David Swensen Unconventional Success

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catchup
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Re: David Swensen Unconventional Success

Post by catchup »

In a recent interview on NPR, His original sample portfolio is again mentioned. Reits gets 20% and EM gets 5, unqualified.
I’ve been at 15/10 since his interview with the Yale alumni magazine. I think I’ll switch back slowly. Rebalancing from treasuries into reits now, and will probably rebalance out of em into treasuries when em recovers.

Does that make sense to Swensen portfolio followers?
Ferdinand2014
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Re: David Swensen Unconventional Success

Post by Ferdinand2014 »

abuss368 wrote: Sat Oct 27, 2018 12:17 pm Bogleheads -

How many folks have read the book Unconventional Success? If you did, what are your thoughts? Is the book still relevant since it was published in 2005? What about other asset classes that may not have been as accessible in a low cost format when the book was published such as International REITs (i.e. Swensen recommend a large allocation to REITs in general and a larger (at the time) international allocation), International Bonds, etc.

Has anyone implemented the Yale investment portfolio personally? In reviewing the Marketwatch Lazy Portfolio's the Three Fund Portfolio is ahead of everything for all time periods. My surprise is was how far ahead the Three Fund Portfolio is. Taylor has always written about the many benefits of the Three Fund Portfolio. How it stacks up to the other Lazy Portfolio's is impressive indeed.
It was my first investment book I read that detailed using low cost funds. It started me down the boglehead path. I did implement it back in 2009 when I first read it. I have since simplified my portfolio to the S&P 500 and treasury bills only, as my personality is such that I found I fiddled to much with the allocations. I have adhered to his advise in avoiding international bonds and corporate bonds and exclusively use U.S. Treasury. I don’t adhere to his advise regarding REIT of any sort other then market cap weighting’s and I exclude international. I also use Tbills instead of longer duration treasuries that he suggests in his book. I found his book a good explanation of the varies asset classes as well as how to think about the overall investment plan looking at the big picture.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
azanon
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Re: David Swensen Unconventional Success

Post by azanon »

Coato wrote: Tue Oct 30, 2018 7:42 pm (I have read every Swensen thread on Bogleheads and every single time his thinking on the Yale Endowment and Unconventional Success seem to get combined.)

I read the book and really liked it. Swensen is a clear thinker and explained himself well. The purpose seems to be to protect in all environments.

TIPS for sudden inflation
Real Estate for long term inflation
Stocks for the good times, weighted to Large Cap for mild deflation
Intermediate Treasuries for severe deflationary times.

I think the weights of 15% direct deflation protection, 15% direct inflation protection with light hedges through quality/size and size of equity allocation work pretty well with the framework laid out in Dr. Bernstein's "Deep Risk".

It looks like it is more on the side of the investing universe of the Permanent Portfolio or Dalio All Weather (All Seasons?) rather than the Bernstein "No Brainer" / Buffet 90-10 / T.L. Three-fund / Larry Portfolio / RobertT factor 75-25 / Merriman and TrevH portfolios. ........... Talking about the Swensen portfolio vs. the Three Fund makes no sense--the ideas that will attract you to one will nullify the other.
Coato, I know you posted this back in October, but I wanted to make a counterpoint here.

I disagree that the 70% equities Swensen portfolio is on the side of PP/Dalio All Weather - it's quite the opposite actually. PP/Dalio portfolios are designed based on balancing risk exposures to the various possible investing climates and then weighting the asset classes based upon the various asset class' volatility to do the risk balancing. So PP/Dalio portfolios end up with very low equity weightings (and low weightings of other volatile asset classes), since their volatility introduces greater risk relative to bonds. Bonds, conversely, are either held in much higher quantities or, (in the case of all weather), levered to risk balance vs. stocks. Another difference of the Swensen portfolio is that it's 100% stocks or bonds, while lacking either commodities or cash equivalents. In reality, it's really an equity dominated portfolio with a tilt to the real estate sector.

