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David Swensen on automatic rebalancing

25 Aug 2011 by Jim Fickett.

One hears a lot about David Swensen, who changed the paradigm for endowment investing, and who has given Yale, in particular, remarkable returns. So when Dividend Monk posted a [long, 2008] video of Swensen speaking, I decided to watch.

As far as I can tell from this video, what Swensen says has relatively little to do with what he does. He argues long and hard against market timing, active fund management, and the selection of individual stocks … and then says he shorted subprime, puts a quarter of the portfolio in hedge funds, and looks for “individual, specific, bottom-up opportunities to deploy the funds”. Anyway, his main message seems to be to use percentage targets for each asset class in a diversified portfolio, in order to force automatic rebalancing, which forces one to buy low and sell high.