreign Bonds, 6. Hedge Funds, 7. Leveraged Buyouts, and 8. Venture Capital. We spent so much time in business school glorifying these assets that I found the rationale for why they have no place in an individual's portfolio quite useful. 

 

This seems to make sense if you are passively indexing, but I'm not sure what I would do with this information considering my portfolio is 100% equity and has ranged between 3-9 stocks so far (I'm Mungerian that way)...

 

 

My recollection of Swensen is that he's a hero of the indexing crowd and that groups like the Bogleheads love him.  I could be remembering wrong, but he's kind of the patron saint of those who manage large pension funds, endowments, etc. for moving away from generally a strictly fixed income portfolio and small "blue chip" bucket to include other major asset classes.  I don't recall whether he strictly is a passive investor through indexes and the like, but I believe he is.  Could be wrong about that.  His views have generally been taken by this crowd to fall into the when one asset class is down another is up and what do you care as you've got them all covered!

 

Yeah, I didn't like his book for individual investors. If you know what you are doing as an individual investor, put your eggs all in one (maybe three or four?) basket and then watch that basket!

[oddballstocks]

Thanks. Is his approach value investing? I have to say that the first review scared me:

 

Swensen lays out six "core" asset classes that should form the basis of an individual investor's portfolio, each of which should comprise between 5% and 30% of the portfolio. Below is the "generic" target portfolio outlined in the book:

1. Domestic Equity (30%)

2. Foreign Developed Market Equity (15%)

3. Emerging Market Equity (5%)

4. Real Estate (20%)

5. U.S. Treasury Bonds (15%)

6. U.S. Treasury Inflation-Protected Securities (15%)

 

Swensen also discusses "non-core" asset classes and why each should not be a part of an individual investor's portfolio. These "non-core" asset classes include:

1. Domestic Corporate Bonds, 2. High Yield (Junk) Bonds, 3. Tax Exempt (Municipal) Bonds, 4. Asset-backed securities, 5. Foreign Bonds, 6. Hedge Funds, 7. Leveraged Buyouts, and 8. Venture Capital. We spent so much time in business school glorifying these assets that I found the rationale for why they have no place in an individual's portfolio quite useful. 

 

This seems to make sense if you are passively indexing, but I'm not sure what I would do with this information considering my portfolio is 100% equity and has ranged between 3-9 stocks so far (I'm Mungerian that way)...

 

 

My recollection of Swensen is that he's a hero of the indexing crowd and that groups like the Bogleheads love him.  I could be remembering wrong, but he's kind of the patron saint of those who manage large pension funds, endowments, etc. for moving away from generally a strictly fixed income portfolio and small "blue chip" bucket to include other major asset classes.  I don't recall whether he strictly is a passive investor through indexes and the like, but I believe he is.  Could be wrong about that.  His views have generally been taken by this crowd to fall into the when one asset class is down another is up and what do you care as you've got them all covered!

 

Yeah, I didn't like his book for individual investors. If you know what you are doing as an individual investor, put your eggs all in one (maybe three or four?) basket and then watch that basket!

 

One basket!?!?!  Unless it was my own company and I knew everything there was to know about it I could never do that, there are too many aspects and moving parts I just wouldn't feel comfortable with.  Are you a director or executive with the company you have your position in?

[alwaysinvert]

Guest lecture in Robert Shiller's class by David Swensen:

 

http://oyc.yale.edu/economics/financial-markets/content/sessions/lecture09.html