Because it is equity dominated, the expect risk (measured in terms of volatility) of a Swensen portfolio should be more consistent, long-term, with other equity dominated portfolios such as a traditional 3 fund, instead of PP/Dalio. At 70% equities, it would be appropriately thought of as a high-risk, high potential return portfolio, and most appropriate while either growing the portfolio, or maintaining the portfolio's inflation-adjusted balance in perpetuity.

> My other point/observation I have about Swensen portfolio is that i would consider it more appropriate for a retiree that is intending to maintain the inflation-adjusted balance of the portfolio permanently, much like the Yale Endowment does, say for her heirs. Its design is more optimized for that. A PP/Dalio Portfolio, in contrast, would be more optimum for a retiree looking to gradually draw down their portfolio while having the smoothest ride possible while doing it.
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Re: David Swensen Unconventional Success

Post by abuss368 »

catchup wrote: Thu May 30, 2019 10:09 am In a recent interview on NPR, His original sample portfolio is again mentioned. Reits gets 20% and EM gets 5, unqualified.
I’ve been at 15/10 since his interview with the Yale alumni magazine. I think I’ll switch back slowly. Rebalancing from treasuries into reits now, and will probably rebalance out of em into treasuries when em recovers.

Does that make sense to Swensen portfolio followers?
I have heard the original portfolio mentioned more by him than the revision. In fact he discussed the original portfolio in a lecture of his I attended. I wrote a summary of my lecture experience many years ago.

In my opinion there is minimal if any difference. We may be dancing on the head of a needle.
John C. Bogle: “Simplicity is the master key to financial success."
catchup
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Re: David Swensen Unconventional Success

Post by catchup »

Good point.
workerbeeengineer
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Re: David Swensen Unconventional Success

Post by workerbeeengineer »

Right after Swensen provides his well diversified equity oriented portfolio, he talks about "The Art of Personalization". He indicates that personal preferences play a pivotal role, and mentions as an example Emerging Markets. If an investor does not really feel comfortable with an EM component in his or her well diversified portfolio...then duh...he or she should not have an EM component in their portfolio. In other words, there is no single right answer to the composition of the investor's portfolio.
catchup
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Re: David Swensen Unconventional Success

Post by catchup »

Thanks. Another good point.
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Re: David Swensen Unconventional Success

Post by grok87 »

i think it is interesting to look at the performance since 1/1/2018. kind of an arbitrarybee period i guess. but it feels like from then til now markets have been flattish but increasingly volatile. whereas in the year or so before that they just went straight up.
http://quotes.morningstar.com/chart/fun ... en-US&cur=

cumulative performance 1/1/18-6/1/19

total stock market (vtsax) +4.6%
total international stock (vgtsx) -8.4%
total world stock -1.7%
reit index +8.6%
tiaa real estate +7.5%
intermed treasuries +5.3%
tips +3.9%

it's interesting that tips have underperformed nominals despite having longer duration during a period of declining rates. that's due to breakeven inflation falling over this period i think.
RIP Mr. Bogle.
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Investment Gems from "Unconventional Success"

Post by Taylor Larimore »

Bogleheads:

You can read "Investment Gems" from Mr. Swensen's book, Unconventional Success, here:

http://socialize.morningstar.com/NewSoc ... spx#151830

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: David Swensen Unconventional Success

Post by abuss368 »

grok87 wrote: Sat Jun 01, 2019 7:36 am i think it is interesting to look at the performance since 1/1/2018. kind of an arbitrarybee period i guess. but it feels like from then til now markets have been flattish but increasingly volatile. whereas in the year or so before that they just went straight up.
http://quotes.morningstar.com/chart/fun ... en-US&cur=

cumulative performance 1/1/18-6/1/19

total stock market (vtsax) +4.6%
total international stock (vgtsx) -8.4%
total world stock -1.7%
reit index +8.6%
tiaa real estate +7.5%
intermed treasuries +5.3%
tips +3.9%

it's interesting that tips have underperformed nominals despite having longer duration during a period of declining rates. that's due to breakeven inflation falling over this period i think.
Not sure TIPS are attractive going forward. The interest rate environment is much different than when the book was written in 2005.
John C. Bogle: “Simplicity is the master key to financial success."
catchup
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Re: David Swensen Unconventional Success

