Unconventional Success

David Swensen

Read March 2007

Swensen is the architect of the Yale University endowment, which has performed brilliantly for two decades. That puts him in a category of people whose opinion on financial matters might count for something. Fortunately this is not a hot-stock-tips book (though on a hunch, before writing this review, I surveyed the opinion on Amazon, and found that that is indeed what many went in search of, and were appropriately disappointed) but rather...well, I'm not sure.

Swensen is ostensibly providing information about portfolio creation and management. He provides some arbitrary percentages of portfolio distribution with no clear indication of why he made those choices. (Perhaps at this point the hot-tips crowd stopped reading and rushed out to buy, but I was in for the duration.) His one point of clear prescriptive value is rebalancing, which is pretty obvious to anyone who can do arithmetic (and assuming you want to retain your portfolio distribution), but which he claims most people don't understand. In this I think he fails to distinguish between ignorance and laziness.

But most of the book is actually a pure screed against mutual funds (with what are effectively sidebars about Real Estate Investment Trusts and Exchange-Traded Funds). Swensen doesn't like actively managed mutual funds at all. When you're done with this book, you will know every reason why. A few may even slightly surprise you (such as soft cash activities), and for sure you will never ever again ignore a prospectus. But if the problems of active management don't surprise you, you could distill this book down to a one-word take-away message: Vanguard. The screed is entertaining, and potentially informative, but ultimately it makes the book rather imbalanced and lacking a constructive message.

Thanks to Mike Sperber for bringing this book to my attention.