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Unconventional Success: A Fundamental Approach to Personal Investment (Hardcover)

~ (Author) "John Maynard Keynes wrote, "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally..." (more)
Key Phrases: index fund, chasing performance, portfolio construction, Unconventional Success, Wall Street, Morgan Stanley (more...)
4.1 out of 5 stars  See all reviews (97 customer reviews)
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Editorial Reviews

From Booklist

Swensen, CIO of Yale University and the author of Pioneering Portfolio Management, reveals why the mutual fund industry as a whole does a disservice to the individual investor. Soft money, 12b-1 fees, overtrading, market timing, and other management practices lower performance and virtually guarantee that most mutual fund returns will fall short of their benchmark, such as the S&P 500. Furthermore, for-profit mutual fund companies have a fiduciary obligation to their stockholders, not to their investors, and this relationship "inevitably resolves in favor of the bottom line." Swensen is also highly critical of the Morningstar rating system, which only causes investors to chase hot performing funds and managers. He advises considering alternatives to the for-profit mutual fund industry, including Exchange Traded Funds and not-for-profit financial institutions such as Vanguard and TIAA-CREF. He highly recommends that as an individual, you should play a more active role in your financial future. This includes periodic portfolio evaluation and rebalancing, to ensure that your asset allocation remains diversified and suits your investment time line. David Siegfried
Copyright © American Library Association. All rights reserved


Review

"The best manager of institutional money in the United States. ... What he has to say is worth listening to." -- The New York Times, August 13, 2005:

"This is not only investing made easy, it's investing made smart." -- Newsweek, August 22, 2005:
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Product Details

  • Hardcover: 403 pages
  • Publisher: Free Press (August 2, 2005)
  • Language: English
  • ISBN-10: 0743228383
  • ISBN-13: 978-0743228381
  • Product Dimensions: 9.3 x 6.5 x 1.4 inches
  • Shipping Weight: 1.1 pounds (View shipping rates and policies)
  • Average Customer Review: 4.1 out of 5 stars  See all reviews (97 customer reviews)
  • Amazon.com Sales Rank: #12,201 in Books (See Bestsellers in Books)

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    #4 in  Books > Business & Investing > Personal Finance > Personal Taxes
    #7 in  Books > Business & Investing > Personal Finance > Retirement Planning
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David F. Swensen
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Front Cover | Front Flap | Table of Contents | First Pages | Index | Back Flap | Back Cover | Surprise Me!
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Inside This Book (learn more)
First Sentence:
John Maynard Keynes wrote, "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally." Read the first page
Key Phrases - Statistically Improbable Phrases (SIPs): (learn more)
index fund, chasing performance, portfolio construction, core asset classes, unrebalanced portfolio, superior active managers, equity orientation, active management game, stale pricing, rebalancing activity, sensible investors, excessive management fees, buyout partnerships, rebalancing trades, diversifying power, tech funds, wealth multiple, fee burden, stale prices, high portfolio turnover, careful investors, fair benchmark, arbitrage mechanism, buyout funds, taxable investors
Key Phrases - Capitalized Phrases (CAPs): (learn more)
Unconventional Success, Wall Street, Morgan Stanley, Merrill Lynch, Non-Core Asset Classes, Obvious Sources of Mutual-Fund Failure, United States, Longleaf Partners Fund, Capital Group, Market Characteristics At December, The Exchange-Traded Fund Alternative, Wells Capital, Granum Value Fund, Bank of New York, Investment Company Institute, Hidden Causes of Poor Mutual-Fund Performance, Failure of For-Profit Mutual Funds, New York Times, Sources of Return, State Street, Value Index, Sandy Weill, Southeastern Asset Management, Quarterly Update, Exchange Traded Funds
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Customer Reviews

97 Reviews
5 star:
 (48)
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 (24)
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 (13)
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 (7)
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 (5)
 
 
 
 
 
Average Customer Review
4.1 out of 5 stars (97 customer reviews)
 
 
 
 
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Most Helpful Customer Reviews

 
436 of 439 people found the following review helpful:
5.0 out of 5 stars Excellent book, September 5, 2005
By S. Vaccaro (Stamford, CT) - See all my reviews
(REAL NAME)   
I am a graduate of the Yale School of Management (with a focus in finance) and have been a fan of Swensen's for a long time. Unconventional Success is, in my view, a must read for anyone who has to manage their own retirement assets (which is most people today).

Swensen compellingly makes the case that (a) the vast majority of passively managed funds outperform actively managed funds (after fees), (b) the vast majority of the mutual fund industry allows profit motives to trump their fiduciary duty to investors, and (c) an individual investor's financial assets are best managed by non-profit organizations - i.e., Vanguard or TIAA-CREF.

Swensen lays out six "core" asset classes that should form the basis of an individual investor's portfolio, each of which should comprise between 5% and 30% of the portfolio. Below is the "generic" target portfolio outlined in the book:
1. Domestic Equity (30%)
2. Foreign Developed Market Equity (15%)
3. Emerging Market Equity (5%)
4. Real Estate (20%)
5. U.S. Treasury Bonds (15%)
6. U.S. Treasury Inflation-Protected Securities (15%)

Swensen also discusses "non-core" asset classes and why each should not be a part of an individual investor's portfolio. These "non-core" asset classes include:
1. Domestic Corporate Bonds, 2. High Yield (Junk) Bonds, 3. Tax Exempt (Municipal) Bonds, 4. Asset-backed securities, 5. Foreign Bonds, 6. Hedge Funds, 7. Leveraged Buyouts, and 8. Venture Capital. We spent so much time in business school glorifying these assets that I found the rationale for why they have no place in an individual's portfolio quite useful.

