Ellis. Winning the Loser's Game: Timeless Strategies for Successful Investing

Ellis established the basic premise that institutional investors cannot beat the market, for they compose the market. He differentiated a winner's game from a loser's, "in a winner's game the outcome is determined by the correct actions of the winner. In a loser's game, the outcome is determined by the mistakes made by the loser" (pp. 4-5). Ellis ascribed the reason for losing to the institutional investors, "they are the most important part of the problem" (p. 8). Ellis continued by asserting, "active investing is at the margin always a negative-sum game. Changing investments among investors would by itself be a zero-sum game, but costs such as commissions, expenses, and market impact must be deducted. Net result: a negative-sum game" (p. 9).

Ellis interjected an optimistic note, in this rather bleak picture, that "every investor can be a winner. All we need to do to be long-term winners is to reorient ourselves and concentrate on realistic long-term goal setting, sound policies to achieve our goals, and the requisite self-discipline, patience, and fortitude required for persistent implementation" (p. 10).

Ellis identified four strategies investors employ in their attempt to beat the market: "1. Market timing 2. Selection of specific stocks or groups of stocks 3. changes in portfolio structure or strategy 4. An insightful, long-term investment concept or philosophy" (p. 11). None of these proved to create a winning option, according to Ellis. He proposed the alternative of index funds, which had the advantages of "higher returns . . . lower fees . . . lower operating costs . . . lower taxes . . . lower risk of errors or blunders . . . lower anxiety about errors or blunders" (pp. 30-31).

Regarding the congruence between investment goals and strategy, Ellis observed a paradox. He saw a discrepancy between an investment manager's short-term actions and an investor's long-term objectives. He urged investors to have their advisor accomplish four tasks when seeking investment advice: "(1) understanding the client's real needs, (2) defining realistic investment objectives that can meet the client's realistic needs, (3) establishing the right asset mix for each portfolio, and (4) developing well-reasoned, sensible investment policies" (p. 43) that match objectives, strategy, and adherence to the strategy. Observing these principles improve the potential of portfolio performance, "policies that position the portfolio to benefit from riding with the main long-term forces in the market" (p. 43).

Six Questions
Ellis enunciated six questions each investor should ask an investment manager.
"First, what are the real risks of an adverse outcome, particularly in the short run . . .
Second, what are the probable emotional reactions of clients to an adverse experience? . . .
Third, how knowledgeable are you about investments and the vagaries of financial markets? . . . Fourth, what other capital or income resources does the client have and how important is the particular portfolio to the client's overall financial position? . . . Fifth, are there any legal restrictions on investment policy? . . . Sixth, are there any unanticipated consequences of interim fluctuations in portfolio value that might affect policy" (pp. 46-47).

Benign Neglect
The two factors that influence investment performance include time and risk. Ellis described time as the "Archimedes lever in investing" (p. 55). He continued, "the trade-off between risk and reward is driven by one key factor: time" (p. 55). These two factors determine the ratio of fixed income investment and equity investment. Risk entails three elements: "the real risk-free rate of return . . . a premium over the risk-free rate of return to offset the expected erosion of purchasing power caused by inflation . . . a premium over the inflation-adjusted risk-free rate of return to compensate investors for accepting market risk" (pp. 67-68). Furthermore, Ellis explained four types of risk: "price . . . interest rate risk . . . business risk " (pp. 67-68). The forth type of risk, market risk, "market risk pervades all investment. It can be increased by selecting volatile securities or by using leverage, and it can be decreased by selecting securities with low volatility or by keeping part of a portfolio in cash equivalents. But it cannot be avoided or eliminated. It is always there. Therefore, it must be managed" (p. 68). Two actions add a degree of control: "deciding deliberately what level of market risk to establish as the portfolio's basic policy and (holding to the chosen level of market risk" (p. 73).

Ellis stressed the advantage of index funds: "Such a fund provides a convenient and inexpensive way to invest in equities, with the riskiness of particular market segments and specific issues diversified away" (p. 70).

Writing an investment policy
Defining an investment policy, Ellis considered the fundamental task of the investor. An investment policy “is to establish useful guidelines for investing that are genuinely appropriate to the realities both of your own investment objectives and of the realities of the investment markets. These are the internal and external realms of investing, and investment policy must be designed to work well in both realms” (p. 89). The policy articulates the investor’s risk tolerance, objectives, and the equities that fit with the risk and objectives. The investment advisor explains the external factors, the markets and economic realities that affect the investor’s goals. “Investment policy is the explicit linkage between your long-term investment objectives and the daily work of your investment manager” (p. 90), stated Ellis. He recommended that the investor have the policy in writing.

