Winning the Loser's Game

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Caractéristiques

Auteur : Charles D. Ellis
Publication : 2017 (première édition en 1998)
Editeur : McGraw-Hill Education
ISBN : 978-1259838040
Nombre de pages : 304
Prix : 24,55 euros

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4ème de couverture

Experts praise Winning the Loser's Game

«A must-read classic that has stood the test of time - both in theory and in the markets.»

MARTIN LEIBOWITZ, Managing Director, Morgan Stalnley Research

«This remarkably insightful and lucidly written investment classic should be required reading for every serious investor.»

BURTON G. MALKIEL, Author, A Random Walk Down Wall Street

»The fist edition of Charley Ellis's great Winning the Loser's Game was published in 1985. Each subsequent edition has gotten more comprehensive and more timely, and his seventh edition is best of all. Read it. Learn from it.»

JOHN C. BOGLE, Founder, Vanguard Group and First Index Mutual Fund

»This is by far the best book on investment policy and management.»

PETER DRUCKER

»Ellis has writter a liberating book about investing. This book will enable you to dace your money matters squarely, with intelligence and vision, and help you create a plan that will increase the security and freedom of your later years.»

BYRON R. WIEN, BlackRock

»A must-read. This clearly written book explores concepts essential to both institutional and individual investors. It is not a simplistic 'do-it-yourself' cookbook, but an elegant guide to investment truths and paradoxes.»

ABBY JOSEPH COHEN, Stock Market Strategist, Goldman, Sachs & Co

The Classic guide to winning on Wall Street—completely updated and expanded!

The go-to guide for serious investors seeking long-term success, Winning the Loser's Game explains clearly the all-important lessons learned for over half a century working with the world's leading investment experts.

Called «Wall Street's wisest man» by Money magazine, Charles Ellis converts the expertise he has developped as a consultant to the world's largest pension, endowment, ans sovereign wealth funds and as a teacher at Harvard, Yale, and Princeton into candid, pithy, easy-to-use chapters on how to succeed as an investor.

Past editions of Winning the Loser's Game have sold over 500,000 copies—and this edition is packed with important up-to-the-minute facts and insights into...

• Why indexing continues to outperform «active» indexing
• Why fees are much higher than most of us realize
• How 401(k) plans can and should be modernzed
• Why understanding behavioral economics is so important for all investors

With Winning the Loser's Game, you have everything you need to identify your unique investment objectives, develop a realistic and powerful investment program, and enjoy superior results.

In two to three hours of easy reading, you can have the same informed and candid advice that Charley Ellis's clients gladly pay big fees to get directly from him. You'll also have fun.

CHARLES D. ELLIS advises institutions, wealthy families, and governments around the world. Much in demand as a compelling speajer, he chaired the investment committee at Yale University and chairs the Whitehead Institute for Biomedical Research.

Ellis has taught advanced investment courses at both Harvard Business School and Yale School of Management and written 17 books and well over 100 articles. Recognized as one of 12 leading contributors to the investment profession, he has chaired the CFA Institute and has served on over a dozen investment committees and as a director of Vanguard.

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PREFACE

Lucky me! Married to a wonderful and inspiring woman, I was born in the United States; privileged in education; blessed with parents, children, and grandchildren I like, admire and enjoy; and also blessed with an unusually wide global circle of friends in investment management—an endlessly fascinating profession in a remarkably favored business—replete with bright, engaged, and creative people.

Investing can seem way too complex, and investing wisely can take too much time. Most individuals are too busy to take the time to "learn all about it." They and you have better things to do.

With increasing concerns, I've seen the long-term professionnalism that attracted me to investing get increasingly compromised by short-term commercialism and investor uncertainties about how to manage investment for the long term. With all my advantages comes able clear responsibility to serve others. That's why I wrote this book.

Over the past century, the securities markets have changed massively, and in many ways, creating an overwhelming problem for individual and professional investors. Those profound changes are explained in Chapter 1, "The Loser's Game." Raised in a tradition that if you recognize a problem, you should look for a good solution, I've written this short book of straight talk. Each reader can understand the realities he or she faces and know how to take appropriate action to convert the usual loser's game into a winner's game in which every sensible investor can and should be a long-term winner.

As Winston Churchill so wisely observed, "People like winning very much!" We all like winning with investments, and we all can win—at lower costs, less risk, and less time and effort if we can clarify our real objectives, develop sensible long-term policies, and stick with them so the markets' fluctuations are working for us, not against us.

In over 50 years of learning about investing from outstanding practitionners and expert theorists around the world, I've tried to collect, distill and explain clearly and as plainly as possible the principles for successfull investing. For both individual investors and institutional investors who have the necessary self-discipline and widh to avoid the loser's game, the simple messages in this short book are now and will be the keys to success in the winner's game of sensible investing for the next 50 years.

