A great investor with a centuries-long horizon
Tuesday, 12 June 2007
Yet another article written by John Authers of the FT deserves comment.
John starts his article "Yale University is a privileged institution. Its graduates go on to great power. George W. Bush was educated there, as were his predecessor Bill Clinton, his father George H.W. Bush, vice-president Dick Cheney, and the man he beat in 2004, Senator John Kerry. An Ivy League institution, it has long been one of the world's most prestigious universities. But maybe its greatest privilege is to have the services of David Swensen as the manager of its endowment fund.
When he took over the endowment in 1985, it was worth slightly more than $1bn. By June 30 of last year, it had reached $18bn. The best performing US endowment in that time, it has easily beaten the S&P 500 over that period, with staggeringly low volatility." Read the rest here
Without doubt, that's impressive. If you get a chance to read the article in full, I suggest you do so. Lets analyse some of the points below.
Swenson says “investment managements is a simple business…it comes down to two principles. First equities are best for the long run…second, diversification is important”
I could not agree more. But getting your exposure to equities in the right balance needs thorough analysis but without doubt history has shown there are dividends (excuse the pun) to be paid over time if you do get it right. Moreover, thorough diversification is vital. 50 or 80 stocks by the way is not thorough diversification which some active managers think is diversification! Then Swenson says “…if you are in the category which most investors find themselves, where they aren’t set up to make quality active asset allocation decisions. They should manage their portfolio passively through low cost index funds”
If that philosophy is good enough for Swenson, who, in investment terms has been there and done it, then it should be good enough for most investors. We accept active management can work, but it relies on investors picking the fund manager in advance but frankly, this is highly improbable.
I was also interested in Swenson’s decision to buy equities after the 1987 crash which in hindsight was great timing. The question is however, how did Swenson know when to buy? My guess he was fortuitous. But this leads us to the question of chance or luck in investing. If Swenson or other fund managers, like Anthony Bolton in the UK, do not find replacements who can do equally as well in performance by transferring their unique skills, they may have to admit they had good fortune. Admitting to luck however undermines their skills, but come on ladies and gentlemen fund managers, admit your luck sometimes! Lets encourage openness and transparency.
Categories: Index Funds, Diversification, Asset Class Management
posted by Murray Round Wealth Management @ 21:46,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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