Ellis elaborated on three policy facets: “the level of market risk to be taken . . . whether the level of risk is to be sustained or varied as markets change . . . whether individual stock risk or group risk is to be taken or avoided and the incremental rate of return which such risks, when taken, are expected to produce in the portfolio” (p. 90). If an investment advisor differentiates himself from the general market, that is an index fund, the investor needs to understand how he differs. Ellis stipulated how an advisor might differ: “by betting heavily on a few stocks, by favoring a particular stock market sector, or by investing heavily in cash if he thinks stocks are overpriced” (p. 90). Furthermore, understanding his execution, “whether continually as part of a long-term strategy or occasionally as a short-time tactic . . . and, most important, why he is confident that he will achieve favorable incremental results by taking these actions” (p. 91). With this insight, an investor can assess the advisor’s competence.

Ellis offered five standards by which an investor can evaluate an investment policy:

“1. Is the policy carefully designed to meet your real needs and objectives?
2. Is the policy written so clearly and explicitly that a competent stranger could manage the portfolio and conform to your intentions?
3. Would you have been able to sustain a commitment to the policies during the most troubling capital markets that have actually been experienced over the past 50 years—when conventional wisdom was surely most opposed?
4. Would the investor or professional investment manager have been able to maintain fidelity to the policy over the same periods despite intense daily pressure?
5. Would the policy, if implemented, have achieved your objectives?” (pp. 94-95).

Performance measurement, chapter 14 of Ellis’ work, has two basic principles—that the market, similar to any statistical phenomenon, tends to conform to the regression to the mean” (p. 97). The second principle stipulated that an investor should compare the portfolio with those of the same type—small cap with small cap and growth with growth.
Ellis reiterated the need to measure long-term results to determine true success.

Managing Managers
Ellis described how knowledgeable investors manage their advisors. The investor should attend to formulating an investment policy, internally and externally, in keeping with his or her decision-making process. Internal and external understanding constitutes the first and second steps of the process. Third, find a manager to execute your plan. Fourth, stick to the plan regardless of external realities. To maintain the relationship, Ellis suggested quarterly or semiannual meetings with an agenda, all documents. Ellis continued, “each meeting should begin with a careful review of the investment manager’s mission—the agreed-upon investment policies of the portfolio through which the manager is expected to accomplish the mutually intended long-term objective—to see if any modification in either objective or policy is appropriate” (p. 116). If not, reaffirm the policy document. “Discussion of specific portfolio operations—purchases and sales of specific securities—should be on an exception basis and should be brief” (p. 116). “The balance of the meeting time, usually another half hour, can best be devoted to a thoughtful and detailed discussion of almost any topic of importance to both the client and the manager as a way to increase shared understanding” (p. 117).

At least once a year the main topic should be a candid review—led by the client—of the client’s overall financial situation and the context in which the investment portfolio fits” (p. 117).

A written summary of perhaps three to five pages should be prepared and distributed after each meeting and kept for future reference. One suggestion would be to have alternating meetings summarized by the client and the investment manager” (pp. 117-118).

Questions an investor should ask for an actively managed portfolio include: “which managers will outperform the market for many years into the future? . . . can you identify the future’s favored few today? . . . will you make the right decisions and take action at the right time? . . . if you do select a superior manager, will that manager stay superior or will the assets managed grow? . . . (p. 120).

Among the rights of a client investor, according to Ellis, the investor “can select specialist managers skilled in each of the several different kinds of investing wanted . . . clients can diversity against the risk of one manager’s investment concept being out of tune with the overall market” (p. 122). Instead of many managers to diversity and reduce risk, Ellis pointed to index funds as a means to accomplish the same end.

The various decision-making sections of a portfolio entail equity mix, active versus passive management, advisor choice, portfolio policy and alternations. Emphasis on section 1, equity mix, increase the odds of success in comparison to portfolio alternations, section five.

Individual Investor’s 10 Commandments
1. “Don’t speculate
2. Save
3. Don’t do anything in investing primarily for “tax reasons”
4. Don’t think of your home as an investment
5. Never do commodities
6. Stockbrokers . . .their job is not to make money for you . . . their job is to make money from you
7. Don’t invest in new or “interesting” investments
8. Don’t invest in bonds because you’ve heard that bonds are conservative or for safety
9. Write out your long term goals
10. Don’t trust your emotions” (pp. 141-142)

Concentrate your investment in index funds for 401(k) plans.

