Thursday, March 20, 2008

David Swensen on investing

Stock markets all over the world are in free fall. With the demise of Bear Stearns, the sub-prime crisis is only appearing to get worse. Oil prices are going through the roof, and even food prices are surging. How should we react to all this? Specifically, how should we change our investment portfolio?

The answer, says, David Swensen is "do nothing"! David Swensen has run the hugely successful Yale endowment fund since 1988. He was interviewed by the NY Times about a month ago. His basic advice is:

Don’t try anything fancy. Stick to a simple diversified portfolio, keep your costs down and rebalance periodically to keep your asset allocations in line with your long-term goals.
...
For most people, he recommends a very basic approach: use index funds, exchange-traded funds and other low-cost instruments, and stick to your long-term asset allocation — even when the markets are in tumult.


And that's exactly what I'm doing, following the ETF portfolio I've written about in the past. I have no idea when the markets are going to turn around. And that's exactly the point: if I was to drastically change my asset allocation to react to current events, I'd have to figure out when to get back to this strategy (presumably when the markets start to recover). Which means I'd have to be right twice to make this strategy work---once to know when to sell (I'm already late on this) and then to know when to buy back into the market (I'm sure I'd be late for that too). Much simpler to leave well alone, and incur no trading or tax costs.

What strategy are you using?

1 comment:

Paul said...

I am very impressed with daven swensen, and always have been. And these tips make me feel no different. We must all just ride this thing out, and not get too crazy.

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