David Swensen explains the investing world (and bashes Jim Cramer)
The early (internal) versions of that list of the 25 People to Blame for the Financial Crisis included Yale University chief investment officer David Swensen (it was Barbara's brilliant idea). Not because Swensen's a bad guy—by all accounts he's a great guy, and a brilliant investor. But so many less-talented endowment and pension fund managers tried to emulate his alternative-investments-heavy approach in recent years that they helped create a bubble in alternative investments (hedge funds and private equity, mainly).
Anyway, my friend Marc Gunther, who wrote a great profile of Swensen for Yale's alumni magazine five years ago (Marcia Vickers also wrote a great one for Fortune around the same time that I sorta kinda helped edit) , has a new Q&A with the man. It's in the Yale Alumni Magazine again, which helps explain why it fails to delve into the important question of whether Swensen is in fact one of the 25 people to blame for the financial crisis. But it's still very interesting. The mild-mannered Swensen bashes Jim Cramer (a Harvard man, natch):
Jim Cramer exemplifies everything that's wrong with the advice -- and I put advice in quotation marks -- that is given to individual investors. Investing is a serious business. We're talking about retirement security of American citizens, and he turns it into a game. It's a game where his listeners lose. It's ridiculous. These high-turnover, rapid trading strategies enrich the brokers. If you look at Jim Cramer's approach on an after-fee, after-tax basis, the individual doesn't have a chance.
And the man who invented the swap in his pre-Yale days at Salomon Brothers also says complex debt securities are for suckers (apparently he's been saying this for a while):
People on Wall Street who are structuring these securities are more sophisticated than the people to whom they are selling them. With that kind of dynamic, when really smart, highly compensated, very clever people are on one side of the trade, and less highly compensated, less clever people are on the other side, you know who's going to end up in the soup.
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Jim Cramer must soon embrace the inevitable and move over to Fox Business.
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The early (internal) versions of that list of the 25 People to Blame for the Financial Crisis included Yale University chief investment officer David Swensen (it was Barbara's brilliant idea). Not because Swensen's a bad guy—by all accounts he's a great guy, and a brilliant investor.
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I'm glad you left him out, because its not the person who discovers a sucessful investment strategy that is to blame, but "the herd" who don't understand that "new" strategies that are successful work because they take advantage of things that no one else noticed before --- and won't work when everyone is taking advantage of the same information.
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indeed, the best investment advice you can give someone is that "the conventional wisdom is wrong". -
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You have only one buyer of the bad paper (representing hedge funds) on the list of 25. Yet without the buyers of massive amounts of the stuff, we wouldn't have had much of a crisis. Mutual funds, foundations and endowments (perhaps Swanson should have been on the list, although I don't know what their CDO book looked like), etc. bought the paper without doing the due diligence that was required.
The buyers need to get their fair share of the blame, and their share is huge.
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Finally, someone has called out WallStreet into the light! The Jim Cramer's of the world, entertainers, that the marriage of marketing and investing is dangerous! Literally a marriage made in Hell! WallStreet embraced "marketing" to position (convince) the public to "retire" rich and invest into equities. It's the only way - the "Truth!" Investing is complicated, technical and very important, instead WallStreet turned investing into a "bet at the dog race." WallStreet is smart, smart enough to garner billions in profits, to the demise of the American public. And now the last haven of security, American Home Ownership, has been pillaged by way of sophisticated MBS packaging and marketing. Who needs to worry about terrorists when we we have WallStreet! It's time for the American people to call WallStreet -- its' executives into account! And of course be doubtful of anything that ever comes by way of WallStreet again...including its' entertainers!
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