Questions to Ask to Plan for the Future
“During retirement, how much income do I want to have each year in addition to Social Security and my employer’s pension benefit? . . . How many years will I be I retirement? What spending rule am I ready to live with and live by? . . . How much capital will I need to provide amply for retirement? . . . After insurance, what capital will I need—inflation-adjusted—to cover full health care for my spouse and myself? . . . How much capital do I want to pass on to each member of my family? . . . How much capital do I wish to direct to my philanthropic priorities?” (p. 156).

“Average returns for each type of investment have been approximately as follows:
Stocks 4 1/2 percent
Bonds 1 1/2 percent
T-bills 1 ¼ percent

Steps to Develop a Strategy
“Ask representatives of three organizations this question in writing: ‘Over the past 20 years, the stock market’s average annual total return has been X percent. Starting at the stock market’s present level, what average annual rate of return from today’s market level would your firm expect over the next 20 years? Next question: Over the next 1-, 5-, and 20-year periods, what rate of inflation do you expect?” (p. 157). When you have their answers, take the average of their answers. You’ll now have two crucial estimates of the future: The nominal rate of return for the stock market and the amount you will have to adjust nominal returns to estimate the real (inflation-adjusted) rates of return.
Any funds that will stay invested for 10 years or longer should be in stocks
Any funds that will be invested for less than two to three years should be in “cash” or money market instruments

“Prepare a complete inventory of your investment assets, including the following:
Investment in stocks and bonds
Equity in your home
Assets in any retirement plans"

Ellis' Suggested Reading List (pp. 174-175)

Berkshire Hathaway Annual Reports
The IntelligentInvestor by Benjamin Graham
Bogle on Investing, Jack Bogle
Pioneering Portfolio Management, David Swensen
Why SmartPeople Make Big Money Mistake--and How to Correct Them, Gary Belsky and Thomas Gilovich
The Crowd, Gustave LeBon
The Only Investment Book You'll Ever Need, Andrew Tobias
A RandomWalk down Wall Street
An Investor's Anthology
Wealthy and Wise, Claude Rosenberg



Ellis, C. D. (2002). Winning the loser's game: Timeless strategies for successful investing. NewYork: McGraw-Hill.

Antoine van Agtmael: The Emerging Market Century

An excellent book stated Swensen about the transformation of third-world makets to emerging markets.


van Agtmael, A. (2007). The emerging markets century: How a new breed of world-class companies is overtaking the world. New York: Free Press.

A banker and investment manager, van Agtmael worked at Bankers Trust with companies in Iran, South Korea, Japan, Thailand, and other Asian countries. One lesson Agtmael learned from his travels, he summarized as "foreign investors would be better off hedging their bets by investing in a basket of markets in developing nations as opposed to a single one" (p. 3). The idea of portfolio investing in emerging markets continued as the unifying theme of the book and the belief that these economies will dominate the economic future.

The author reiterated reports from Goldman Sachs, projecting the growth of emerging markets, the BRICs (Brazil, Russia, India, and China). Agtmael wrote that these countries "will overtake the several largest industrialized countries, the G7 (United States, Japan, Germany, France, UK, Italy, and Canada) by 2040. With globalization as the stage on which the developed and emerging markets compete, emerging market companies have proved the ability to compete, export, and produce on a global level.

Agtmael discerned these stages of emerging market development: "wave 1 foreign direct investment in overseas plants, wave 2 outsourcing and offshoring, wave 3 peer-to-peer emerging world class competitors" (p. 19). From his experiences, he extracted nine lessons. "'Unbundle' an industry by taking advantage of 'legacy thinking' to create opportunities for newcomers; vertically integrate the supply chain by building on related expertise; be a chameleon; turn the outsourcing model upside down; follow a south-south strategy(stay local); solve the zip code problem by going global; use a veil of anonymity by aspiring to be the largest company no one has ever heard of; translate the classic Chinese Sun Tzu war strategy into focusing on a niche ignored by market leaders; offer cheap brainpower instead of cheap brawn power" (pp. 50-55). He examined a number of emerging markets that illustrated each of these attributes.

Swensen: Pioneering portfolio management

The subtitle of Swensen's latest book, Pioneering portfolio management: An unconventional approach to institutional investment, appears directed to organizations. However, the introduction indicated that it applied to organizations and individual who have the time and skill to manage actively a portfolio. Swenson has observed that most individuals do not dedicate the time and learning required for active management. He recommended that they use passive investment methods, such as index funds that follow the S&P 500, the Russell 3000, or others.