Post by catchup »

I think the TIPS protect against unexpected inflation moreso than expected inflation.
grok87
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Re: David Swensen Unconventional Success

Post by grok87 »

catchup wrote: Mon Jun 03, 2019 7:43 am I think the TIPS protect against unexpected inflation moreso than expected inflation.
Agree
RIP Mr. Bogle.
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Re: David Swensen Unconventional Success

Post by abuss368 »

catchup wrote: Mon Jun 03, 2019 7:43 am I think the TIPS protect against unexpected inflation moreso than expected inflation.
Correct.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: David Swensen Unconventional Success

Post by Northern Flicker »

abuss368 wrote: Sat Jun 01, 2019 2:58 pm
grok87 wrote: Sat Jun 01, 2019 7:36 am i think it is interesting to look at the performance since 1/1/2018. kind of an arbitrarybee period i guess. but it feels like from then til now markets have been flattish but increasingly volatile. whereas in the year or so before that they just went straight up.
http://quotes.morningstar.com/chart/fun ... en-US&cur=

cumulative performance 1/1/18-6/1/19

total stock market (vtsax) +4.6%
total international stock (vgtsx) -8.4%
total world stock -1.7%
reit index +8.6%
tiaa real estate +7.5%
intermed treasuries +5.3%
tips +3.9%

it's interesting that tips have underperformed nominals despite having longer duration during a period of declining rates. that's due to breakeven inflation falling over this period i think.
Not sure TIPS are attractive going forward. The interest rate environment is much different than when the book was written in 2005.
The role of TIPS in Swensen’s portfolio is independent from the changes in the interest rate environment since 2005 and independent from any predictions for the return of TIPS going forward.
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Re: David Swensen Unconventional Success

Post by grok87 »

Northern Flicker wrote: Mon Jun 03, 2019 6:21 pm
abuss368 wrote: Sat Jun 01, 2019 2:58 pm
grok87 wrote: Sat Jun 01, 2019 7:36 am i think it is interesting to look at the performance since 1/1/2018. kind of an arbitrarybee period i guess. but it feels like from then til now markets have been flattish but increasingly volatile. whereas in the year or so before that they just went straight up.
http://quotes.morningstar.com/chart/fun ... en-US&cur=

cumulative performance 1/1/18-6/1/19

total stock market (vtsax) +4.6%
total international stock (vgtsx) -8.4%
total world stock -1.7%
reit index +8.6%
tiaa real estate +7.5%
intermed treasuries +5.3%
tips +3.9%

it's interesting that tips have underperformed nominals despite having longer duration during a period of declining rates. that's due to breakeven inflation falling over this period i think.
Not sure TIPS are attractive going forward. The interest rate environment is much different than when the book was written in 2005.
The role of TIPS in Swensen’s portfolio is independent from the changes in the interest rate environment since 2005 and independent from any predictions for the return of TIPS going forward.
I agree for now. Not sure if he would recommend tips with negative real yieldS
RIP Mr. Bogle.
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Re: David Swensen Unconventional Success

Post by Northern Flicker »

When TIPS had negative real yields, did nominal treasuries of similar durations have non-negative expected real yields?
Risk is not a guarantor of return.
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Re: David Swensen Unconventional Success

Post by Dialectical Investor »

grok87 wrote: Mon Jun 03, 2019 5:03 pm
catchup wrote: Mon Jun 03, 2019 7:43 am I think the TIPS protect against unexpected inflation moreso than expected inflation.
Agree
How so? TIPS are adjusted for inflation, period, whether that inflation is expected or not. That there are other instruments available that have inflation expectations built in does not change this fact. If this is a semantic issue where you simply don't need protection from something that is expected, then nominal bonds don't "protect" against expected inflation either, despite such expectations being included in their pricing.
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Re: David Swensen Unconventional Success

Post by Northern Flicker »