The most valuable lesson in the book for me was the importance of "quarterly, semi-annual, or annual" rebalancing - i.e. selling winners and buying losers to move various asset classes back to long-term targets (taking into account the tax consequences for post-tax accounts). This is a basic lesson, of course, but the reminder was still highly valuable.

The book does have a few shortcomings. The book can be a bit technical and dry at times, especially if the reader has no background in finance. I would have also appreciated more discussion of how non-financial assets (e.g., home equity) and personal liabilities (e.g., student loans, mortgage), should impact portfolio allocation. Overall, however, I think anyone with a 401k or a few thousand dollars to invest will benefit from a thorough reading of this book.
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72 of 75 people found the following review helpful:
4.0 out of 5 stars Outstanding book for the semi-sophisticated investor but not quite everything you need, October 2, 2005
By B. Humphrey (Seattle, WA United States) - See all my reviews
(REAL NAME)   
Written by one of the brightest and most successful money managers, the book has straightforward advice on what assets should makeup a portfolio and what assets (and providers) should be avoided. He definitely picks a few bones with the mutual fund industry which of course has been done before in such books as "The Intelligent Asset Allocator" by Bernstein and "A Random Walk Down Wall Street", corporate governance etc. As mentioned elsewhere he also goes into detail about the importance of rebalancing your portfolio.

Pros:

1. Gives advice on companies which can be trusted and provide products and investments where the investors objectives are aligned with the products (stocks, etfs, government bonds etc).
2. Lists specific indecies and providers he favors over others. There are tons of etfs out there so it's helpful to see a list he likes. He goes into detail about why some are more efficient then others.
3. Straightforward writing and sections. Easy to skip things you may already know (e.g. most mutual funds should be avoided).
4. Written by someone whe has done this with great success himself.

Cons:
1. Spends long sections in the book going into perhaps too much detail on specific examples of assets to avoid.
2. Regarding #1, I would have preferred more detail on specific allocations and products he likes and how we should use them best.
3. His own asset allocation at Yale includes a substantially different asset mix but he never gives detail on why Yale buys these things (e.g. Hard Assets) but individuals can or should not.
4. No advice on any sample portfolio.
5. Some mention of DFA would be nice.

In the end, I still prefer William Bernsteins "The Intelligent Asset Allocator" but this book is right up there and is one of the best I have read in years (and I have read most all of them).
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54 of 55 people found the following review helpful:
4.0 out of 5 stars Assets Not for Asset Allocation, April 23, 2006
By Dale C. Maley "Index Fund Investor" (Fairbury, IL United States) - See all my reviews
(REAL NAME)      
I was fairly impressed with this book. I would give it an A, but the style of writing was painful to read, so I give it a B.

I recently saw several articles about Harvard's endowment manager leaving Harvard to set up his own firm. I was amazed to see how diversified the Harvard fund was in that it included not just stocks and bonds, but many other asset classes:

U.S. equities 15%
Commodities 13
Private Equity 13
Hedge Funds 12
U.S. Bonds 11
Foreign Equities 10
Real Estate 10
Inflation-Indexed Bonds 6
Emerging Markets 5
High-Yield 5
Foreign Bonds 5
Borrowed Money -5

This info came from 12/27/04 Business Week article. The same article said Harvard's endowment fund grew from $4.7B in 1990 to $22.6B in 2005. This sounds impressive until you calculate the compounded return, which is 11.04%. Simply investing in an S&P 500 index fund over the same time period would have given roughly a 10.91% compounded rate of return.

Swensen seems to have followed a similar very diversified approach at Yale.

I really enjoyed the explanation of why certain asset classes should not be included in investor's portfolios.....specifically foreign bonds.

Since I am an avid Index Fund investor, Swensen was preaching to the choir with regards to blasting the "for profit" mutual fund companies. Being a Vanguard investor, I was disappointed to see Vanguard take one hit for following one type of unsavory practice. Compared to the "for profit" mutual fund companies, Vanguard is a shining angel.

The successes of Harvard's and Yale's endowment fund investments are spreading the gospel of the advantages of asset allocation. Gary Brinson's 1986 famous study can be defined as the birth of asset allocation. He found that over 90% of a portfolio's return can be determined by the asset classes used, not what the individual investments were. Brinson's findings have been relatively slow to flow through the investment community and to individual investors. Dial the time clock ahead from 1986 to 2006, and one of Business Week's cover stories seeks to explain why the S&P 500's profits have increased dramatically over the last 5 years, yet the S&P 500 companies have had very little stock price appreciation. One explanation offered is that more and more investors practice asset allocation and choose other investments besides the S&P 500 for their portfolios. The increased demand for other asset classes like foreign stocks, commodities, and gold has subsequently less to a decrease in demand for large cap stocks in the S&P 500.

This book contains excellent information and guidelines for serious investors. It is very dry and boring to read.

All-in-all, a good book for serious investors. I would suggest companion books to supplement this book including The Richest Man in Babylon, Bogle on Mutual Funds, The Millionaire Next Door, The 4 Pillars of Investing, A Random Walk Down Wall Street, and the Coffeehouse Investor.
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