Consistent with active portfolio management, the book stressed three themes. The first addressed "taking action within the context of an analytically rigorous framework, implemented with discipline and undergirded with thorough analysis of specific opportunities" (p. 4). The second theme, agency issues, confronted the personal, internal, and external forces which inhibit portfolio managers from adhering to their fiduciary responsibilities--from fee chasing to purchasing assets of companies that compromise investor interests. The last theme, active management challenges focused on the two variables of active management, market timing and security selecting, to realize rewarding pricing for assets.

In explaining the investment goals of Yale University, Swensen articulated the need for sustainability. He quoted Tobin, "the trustees of an endowed institution are the guardians of the future against the claims of the present" (p. 25). To achieve this goal, Swensen defined his investment philosophy, "by choosing to place asset allocation at the center of the investment process, investors ground the decision-making framework on the stable foundation of long-term policy actions . . . expressing an equity bias and maintaining appropriate diversification provide the foundation for building strong investment portfolios" (p. 52).

Swensen also specified Yale endowment’s spending philosophy. Sustainability requirements result from the balance of preserving the endowment and funding operations. Specifically, “Yale’s policy relates current year spending both to the previous level of spending from endowment and to the previous endowment market value. Under Yale’s rule spending for a given year equals 80 percent of spending in the previous year plus 20 percent of the long-term spending rate applied to the endowment’s market level at the previous fiscal year end” (p. 29). The older the endowment value the smaller the weight given to that value, ensuring less volatility and allowing greater risk. “Target spending rates sit at the center of fiscal discipline”, stated Swensen (p. 37).

Portfolio managers classify asset classes in a variety of ways. Swensen designated the groups noting the "broad sweeping differences in fundamental character" Debt versus equity, domestic versus foreign, inflation sensitive versus deflation sensitive, private versus public, liquid versus illiquid" (p. 101). Furthermore, Swensen described the type of economic environment in which each of the classes performed best.

"Under normal circumstances, bond returns exhibit high positive correlation to stock returns When interest rates fall, bond prices rise as a result of the inverse relationship between prices and yields. When interest rates decline, stock prices tend to rise as investors subject future earnings streams to lower discount rates. Strong positive correlations between stocks and bonds in normal environments produce little diversifying power. In the case of unanticipated inflation, bonds suffer. Inflationary price increases erode purchasing power of fixed nominal bond payments, causing investors to push bond prices down. While inflation may have negative short-term consequences for stocks, in the long run stocks react positively to inflation. With unexpected inflation, the long-term correlation between stocks and bonds prove to be low, providing substantial diversification to the portfolio. In a deflationary environment stocks perform poorly as economic woes cause earnings to suffer. In contrast, bonds generate handsome returns since fixed payments appear increasingly attractive as rice levels decline. During periods of deflation, low or negative correlations between stocks and bonds provides strong diversification" (p. 117-118).

In the context of the economic factors that influence asset allocation, the investor must decide on a portfolio. Yale identified the following two goals: "preservation of purchasing power and provision of substantial, sustainable support for operations" (p. 122). Given these goals, Yale defined its "'spending trauma' as a 10 percent reduction in real endowment distributions over five years" (p. 122). The responsibility rested on the portfolio manager "in selecting the portfolio best suited to satisfy, to the extent possible, both goals" (p. 123).

Having established portfolio management philosophies, goals, objectives, and investment and spending targets, the Yale team undergoes iterative portfolio simulations to verify performance. "Returns for each asset class, based on assumed returns, risks, and correlations and drawn from the specified distributions, determine portfolio returns for the initial period. The spending rule dictates the amount withdrawn from endowment, leaving the residual to be invested in the second period. After rebalancing the portfolio to long-term policy weights, repeating the return level for the subsequent year. The process continues, creating a time series of spending and endowment values" (p. 123). The team had multiple criteria for judging portfolio performance: failure to meet the team's goals and failure to realize both goals in equal weights. The exercises of simulations "encourage investors to create well-diversified portfolios" (p. 127), containing larger domestic equity classes, smaller reliance on bonds, and the inclusion of "private assets, including venture capital, leveraged buyouts, real estate, timber, and oil and gas" (p. 127). This exhibits a strategy geared to higher returns with less risk than the less-diversified endowments, the 'free lunch'.

