Market Timing an “Exercise in Futility”, Swensen Says

In an interview with the Financial Times, Yale endowment chief David Swensen says that market timing is a futile exercise, and that investors should only invest in what they understand.

Swensen, who has built an exceptional long-term track record by investing largely in illiquid assets, tells the Times’ Chrystia Freeland that even if he could have, he wouldn’t have shifted large amounts of money into safe Treasury bills before the financial crisis last year. Swensen says that making bets on big changes during periods of radical disruption can net big rewards, but that “ultimately, market timing is an exercise in futility. When you’ve got dramatic movements in the markets you can identify after the fact a handful of investors that succeeded in the short run. But making big, aggressive asset allocation moves isn’t a strategy that’s likely to prove successful in the long run.”

Swensen’s greatest piece of advice: “You should invest only in things that you understand. That should be the starting point and the finishing point.”

Because of that, most investors should focus on index funds, he says. “The overwhelming number of investors, individual and institutional, should be completely in low-cost index funds because that’s easy to understand,” Swensen says.

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