Barron's Criticism, Determinants of Investment Return
This lecture is a guest lecture by Professor David Swensen, Yale University's Chief Investment Officer. The starting point for Professor Swensen is an article entitled Crash Course, published in Barron's in the wake of the financial crisis from 2007-2008. This article blames his endowment investment approach for a failure of diversification and an overemphasis on alternatives.
Subsequently, Professor Swensen characterizes three major determinants of investment return--asset allocation, market timing, and security selection--and outlines the importance of asset allocation as the predominant component.
Against the background of these three tenets, he revisits Barron's criticism and defends the virtues of diversification against an exaggerated perception of the needs for safety in the immediate aftermath of a crisis. Moreover, he counters the critique of overemphasizing alternatives with a longer-term view on the performance of the Yale portfolio.
In the concluding question-and-answer session, he elaborates on the difference between endowment management and fund management, recent developments in the hedge fund and private equity fund industry, and on measures of investment performance beyond the Sharpe ratio.
A multiple-choice quiz related to this lecture can be downloaded below:
- Technology and Invention in Finance
- Financial Markets: Course Introduction
- Risk and Financial Crises
- Portfolio Diversification and Supporting Financial Institutions
- Insurance, the Archetypal Risk Management Institution
- Barron's Criticism, Determinants of Investment Return
- Lecture 7 - Efficient Markets
- Lecture 8 - Theory of Debt, Its Proper Role, Leverage Cycles
- Lecture 9 - Corporate Stocks
- Lecture 10 - Real Estate Finance
- Lecture 11 - Behavioral Finance
- Lecture 12 - Misbehavior, Crises, Regulation and Self Regulation
- Lecture 13 - Overview of Banks
- Lecture 14 - A Brief History of AIG with Maurice "Hank" Greenberg
- Lecture 15 - Forward and Futures Markets
- Lecture 16 - Banking and Regulations in China with Laura Cha
- Lecture 17 - Options Markets
- Lecture 18 - Monetary Policy
- Lecture 19 - Overview of Investment Banking
- Lecture 20 - Professional Money Managers and Their Influence
- Lecture 21 - Exchanges, Brokers, Dealers, Clearinghouses