In his chapter on portfolio management, Swensen emphasized, that the "fundamental objective of portfolio management is faithful implementation of long-term asset allocation targets" (p. 130). He continued, "If investors allow actual portfolio holdings to differ materially from asset class targets, the resulting portfolio fails to reflect the risk and return preferences determined by the asset allocation process" (p. 130).


After establishing asset allocation targets, Swensen contends that “risk control requires regular rebalancing to policy targets” (p. 132). A contrarian mindset lies at the heart of a rebalancing philosophy. Rebalancing requires discipline. An investor’s frequency of rebalancing ranges from daily, monthly, quarterly, or annually. “Since rebalancing requires sale of assets experiencing relative price strength and purchase of assets experiencing relative price weakness, the immediacy of continuous rebalancing causes managers to sell what others are buying and buy what others are selling, thereby providing liquidity to the market . . . To the extent that markets exhibit excess volatility, continuous rebalancing generates excess returns” (p. 134-135).

On consequences of active management, Swensen reiterated that active management and deviation from indexing, passive management involves risk. Additionally, the belief of investors that "portfolio biases create potential for significant value added . . . value strategies dominate growth strategies . . . that small-capitalization stock provide superior stock picking opportunities" (p. 136). Regarding active management, Swensen differentiates explicit and implicit leverage. Explicit leverage occurs when investors borrow funds to finance investment purchases. Implicit leverage happens when holding positions that embody greater risk than contemplated by the asset class within which they are categorized, such as derivatives.

Within the category of traditional asset classes, Swensen mentioned domestic equities, or stocks, U.S. Treasury bonds, foreign equities, and emerging markets. Swensen described the nature of these instruments, the hedge they act against inflation and deflation, the reasons they add diversity to the portfolio, the alignment of the interests of their managers and that of investors, and the interplay between the American and foreign markets and currency fluctuations. Previous discussion has detailed how domestic equities and U.S. Treasuries operate according to factors. Regarding foreign equities, Swensen concluded that historical data "supports the assumption of approximate equivalence between expected returns for domestic and international equities" (p. 170). However, he observed that "sensible investors invest in foreign equity markets through thick and thin" (p. 174). The political and economic stability and regulatory immaturity of emerging economies cause a high degree of risk for investors of these securities. Analysis has shown that many suffer periods of either "nationalization or war" (p. 175). "Of the thirty-six markets that operated in 1900, fully fifteen remained classified as emerging markets more than 100 years later" (p. 175). Although Swensen saw a correlation between inflation on domestic equities and emerging markets, he observed, "basic commodities play an important role in a number of emerging markets economies. To the extent that the U.S. suffers commodity-price induced inflationary pressures, investments in emerging markets stocks may provide partial protection against the inflation" (p. 177).

In his chapter on the investment process, Swensen argued that two principles should govern an organization that manages endowments: "developing an organization with the capability of selecting high quality active managers, and (b) deploying a strategy with an emphasis on bare bones passive vehicles" (p. 297). Some asset classes do not allow for passive investment success, according to the author: "absolute return*, real assets, and private equity" (p. 299).

Annual performance reviews

When making decisions, place allocations targets at the center on the discussion, targets that undergoes a review once a year. Other strategic reviews include the portfolio evaluation. This review details the "character and performance of the overall endowment and individual asset classes in depth, placing results in the context of conditions and identifying factors that influence significant investment opportunities" (p. 317).

"Portfolio review memoranda describe individual asset classes in depth, placing results in the context of market conditions and identifying factors that influence significant investment opportunities. The positioning of an asset class relative to its benchmark with respect to fundamental characteristics--such as size, sector, and style--highlights significant portfolio bets that are evaluated retrospectively and prospectively. Active management efforts receive grades in the form of detailed report cards for each manager. The individual manager assessments include not only performance data, but information on reporting, transparency, fee structure, and co-investment. Analysis of strengths and weaknesses of portfolio strategies leads to an outline for future projects to improve portfolio management. In essence, the portfolio evaluation meeting provides a backward-looking assessment and a forward-looking strategic plan" (p. 317).

"The remaining two quarterly meetings generally have a topical focus, frequently involving in-depth analysis of a specific asset class. Meetings centered on individual asset classes drill deep to provide a granular view, allowing committee staff to evaluate thoroughly every aspect of asset class management. Decision-making assessments consider the impact of bets regarding size, sector, and style . . . Asset class reviews provide a chance for external investment manages to engage investment committee and staff in discussion of significant market issues" (pp. 317-318).

