Over the last few year there’s been a lot written in the financial pornography magazines about the success of the Yale endowment fund run by David Swenson. Most of the conversation has centered on how smaller endowments (every endowment is smaller) and average investors can apply what Yale had done in their own accounts. The conclusion is that by following Yale, we can achieve the results of Yale. This argument (always made be someone selling something) is usually followed by a sophisticated presentation on using hedge funds, private equity funds, and other alternative investment strategies.
When faced with that argument, it is imperative that you remember two things:
- You are not the Yale Endowment! Very few of us have the $22 billion that Yale has to invest. Having that kind of size allows Yale to do things that very few of us can do. Do not be tricked into thinking that just because you have a couple million (or a couple hundred million for that matter), to invest that you can act like someone that has $22 BILLION.
- You are not David Swenson (and neither is your investment advisor)! One thing is clear: people like David Swenson (and Warren Buffet) are rare. So rare indeed that they rank in the top one percent of all money managers to ever live. Think of the odds—top 1%. Unless you see David or Warren in the mirror in the morning, or across the desk in your next meeting with your advisor, it would be highly improbable that you can match the run (whether due to skill or luck) that they’ve had. In fact, both of them have publicly stated that they are going to have a tough time matching the run that they’ve already had!
Rather than listening to the hype of the press or the sales pitches made by folks in the industry, it would be wise to read the advice of both Swenson and Buffet. Both have said that having a well diversified, extremely efficient (low cost and low turnover), portfolio of index funds is the only sensible way to invest.
You can read more about David Swenson’s approach to personal investing in his book, Unconventional Success.
