Yale University, where I teach, has entrusted its endowment portfolio to one man, David Swensen, for more than 20 years. During this period, the portfolio has grown from just over US$1 billion to US$18 billion -- an average return of more than 16 percent a year, which appears to be the highest of any major university. And it shows no signs of diminishing. In the latest fiscal year ending in June, the return was 22.9 percent.
Presidents of Yale have come and gone, but Swensen stays on. He has done more for the university than any president, or anyone else. In a university, ideas count more than money, but US$18 billion can create an environment for many new ideas. With 11,500 students, that is more than US$1.5 million per student (not including the university's buildings and art collection, each worth many billions more).
How did this happen? How did Swensen make so much money? Everyone is wondering -- not least those of us at Yale.
After all, many people here have been teaching the "efficient markets hypothesis" that financial markets around the world have become so competitive that it is impossible to make more than a normal return from investing. Anyone who beats the market must simply be lucky.
Studies seem to confirm this. For example, a 2004 study by Brad Barber and Terrance Odean of the University of California and Yi-Tsung Lee (
The study found that only the top 1 percent of day traders made a profit -- after deducting trading costs -- in two consecutive six-month periods, and the median profit was hardly worth the effort: only about US$4,000.
It is easy to conclude that there is just no point in even trying to beat the market. But then one remembers people like Swensen. Can his consistent performance really be attributed to luck?
Robert Kiyosaki, author of the Rich Dad, Poor Dad series of popular investment books, bases his books' titles and themes on a comparison of his own highly educated father with his friend's father, an eighth-grade dropout.
According to Kiyosaki, his poor but scholarly dad tended to be pessimistic about one's ability to achieve anything in the real world, so he discouraged his son from even trying. By contrast, the friend's dad relished trying to achieve something big. Is it just a coincidence that he was rich?
Kiyosaki may try too hard to be inspirational, but I often think of him when I hear finance professors opine on the efficiency of markets and the futility of making money by trading in them. Maybe many academics find it difficult to take the initiative to achieve in the real world -- I have yet to meet another professor who has mentioned having read Kiyosaki.
But Swensen is an academic, with a doctorate in economics. He is surrounded by academics. Somehow, all this talk about efficient markets has not discouraged him from trying, and succeeding.
There seems to be a pattern. Two similar universities, Harvard and Princeton, have had nearly the same success. The Harvard endowment, under Jack Meyer, earned a 15.2 percent average annual return over the last 10 years, compared with Swensen's 17.2 percent average, while the Princeton endowment, under Andrew Golden, earned an average of 15.6 percent per year. In fact, Golden worked under Swensen at Yale from 1988 until 1993.
Swensen has written two books about investing, one for professionals and one for the general public. I did not come away from reading them with a feeling that I know how to do what he did. But a couple of things stand out.
One is his long-term focus. Yale lets Swensen invest for the very long term, and does not bother him about quarterly performance. Maybe this allows him to focus more on long-term fundamentals -- and thus to make investments that may not perform well in the short run. But, in fact, he has done consistently well in both the short term and the long term.
Part of the reason for Swensen's success is "absolute return," a term -- now widely quoted in the investment community -- that he coined for unusual investment strategies involving such things as merger arbitrage and distressed securities. He also has invested in non-traditional asset classes, including real estate, oil, timber, private equity, venture capital and buyout firms. These assets are generally not followed by multiple analysts, and are not easily understood, giving him an advantage in applying his intellectual skills and those of others around him.
In these senses, Swensen is completely different from day traders, who are both investing for the short term and trying to beat the most crowded market -- the market for exchange-listed securities.
But I also believe that the wondrous success of Swensen and others like him reflects the environment that Kiyosaki criticizes. The problem is a defeatist attitude, not scholarship.
When an analytical mind, a mind that is trained to search rigorously for the truth and as part of a community of such people is set free from self-doubt, it can do amazing things. Knowing David Swensen, I can attest that he is not a lonely day trader trying to beat the market. He is a good listener, is supportive of people he trusts and is surrounded by a lot of good people with a wide array of skills. And he is certainly not a defeatist.
Robert Shiller is professor of economics at Yale University and chief economist at MacroMarkets LLC, which he co-founded.
Copyright: Project Syndicate
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
Since the Russian invasion of Ukraine in February 2022, people have been asking if Taiwan is the next Ukraine. At a G7 meeting of national leaders in January, Japanese Prime Minister Fumio Kishida warned that Taiwan “could be the next Ukraine” if Chinese aggression is not checked. NATO Secretary-General Jens Stoltenberg has said that if Russia is not defeated, then “today, it’s Ukraine, tomorrow it can be Taiwan.” China does not like this rhetoric. Its diplomats ask people to stop saying “Ukraine today, Taiwan tomorrow.” However, the rhetoric and stated ambition of Chinese President Xi Jinping (習近平) on Taiwan shows strong parallels with