Performance Assessment

Swensen listed both qualitative and quantitative factors in evaluating a portfolio. qualitative factors encompass "the quality and commitment of a firm's principals and maintenance of an appropriate organizational structure, regular face-to-face meetings between fund managers and external advisors constitute the most important tool for performance evaluation" (p. 326).

"Portfolio return data provide essential hard input into the performance assessment process. By comparing manager returns to passive market benchmarks and active manager benchmarks, investors measure the successes and failures of an investment program" (p. 326).

"If the sense of partnership diminishes because of changes in people, philosophy, or structure, then tough-minded fiduciaries move on" (p. 327).

* Absolute return investing consists of inefficiency-exploiting marketable securities positions that exhibit little or no correlation to traditional stock and bond investments . . . Merger arbitrage represents a typical event-driven absolute return strategy, with results related to the manager's ability to predict the probability that a deal will close, the likely timing and the expected consideration for the transaction" (p. 183).

Swensen, D. F. (2009). Pioneering portfolio management: An unconventional approach to institutional investment. New York: Free Press.

Swensen: Unconventional Success: A fundamental approach to personal investment

David F. Swensen, the Chief Investment Officer at Yale University, wrote books as instructions for the average investor. Swensen's investment strategy rests on Tobin's construct for understanding stock prices. Tobin's "q" a "means of understanding stock prices . . . compares the replacement cost of corporate assets to the market value of those assets. In equilibrium, Tobin argued, the ratio of replacement cost to market value, which he named "q", should equal one" (pp. 40-41).

Swensen's book, Unconventional success: A fundamental approach to personal investment, described three activities of portfolio management, asset allocation, market timing, and security selection. Asset allocation, Swensen defined as "the long-term decision regarding the proportion of assets that an investor chooses to place in particular investments" (p.11). Investors divide investments into six classes, such as domestic and foreign equities, emerging market securities, inflation-indexed bonds, conventional bonds, and real estate. Investors compare the returns from these classes against benchmarks to determine results.

Market timing, Swensen explained, "represents a purposeful attempt to generate short-term superior returns based on insights regarding relative asset class valuations" (p. 12). Security selection "refers to the method of construction of the individual asset classes, beginning with the choice of a passive or active management" (p. 12). Passive management mirrors results of indices, such as the S&P 500, Russell 3000, and others. Active management "involves making bets against the market with the investor attempting to overweight attractively priced stocks and underweight expensively priced stocks" (p. 12). Research, Swensen attested, attributed to asset allocation 90 percent of the variability of returns. The other two investment tools have a 10 percent impact.

Within the context of asset allocation, three principles shape a well-structured portfolio, "equity bias . . . substantial diversification . . . tax considerations" (p. 17). Equity bias acknowledges that equities outperform other asset classes. Research of Ibbotson and Siegel support this proposition. Substantial diversification assumes a sufficient number of investments to distribute risk. Swensen perceived that current market risk "required a portfolio of fifty securities" (p.22).
Swensen advocated the following breakdown of asset classes in a typical portfolio:
Domestic equities 30%
Foreign developed equities 15%
Emerging markets 5%
Real Estate 20%
US Treasury Bonds 15%
US TIPS 15%
Deviations to this portfolio would result from investment time horizons, the level of commitment to an equity orientation, and personal circumstances.

To minimize risk, Swensen pointed to US Treasury bonds and US Treasury Inflation Protected Securities (TIPS). However, investors should understand of the relationship between these government instruments and inflation. Similarly, when rebalancing a portfolio, investors should consider the tax ramifications of their actions.

Although Swensen castigated mutual funds generally, as "performance deficit" (p. 208), he mentioned some mutual fund managers that exhibited traits that promoted the investors interests: owning a significant stake in their fund, have a passion for superior returns, engaging in relentlessly research in the companies they follow, shunning a herd mentality about the market, and demonstrating the courage of their convictions. Under the headings of "Principal orientation . . . clear strategy . . . long-term focus . . . portfolio concentration . . . stable client base . . . fair fee arrangements . . . substantial co-investment . . . limits on assets under management . . . shareholder communication" (pp. 303-310), Swensen explored traits on good mutual fund managers. For the active investor, Swensen examined exchange traded funds (ETFs) as an investment option. An costly vehicle for small investors who trade in small increments, they offer investors who make larger trades a more cost effective choice than mutual funds. Swensen cautioned investors to watch the fees. Unfortunately, some ETF managers have mimicked the mutual fund market.

Swensen, D. F. (2005). Unconventional success: A fundamental approach to personal investment. New York: Free Press.