Investing Lessons from David Swensen

4 Investing Lessons from David Swensen

David Swensen former lead of Yale Endowment and one of the legendary investor and the chief Investment officer of Yale, died after long battle with cancer at the age of 67. Mr. Swensen had revolutionized the investment industry with his successful investment strategies and his immense contribution in the institutional money management.

Working at Yale Endowment for over three decades, Mr. Swensen took the organization from $1.3 billion to over $30 billion with an average of 12% return along the way. Additionally, Mr. Swensen was charmed when he had studied under the Noble prize winner for economist, Mr. James Tobin.

However, Swensen collection of work does not limit till institutional money management. Let’s dive into Mr. Swensen top investing lessons that you must know in the 21st century.

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1. Alternative Investments

Alternative Investments refers to the concept of diversifying a portion of portfolio to other for forms of investments such venture capital, private equity and hedge funds. Swensen trust that these assets type had the potential to offer higher returns and provide diversification to the portfolio.

However, he pointed the significance of research and analysis of investment plans before diving into the market as a new investor. As we all know with AI being popularized and invest in Artificial Intelligence is highly focused, it is always better to plan earlier.

Also Read: How Do The Wealthy Invest?

2. Assets Allocation/Diversification

Assets Allocation helps you in creating a well-balanced portfolio by diversifying an investment portfolio among different assets groups, such as stocks, bond, cash, real estate and other investments. This helps in alter the investment based on the investor’s goal and risk tolerance.

Diversification reduces risk by not relying heavily on any single investment or asset type, allowing for more consistent long-term returns.

Mr. Swensen always suggests investors about the tools such as Asset Allocation, Security selection and market timing that can be used to influence your returns. Additionally, Swensen pointed out the how the market timing and security selection plays a crucial role in gain and loss of any individual.

For example, an individual selected a good security at the right time in the market can make great profit compared to other person who is losing money. However, Swensen’s explanation on asset allocation plays a major role for investors looking for long term goals.

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3. Discipline

Swensen gives special importance on building a discipline before starting your investment journey. He felt that moving away from our pre planned market strategy or analysis can affect us negatively in the long run. Investing a considerable amount of time on building investment philosophy, investment psychology, investment strategy and tactics can give you leverage when it comes of market fluctuation.

As a investor, it is hard for individuals to manage emotions when the market went against their invest plan which led them to quit early. Discipline helps you with sticking with your plan, avoid emotional-decision making and offer your patience and consistency to succeed.

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4. Increase Your Equity Exposure For Growth

The amount on return on investments can not be predicted but the thing that we know is “equity” have to capacity to surpass bonds, stocks, commodities and cash in the long run. That is why, Mr Swensen suggested people to focus on increasing their exposure towards equities for longer term gains.

Swensen approach on Asset Allocation gives you an understanding on how to diversify your investment portfolio and what had work in the past decades. He recommended investors to invest more money to equity on international level. According to one of his famous book Unconventional Success – A Fundamental Approach To Personal Investment he recommended to follow this process:

  • 30% U.S. equity
  • 15% Foreign developed equity
  • 5% Emerging market equity
  • 20% U.S. Real Estate (REIT)
  • 15% U.S. Treasury Bonds
  • 15% U.S. Treasury Inflation-Protected Securities (TIPS)

For example, the master franchisee of McDonald’s restaurants in West and South India, delivered a whopping 1,449 times return between 2009 and 2023.

Also Read: Why You Shouldn’t Pick Individual Stocks?

Final Words

David Swensen invest approach teach a good lesson to invest and focus on the value of diversification, long-term focus and many more. Furthermore, his views towards alternative investments focuses on the significant benefit of exploring and analyzing different assets beyond the trading investment such as stock and bonds.

Finally, it is crucial for invest to properly consider their investment plans, goals and how much risk they can tolerate while applying the lesson of Mr. Swensen. For beginner, if you are planning to start investing, I highly recommend to consult a professional financial advisor before putting any money in the market.

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