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Legendary investor David Swensen died of cancer earlier this month at age 67. Mr. Swensen revolutionized institutional money management as the developer of the Yale Model – an investment approach characterized by low bond holdings and extreme levels of diversification everywhere else.

Nick Maggiulli’s Of Dollars and Data website drew investor lessons from the manager’s highly successful career in 4 Investing Lessons from David Swensen. The four lessons are: “Asset allocation is everything,” “If you want growth, increase your equity exposure,” “Diversification works … in the long run” and “Our time horizon might be shorter than we think.”

Mr. Swensen believed that 90 per cent of the variability in portfolio returns were determined by asset allocation. This is because asset selection is, in aggregate, a negative return strategy – for every buyer there’s a seller and for every loser there’s a winner. Add in fees, and the overall returns are negative.

The Yale Model involved far more regional diversification than most U.S. institutional funds. As Mr. Maggiulli recounts, Mr. Swensen proposed a base allocation in his book, Unconventional Success: A Fundamental Approach to Personal Investment, that featured only a 30-per-cent weighting in U.S. equities, 15 per cent in ex-U.S. developed markets, 5 per cent in emerging markets, 20 per cent in U.S. real estate, 15 per cent in Treasuries and 15 per cent in Treasury Inflation Protected Securities.

The hefty allocation to real estate underscored the manager’s belief in replacing bond exposure with equity assets that offer both income and outperformance.

For Canadian investors, applying Mr. Swensen’s diversification lessons is not entirely straightforward. Domestic portfolios routinely feature regional diversification through U.S. equities and the benefits of further equity weightings in other G20 countries are debatable.

To further complicate things, the S&P/TSX Composite index has a very high correlation with the MSCI Emerging Markets index once currency is factored in, so the diversification advantages are dubious.

Canadian investors should, however, be searching for means of diversification. As the third lesson emphasizes, diversification is effective over the long term even if there are shorter periods where it looks counterproductive.

In terms of shorter-than-expected time horizons, Mr. Maggiulli points to Mr. Swensen’s tragic untimely death. We don’t, however, need to be that macabre to recognize that unforeseeable circumstances can lead to the need for funds well ahead of schedule.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Alibaba Group Holding Ltd. (BABA-N) There is a time-honoured tenet of value investing that says the best deals are to be had by venturing where things are darkest. Right now, that line of thinking suggests bargain-hunters should take a close look at the Chinese internet and e-commerce giant. It is Case Study No. 1 in how China’s digital revolution has spawned a legion of world-class consumer companies. Its problem is that it is also Case Study No. 1 in how to offend China’s prickly leadership. Ian McGugan looks at the investment case.

The Rundown

‘I am frozen’: An investor who missed the surge in stocks wonders how to get into the market

Have you ever avoided getting advice because you were too embarrassed to ask for it? A reader confessed recently that she’s in this position. She liquidated her investments in 2020 before the crash, but did not get back in. “I missed the big swell,” she said in an e-mail, adding that she’s reluctant to ask what to do now - especially given she has more knowledge about investing than most. She now feels “frozen” on this dilemma. Rob Carrick comes to her rescue.

Commodities powering sustained rally as Canadian dollar hits six-year high

With the Canadian dollar pushing through the 83-US-cent mark on Tuesday for the first time in six years, the loonie’s doubters finally seem to be hopping on the bandwagon. As Tim Shufelt reports, foreign-exchange speculators have turned considerably more bullish on the dollar over the past couple of weeks, after spending most of the past year betting against the Canadian currency.

Also see: Canadian exporters rejig currency hedges as commodities boom

Run Your Race: Money wisdom from Vanguard’s Jack Brennan

When it comes to financial advice, you could do worse than listen to someone who helped steer more money than almost anyone else on the planet. When he was chairman and CEO of investment giant Vanguard Group, Jack Brennan oversaw a company that has since grown to over $7 trillion in assets. An avid marathoner, Brennan sat down with journalist Chris Taylor to talk about how to pace yourself for the long-distance race of financial security - and what to make of today’s market valuations.

Buyers beware as ‘altcoin’ frenzy bruises bitcoin

Bitcoin’s smaller rivals are eroding its share of the US$2-trillion digital currency market. Of the dozens snapping at its heels, most have little use beyond financial trading – but few of the investors fuelling their rise seem bothered. Tom Wilson of Reuters reports.

Also see: Bitcoin slides below $40,000 after China’s new crypto curbs

The big money is going vegan

Private equity has a place at the table, and so do Oprah and Jay-Z. Food giants like Nestlé are scrambling to get a foot in the door. There are implications for the climate. There are even geopolitical rumblings. The unlikely focus of this excitement is Oatly, producer of a milk substitute made from oats that can be poured on cereal or foamed for a cappuccino. Oatly, a Swedish company, will sell shares to the public for the first time this week in an offering that could value it at US$10 billion and exemplify the changes in consumer preferences that are reshaping the food business. The New York Times takes a look at why this company is creating so much buzz.

Others (for subscribers)

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: Two securities that have doubled in value in 2021 are being purchased

Tuesday’s Insider Report: CEO, COO and CFO increase their positions in this energy stock

Number Cruncher: These 10 TSX materials stocks are well-placed to benefit from commodities boom

Saudi sovereign fund PIF dissolves share stake in Suncor Energy

Burry of ‘Big Short’ fame reveals large bearish bet against Tesla

Globe Advisor

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What’s up in the days ahead

Cruises are selling fast for this coming winter. Should investors snap up the big cruise line stocks while they are still far below pre-COVID levels? Larry MacDonald takes a look. Plus, Ian McGugan shares his thoughts on bitcoin’s really bad week.

Click here to see the Globe Investor earnings and economic news calendar.

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