How so? TIPS are adjusted for inflation, period, whether that inflation is expected or not.
They protect against unexpected inflation in comparison to nominal treasuries, which have expected inflation priced into their yield. If inflation turns out to be higher than expected, TIPS adjust accordingly, whereas nominal treasuries have no way to adjust their yield if inflation exceeds what was expected when the bond was issued (and the market set the fixed rate at auction).
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Re: David Swensen Unconventional Success

Post by Dialectical Investor »

Northern Flicker wrote: Wed Jun 05, 2019 6:25 pm
How so? TIPS are adjusted for inflation, period, whether that inflation is expected or not.
They protect against unexpected inflation in comparison to nominal treasuries, which have expected inflation priced into their yield. If inflation turns out to be higher than expected, TIPS adjust accordingly, whereas nominal treasuries have no way to adjust their yield if inflation exceeds what was expected when the bond was issued (and the market set the fixed rate at auction).
The yield on the nominal bond will change if inflation expectations change--I think you mean the coupons are fixed, or just that the investor suffers in real terms if expectations increase, all else equal--but that's not quite what I was getting at. My point was the TIPS principal and coupons will adjust for both unexpected and expected inflation, not just unexpected inflation.
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Re: David Swensen Unconventional Success

Post by Northern Flicker »

If you are buying or selling a nominal bond on the secondary market the effective yield will be quoted relative to the market price at which the transaction takes place. The yield of the bond itself does not change.

If you calculate the breakeven inflation for a TIPS relative to a nominal treasury of the same term the TIPS overperforms the nominal if inflation comes in above the breakeven point. That is what people mean when they say that TIPS protect you from unexpected inflation. That does not mean that TIPS hurt you if inflation turns out as expected.
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Re: David Swensen Unconventional Success

Post by Dialectical Investor »

Northern Flicker wrote: Thu Jun 06, 2019 9:16 pm If you are buying or selling a nominal bond on the secondary market the effective yield will be quoted relative to the market price at which the transaction takes place. The yield of the bond itself does not change.
I see what you are saying--the yield to maturity for the purchaser does not change (well, except for the issue of coupon reinvestment if a coupon-paying bond)--but I disagree with the phrasing as the yield of the bond itself does fluctuate. In any event, I think we both know how it works.

On a separate note, you need an avatar to go with your username. :happy
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Re: David Swensen Unconventional Success

Post by abuss368 »

Considering Unconventional Success was published in 2005, I would be interested in David Swensen's current thoughts regarding asset classes that were more expensive and not as readily available as today. International Bonds and International REITs come to mind. Perhaps international bonds would be a no go for the reasons noted in the book, but I would expect he would be open to international REITs. It appears that he holds real estate and REITs in high regard.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: David Swensen Unconventional Success

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abuss368 wrote: Fri Jun 07, 2019 7:43 pm Considering Unconventional Success was published in 2005, I would be interested in David Swensen's current thoughts regarding asset classes that were more expensive and not as readily available as today. International Bonds and International REITs come to mind. Perhaps international bonds would be a no go for the reasons noted in the book, but I would expect he would be open to international REITs. It appears that he holds real estate and REITs in high regard.
is there any way to invest purely in international reits and avoid the international real estate operating companies?
RIP Mr. Bogle.
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Re: David Swensen Unconventional Success

Post by abuss368 »

grok87 wrote: Fri Jun 07, 2019 9:53 pm
abuss368 wrote: Fri Jun 07, 2019 7:43 pm Considering Unconventional Success was published in 2005, I would be interested in David Swensen's current thoughts regarding asset classes that were more expensive and not as readily available as today. International Bonds and International REITs come to mind. Perhaps international bonds would be a no go for the reasons noted in the book, but I would expect he would be open to international REITs. It appears that he holds real estate and REITs in high regard.
is there any way to invest purely in international reits and avoid the international real estate operating companies?
Not that I am aware as the REIT structure is evolving and being adopted internationally. Maybe over time.
John C. Bogle: “Simplicity is the master key to financial success."
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