The Best Investor You've Never Heard of

Few investors not named Buffett or Lynch have ever achieved sustained returns above 20%. Fewer still can claim to have delivered accelerating returns north of 20% during a period of market turmoil.

But that's what David Swensen's team did. See for yourself:

Fiscal Year

Total Return











Source: Yale 2007 endowment annual report.

For those who don't know, Swensen is neither a fund manager nor a venture capitalist. He's the chief investment officer for the Yale University endowment. And, over the past decade, you might argue that he's the world's second-best investor. Swensen and his team are up 17.8% a year since 1997 -- and that's after accounting for fees.

Over 20 years, Yale's investments have earned 15.6% a year.

Secrets of the world's No. 2 investor
One way to become a great investor is to study the characteristics that have made the best investors the best. Swensen is an interesting case because he isn't an ordinary stock picker. Rather, he acts more as an asset allocator -- doling out pools of money to expert managers.

Here's how he explained it in a 2005 interview with Motley Fool Rule Your Retirement editor Robert Brokamp:

We look for the best external advisors that we can find to manage portions of each of our asset classes. We just don't think it is realistic that we could bring everybody that we needed to make security-specific decisions to New Haven, Connecticut, and make it happen there. So our partners are scattered all over the world.

And they handle a range of assets. Private equity commands 18.7% of Yale's portfolio, for example. But Swensen also confesses to an "equity orientation" in choosing advisors, which, in turn, has led to Yale holding stocks from a wide variety of industries -- including biotechs such as Celgene (Nasdaq: CELG  ) and big oil firms such as BP (NYSE: BP  ) . Other recent top holdings included Shutterfly (Nasdaq: SFLY  ) and Kraft (NYSE: KFT  ) .

Earlier bets on Stericycle (Nasdaq: SRCL  ) and Alliance Data Systems (NYSE: ADS  ) in 2004 and Exxon Mobil (NYSE: XOM  ) in 2005 have since paid off big.

Perhaps the most encouraging aspect is that Swensen and his team have committed substantial personal wealth to the same investments that spur the endowment with which they are entrusted. Buffett, of course, can make the same claim. So can top mutual fund managers such as Bill Nygren.

Foolish takeaway
There are three takeaways for individual investors from Swensen's strategy, portfolio structure, and record:

  1. Diversification, if done intelligently, can enhance and stabilize long-term returns.
  2. While stocks should compose a hefty part of any portfolio, individual investors will do well to diversify across styles (value vs. growth), size (small vs. large), and geography (domestic vs. foreign).
  3. Trust advice from only those who invest alongside their clients.

But don't take my word for it. Get more advice from Swensen by checking out Rule Your Retirement free for 30 days. You'll get the interview and all of Robert's asset allocation tips for those already living the dream and the many more of us who are dreaming of living it up in our golden years.

Click here for more information. There's no obligation to subscribe.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Kraft is an Income Investor recommendation. The Motley Fool's disclosure policy will meet you at its Spanish villa overlooking the Mediterranean. Please don't forget the wine.

Read/Post Comments (0) | Recommend This Article (40)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 562327, ~/Articles/ArticleHandler.aspx, 10/22/2016 1:26:33 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
ADS $199.95 Down -4.82 -2.35%
Alliance Data Syst… CAPS Rating: ***
BP $36.25 Up +0.20 +0.55%
BP CAPS Rating: ****
CELG $98.91 Down -1.11 -1.11%
Celgene CAPS Rating: *****
KRFT.DL $0.00 Down +0.00 +0.00%
Kraft Foods CAPS Rating: *****
SRCL $74.78 Up +0.10 +0.13%
Stericycle CAPS Rating: ****
XOM $86.62 Down -0.59 -0.68%
ExxonMobil CAPS Rating: ****