Timeless investment wisdom from the world's greatest allocators, CIOs, and investment thinkers. From David Swensen's Yale Model to Warren Buffett's value principles.
CIO WISDOM
MAY 2021
David F. Swensen
Ten Lessons from the Life & Legacy of David F. Swensen
Yale University CIO (1985-2021), grew endowment from $1.3B to $31.2B
"The brilliantly innovative and profoundly humane David Frederick Swensen was a legend in the investing world—a pioneer who played a preeminent role in the growth of Yale's endowment."
David served as Chief Investment Officer of the Yale University Endowment for nearly four decades. As an author of 'Pioneering Portfolio Management' (2000) and 'Unconventional Success' (2005), David endowed the financial world with numerous investment principles that continue to guide institutional investors today.
Key Lessons
1.Asset allocation is the singular most important decision, encompassing diversification, rebalancing, and risk management
2.The 'Fetish of Liquidity'—emphasize asset classes that generate higher returns in exchange for giving up short-term liquidity
3.Be an owner rather than a creditor—favor equities and alternatives over fixed income
4.Discipline—do not deviate from well-thought-out plans in response to market fluctuations
5.In-depth probing and creative research before and after making investments
6.Decisiveness and resolution—take advantage of opportunities created by price dislocations 2-3 standard deviations from normal
7.Critical importance of manager selection—the widening differential between first and third quartile performance requires extraordinary due diligence
8.Stay within your circle of competence while understanding the broader environment
9.Keep in mind the higher purpose of your calling
Source: Petiole Asset Management
CIO WISDOM
MAR 2021
Ted Seides
Four Lessons from Interviewing Hundreds of CIOs
Host of Capital Allocators podcast, former Yale Investments Office, co-founder of Protégé Partners
"After 200+ interviews with the world's leading chief investment officers, Ted Seides distills the essential wisdom on what separates great allocators from the rest."
Ted Seides began his career at the Yale Investments Office under David Swensen in 1992. After Harvard Business School, he co-founded Protégé Partners and famously took Warren Buffett's bet that hedge funds couldn't beat the S&P 500. His Capital Allocators podcast has become essential listening for institutional investors.
Key Lessons
1.Running organizations well—high-quality investing requires disciplines outside investing itself, including fine-tuned decision-making and leadership
2.Getting the governance structure right—CIOs don't own the capital, they serve the capital. Understanding how to make governance work is essential
3.Manager sourcing and research—when it comes to strategy implementation, 'you got to get it right'
4.Finding a good mentor—'Sometimes people are in such a rush to grow that they leave on the table the opportunity to learn from someone who has been through it before'
Source: Business Insider
VALUE INVESTING
FEB 2024
Warren Buffett
The Wisdom of Warren Buffett: Principles for Long-Term Investing
Chairman & CEO of Berkshire Hathaway, 'The Oracle of Omaha'
"Be fearful when others are greedy, and greedy when others are fearful. The timeless principles that built one of history's greatest fortunes."
Warren Buffett follows the Benjamin Graham school of value investing, which looks for securities with prices that are unjustifiably low based on their intrinsic worth. His approach emphasizes owning great businesses for the long term, understanding what you invest in, and maintaining emotional discipline during market extremes.
Key Lessons
1.Rule #1: Never lose money. Rule #2: Never forget Rule #1
2.Be fearful when others are greedy, and greedy when others are fearful
3.It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price
4.Price is what you pay, value is what you get
5.Our favorite holding period is forever
6.Stay within your circle of competence—only invest in what you understand
7.Look for economic moats—durable competitive advantages
8.Risk comes from not knowing what you're doing
9.For most investors, low-cost index funds are the best approach (90/10 rule)
Source: Berkshire Hathaway Shareholder Letters
PASSIVE INVESTING
1975
Charles D. Ellis
The Loser's Game: Why Most Active Managers Fail
Founder of Greenwich Associates, author of 'Winning the Loser's Game'
"Investing is a 'loser's game' where the outcome is controlled by the loser, not the winner. Like amateur tennis—you win by making fewer mistakes than your opponent."
Charley Ellis has been a voice of common sense in the world of investing for more than 50 years. His book 'Winning the Loser's Game,' which explains why low-cost, buy-and-hold indexing is the rational choice for all investors, has become a classic. At 85+, he continues to advocate for evidence-based investing.
Key Lessons
1.Success is all about minimizing mistakes—if you index, you won't be making mistakes, timing the market, or trading too much
2.Active managers do more harm than good—'It's gotten harder and harder to be an active manager and successful at the same time'
3.Outperformance gets harder as aggregate skill increases—from 5,000 active investors in the 1960s to 2 million highly educated professionals today
4.Indexing is the rational choice for everyone—even David Swensen started with most of Yale's fund in indexing
5.Define the problem first—'Most of us, with regard to investing, have not figured out what the problem is'
6.The perception vs. reality gap—brilliantly talented people working hard for you is true, but making a real difference to your economic situation is very unlikely
Source: The Evidence-Based Investor
ASSET ALLOCATION
OCT 2021
Phil Huber, CFA, CFP
The Allocator's Edge: Alternative Investments and the Future of Diversification
Former CIO of Savant Wealth Management, Head of Portfolio Solutions at Cliffwater
"Traditional 60/40 portfolios face challenges in the current environment. Alternatives can provide diversification benefits and new sources of return."
