Guide to Sleeping Soundly

Ok, the original name of the article is "David Swensen's Guide to Sleeping Soundly"

It reminded me of the title of Phil Fisher's book - The Conservative Investor Sleeps Well.

Yale Alumni Magazine interviewed its CIO David Swensen in this article. Read it and prosper! Haha. I've ran my parent's portfolio sticking to his principles stated in "Unconventional Success" and in Burton Malkiel's "Random Walk Down Wall Street" for the past 5 years. Of course there are no fantastic returns, i'm simply glad that a noob like me managed to not lose much when others are losing their pants. I'm simply thankful that my parents have the faith in me to manage substaintially their retirement savings. There's no faster way (or high pressured way) to learn than to do the thing itself, to truly care about long term performance and to have to the fortitude to do the right thing over time.

Excerpt from the Yale Interview that i truly enjoyed reading;
Y: Given all the turmoil and uncertainty, what should individual investors do?
S: If an individual investor followed the program I outlined in Unconventional Success, they probably did reasonably well, through the crisis, thus far. They'd have 15 percent of their assets in U.S. Treasury bonds. They'd have another 15 percent in U.S. Treasury inflation-protected securities. Those two asset classes have performed well.

Of course, the other 70 percent of assets are in equities, which have not done well. With all assets, I recommend that people invest in index funds because they're transparent, understandable, and low-cost. So, the equity holdings have gone down step-by-step with the declines in the market.

I recommend that investors rebalance.
But I also recommend that investors rebalance. Rebalancing is even more important amidst these huge declines in the stock market because it presents a great opportunity. People can sell the Treasury securities that have appreciated dramatically to bring their allocation to the 15 percent target, and they can redeploy those funds into domestic equities and foreign equities and emerging market equities and real estate investment trusts, all of which are now much cheaper, and therefore have higher prospective returns.

Y: Explain this idea of asset allocation, please.

S: Asset allocation is the tool that you use to determine the risk and return characteristics of your portfolio. It's overwhelmingly important in terms of the results you achieve. In fact, studies show that asset allocation is responsible for more than 100 percent of the positive returns generated by investors.

That's why the most sensible approach is to come up with specific asset allocation targets that you can implement with low-cost, passively managed index funds and rebalance regularly. You'll end up beating the overwhelming majority of participants in the financial markets.

Y: So people should not be afraid of stocks now?

S: Not only should they not be afraid, they should be enthusiastic. One of the great ironies is that if you had talked to the average investor 18 months ago, he or she would have thought it was a pretty good idea to buy stocks. In recent months, the same investors despair about their portfolio and are fearful about putting money into the equity market.

That's 180 degrees wrong. They should have been cautious 18 months ago, when prices were much higher than they are now. They should be enthusiastic today.

LW's comment: In the heart of his investment approach, he's a sound value investor, just that his tools and assets utilised goes beyond stocks and bonds. Price is what you pay, value is what you get!

Y: Unconventional Success delivered a scathing critique of the mutual-fund industry. You rightly pointed out that the vast majority of mutual funds charge high fees, trade too frequently, and under-perform the markets. How did the industry react?

S: I've heard stories of people in the fund management business being irate about the book. That's not surprising. The mutual fund industry is not an investment management industry. It's a marketing industry. And if somebody interferes with your marketing, you're not going to like that. So I was pleased to hear that there were senior people in the industry who were very, very unhappy with me and my book.

LW's comment: Ok, my aim in the future is to irate all those pseudo experts who 'teach' people how to lose money. Those who claim that you can secure your financial future simply by sitting 15min in front of the computer every day. These swindlers and con men sell dreams that destroy futures and families deserve a special place in hell where they can feast on each others rotting waste for eternity.

Take a deep breath, count to 3...calm down.

Read the article and pay some attention to the blue box in the right side of the page. The advise is remarkably similiar to "Random walk down Wall Street" and "When markets collide". Find something that is suitable and sound for you and I think we will get rich eventually.