Guest Lecture by David Swensen: Investment Management (Yale lecture)

Uploaded by YaleCourses on Nov 19, 2008

Financial Markets (ECON 252)

David Swensen, Yale's Chief Investment Officer and manager of the University's endowment, discusses the tactics and tools that Yale and other endowments use to create long-term, positive investment returns. He emphasizes the importance of asset allocation and diversification and the limited effects of market timing and security selection. Also, the extraordinary returns of hedge funds, one of the more recent phenomena of portfolio management, should be looked at closely, with an eye for survivorship and back-fill biases.

00:00 - Chapter 1. Introduction: Changing Institutional Portfolio Management
03:59 - Chapter 2. Asset Allocation: The Power of Diversification
16:44 - Chapter 3. Balancing the Equity Bias into Sensible Diversification
20:48 - Chapter 4. The Emotional Pitfalls of Market Timing
32:58 - Chapter 5. Survivorship and Backfill Biases in Security Selection
43:17 - Chapter 6. Finding Value Investing Opportunities as an Active Manager
49:02 - Chapter 7. Yale's Portfolio and Results
54:48 - Chapter 8. Questions on New Investments, Remaining Bullish, and Time Horizons

Complete course materials are available at the Open Yale Courses website:http://open.yale.edu/courses

This course was recorded in Spring 2008.

Reducing Portfolio Risk

The challenge of successfully managing an investment portfolio goes beyond making a series of good individual investment decisions. 

Portfolio management requires 

• paying attention to the portfolio as a whole, 
• taking into account diversification, 
• possible hedging strategies, and 
• the management of portfolio cash flow. 

In effect, while individual investment decisions should take risk into account, portfolio management is a further means of risk reduction for investors.

Super High-Growth Portfolio - Pushing the Limit to achieve Maximum Portfolio Growth

There are investors who can and should invest the time and effort to create a supper high-growth portfolio.

Although it will require greater effort in selection and maintenance, a high-performance portfolio can be achieved while abiding by the commandments of value.

Any appearance of higher risk must be well understood and accounted for in the share price.

Pushing the limit, say Graham and Dodd, is a game for the strong-minded and daring individual.


According to Graham, a growth stock should double its per share earnings in 10 years - that is, increase earnings at a compound annual rate of over 7.1%.  To do so, a growth stock's sales should be continually higher than sales in the early years.

The investor who can successfully identify such "growth companies" when their shares are available at reasonable prices is certain to do superlatively well with his capital.