pernice and david swensen

Another way to help Katrina victims painlessly: Download this Pernice Brothers EP for five bucks. FYI for Dallasites, the Pernice Brothers are playing in Denton this Saturday.
After my earlier post about investing, Glenn pointed me towards Unconventional Success, a new book by David Swensen, the man who invests Yale’s $15 billion endowment and is, by most folks’ estimation, among the best at his job in America. He argues a lot of what I do in the crabwalk.com investing approach: Managed mutual funds are for chumps.
(This NYT article sums up his argument: “[H]e found himself horrified by what he saw — especially at the $8 trillion mutual fund industry, which is the primary means through which individuals invest in the market. Although his prose tends to be on the academic side, his outrage comes through on every page of ”Unconventional Success.” What is it about mutual funds that Swensen finds offensive? Just about everything. He hates the way the loads and all the hidden fees mean that the investor is always behind the eight ball…He thinks that it is criminal for fund companies to allow popular funds to balloon in size, making it nearly impossible for the manager to beat the market. He hates the way the industry pushes exactly the wrong fund at the wrong time — Internet-oriented funds at the height of the bubble, for instance…He notes, as others have before, that the vast majority of actively managed funds underperform. He uses phrases like ”invidious,” ”investor-damaging” and ”dirty scheme” to describe the general behavior of the industry…His core point, though, is that the for-profit fund industry has a fundamental conflict between its desire for profit and its fiduciary duty to its investors. And that the profit motive wins out every time.”)
He recommends a diversified portfolio of index funds — preferably purchased through non-profit companies like Vanguard or TIAA-CREF. That way you (a) get around their desire for profit clashing with your desire for strong returns and (b) get low expense ratios. His model portfolio calls for 30% domestic stocks, 15% foreign developed market stocks, 15% emerging market stocks, 20% real estate, 15% Treasury bonds, and 15% Treasury inflation-protected. For youngish folks like me, I still think 30% in bonds is too conservative; he acknowledges that he has only about 5% of Yale’s money in bonds, and I think when you’re looking at a 30-year timeframe, you can afford that sort of risk.
The thing I remember most about David Swensen is that he would never do interviews when we tried calling him in college.