Phil Huber's 'The Allocator's Edge' provides a comprehensive guide to alternative investments for wealth advisors. The book addresses why the future may present challenges for traditional portfolios, why adoption of alternatives has been limited, and how to implement alternatives effectively.
Key Lessons
1.Asset allocation determines 90% of portfolio variability
2.Traditional 60/40 portfolios face structural challenges in the current environment
3.Alternatives can provide diversification benefits and new sources of return
4.Risk-reward supply chain problems—advisors need to get more creative in portfolio design
5.Downside protection with upside participation is valuable in uncertain markets
6.Democratization of alternatives—making them accessible beyond just institutions
Source: Halo Investing
MANAGER ASSESSMENT
2012
Michael Mauboussin
Untangling Skill and Luck in Investment Performance
Head of Consilient Research at Counterpoint Global, former Chief Investment Strategist at Legg Mason
"A framework for distinguishing between skill and luck in investing—essential for evaluating manager performance and making allocation decisions."
Michael Mauboussin's work on the skill-luck continuum provides a rigorous framework for understanding investment performance. In activities where luck plays a significant role, reversion to the mean is powerful and persistent. Understanding where investing falls on this continuum is essential for setting realistic expectations.
Key Lessons
1.The paradox of skill—as skill increases across participants, luck becomes more important in determining outcomes
2.Sample size matters—you need many observations to distinguish skill from luck
3.Process over outcome—a good process can lead to bad outcomes and vice versa
4.Base rates are essential—understand the probability of success before evaluating specific managers
5.Reversion to the mean is powerful in activities where luck plays a role
Source: Credit Suisse Research
VALUE INVESTING
1949
Benjamin Graham
The Intelligent Investor: A Philosophy of Loss Minimization
Father of Value Investing, mentor to Warren Buffett
"The essence of investment management is the management of risks, not the management of returns. The margin of safety is the central concept of investment."
Benjamin Graham's 'The Intelligent Investor' remains the definitive book on value investing. His philosophy emphasizes the importance of thorough analysis, a margin of safety, and the distinction between investment and speculation. Warren Buffett called it 'by far the best book on investing ever written.'
Key Lessons
1.The margin of safety—never pay more than a stock is worth, and ideally pay significantly less
2.Mr. Market—treat market fluctuations as opportunities, not guides
3.Investment vs. speculation—an investment operation promises safety of principal and an adequate return
4.The defensive investor—focus on diversification and avoiding serious mistakes
5.The enterprising investor—be willing to devote time and effort to selecting better-than-average securities
6.Intrinsic value—focus on the underlying business, not the stock price
Source: The Intelligent Investor (1949)
CIO WISDOM
2014
Howard Marks
Risk Revisited: The Most Important Thing
Co-founder and Co-Chairman of Oaktree Capital Management
"Risk means more things can happen than will happen. Understanding the difference between risk and volatility is essential for long-term success."
Howard Marks' memos to Oaktree clients have become required reading for serious investors. His book 'The Most Important Thing' distills decades of wisdom on risk, market cycles, and contrarian thinking. Marks emphasizes that risk is not volatility—it's the probability of permanent loss of capital.
Key Lessons
1.Risk means more things can happen than will happen
2.Risk is not volatility—it's the probability of permanent loss
3.The relationship between risk and return is not linear
4.Second-level thinking—go beyond the obvious to find opportunities
5.Market cycles are inevitable—position accordingly
6.The most dangerous thing is to think there's no risk
Source: Oaktree Capital Memos
ASSET ALLOCATION
2011
Ray Dalio
Principles: The Foundation of Systematic Investing
Founder of Bridgewater Associates, pioneer of risk parity
"Pain + Reflection = Progress. A systematic approach to decision-making and portfolio construction based on understanding how the economic machine works."
Ray Dalio's Principles document, which formed the basis of his best-selling book, details Bridgewater's unique approach to investing and management. His 'All Weather' portfolio concept revolutionized asset allocation by focusing on risk parity rather than capital allocation.
Key Lessons
1.Embrace reality and deal with it—radical transparency and open-mindedness
2.Pain + Reflection = Progress—learn from mistakes systematically
3.Understand how the economic machine works—debt cycles, productivity, and deleveraging
4.Risk parity—balance risk across asset classes, not just capital
5.Diversification is the holy grail—find 15-20 uncorrelated return streams
6.Systematize your decision-making process
Source: Bridgewater Associates
VALUE INVESTING
1991
Seth Klarman
Margin of Safety: Risk-Averse Value Investing Strategies
CEO of Baupost Group, author of the rare classic 'Margin of Safety'
"Value investing is at its core the marriage of a contrarian streak and a calculator. The goal is to buy dollar bills for fifty cents."
Seth Klarman's 'Margin of Safety' is one of the rarest and most sought-after investment books ever written. Klarman emphasizes absolute returns over relative performance, the importance of a margin of safety, and the discipline to wait for the right opportunities.
Key Lessons
1.Absolute returns matter more than relative performance
2.The margin of safety is essential—buy at a significant discount to intrinsic value
3.Patience is a virtue—wait for the fat pitch
4.Avoid permanent loss of capital at all costs
5.Complexity is often the enemy of good investing
6.Contrarian thinking is necessary but not sufficient
Source: Margin of Safety (1991)
"The four most dangerous words in investing are: 'This time it's different.'"