The core principles of successfull investing never change—and never will.Sure, the companies change, and markets and economies go up and down—sometimes a lot. In fact, when short-term data appear to be most challenging to core principles is exactly when they are more important and most needeed. That's why, when you've read this book, you'll know all you really need to know to be successful in investing.

Many people—too many to name—have generously contributed to my long learning about investing. Ruth Hamel's deft editing, has improved every page. She is a joy to work with and learn from. Brook Rosati, patiently smiling and humming as we work together in our small office, has converted my hieroglyphics into consistent clear copy.

Charles D. Ellis
New Haven, CT
November 2016

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INTRODUCTION

In Winning the Loser's Game, Charley Ellis teaches lessons valuable to investors in sparkling and engaging prose. All of us should head his words.

Winning the Loser's Game stands in the pantheon of books for individual investors alongside Burt Malkiel's A Random Walk down Wall Street and Jack Bogle's Common Sense on Mutual Funds. In the seventh (and final?) edition of his classic, Ellis reminds us repeatedly that low-cost index funds provide the foundation for investment success and financial security.

Ellis' enthusiastic and carefully reasoned endorsement of index investing delivers a strong rebuke to the active management strategies prevalent in today's mutual fund industry. Overwhelmingly, as Ellis frequently points out, funds attempting to beat the market fail to meet their goal. Since Ellis praises the quality of the analytical work done by mutual fund portfolio managers, what is the problem?

The crux of the problem is that mutual fund managers generally fail to discharge their fiduciary responsibility to investors. Instead of putting investor interests front and center, which would require limiting assets under management to levels that might allow active management success, mutual fund managers succumb to the siren of bloated funds that generate bloated profits.

Why is the size the enemy of performance? Larger size requires more positions. Instead of a manager's twenty best ideas, a larger fund contains the manager's fifty (or one hundred) best ideas. What is the chance that the fiftieth (or one hundredth!) best idea is as good as the twentieth? Not very high. As the size of assets under management increases, the size of the investable universe decreases. Large funds compete to win by investing in large companies that are heavily researched and efficiently priced. Smaller nimble funds have a distinct advantage in the performance derby, choosing among less heavily researched and less efficiently priced securities.

At the same time as excessive assets impede performance, they generate handsome profits for the managers. As size increases, fees increase. Expenses fail to keep pace, turning the actively managed mutual fund into a profits machine. Few and far between are the mutual funds that limit assets under management to serve investor interests.

Mutual fund managers further breach their fiduciary responsibility with extraordinarily high rates of portfolio turnover, estimated by Ellis to be in the neighborhood of 60% to 80% per year. High turnover, resulting from a futile attempt to beat the market on a short-term basis, leads to realization of gains (in our generally rising markets), which results in a tax bill for the investor. A true fiduciary would operate with a longer investment horizon or close high-turnover funds to taxable investors.

Investors want fund managers whose primary goal is to generate high returns and, in the words of one of Yale's managers, to join the rate of return hall of fame. Overwhelmingly, mutual fund managers collect excessive fees and spend their days in the rate of return hall of shame.

The conflict between fiduciary responsibility and profit motive resolves in favor of profits far more often than not. Individual investors are left holding the bag.

To address the investor's conundrum, Ellis offers the solution of low-cost index funds. Vanguard, the most prominent provider of index funds, is uniquely positioned to serve investors. Founder Jack Bogle conceived Vanfuard without a profit motive, structuring the firm in a way that allowed investors to own the funds in which they invest. Bogle eliminated the conflict between fiduciary and profit motive by eliminating profits. Vanguard exists for investors. Period.

Is there a place for active management in today's market? Let me answer by telling you something about my experience as Yale's Chief Investment Officer.

When I began managing Yale's endowment in 1985, I addressed the challenge with a strong belief in market efficiency. As I terminated the hapless active managers that predated my arrival, I redeployed the proceeds into index funds. Soon, more than half of the endowment was indexed.

Yet, Yale's move from active to index was tempered by the recognition that several managers that I inherited were pursuing sensible strategies that promised to add value to the porfolio. Intrigued, my team and I began a search for others. In a matter of years, Yale's index exposure war largely gone, replaced by high quality active managers.

Charley Ellis was at the center of the transformation of the Yale endowment. I first encountered Charley in the late 1980's when he wa giving a speech to an investment management group. Charley spoke about how his education at Philips Exeter, Yale and Harvard changed his life. He informed the group that he intended to dedicate his life to giving back to those institutions that were so important to him. I decided then and there that I wanted Charley to be part of Yale's investment program. First as an informal advisor, then as a member of Yale's investment comittee from 1992 to 1998 and finally as chair of the commitee from 1999 to 2008, Elli's rock-solid wisdom and steady hand played a critical role in my professional development and Yale's investment success.

Active management of Yale's endowment portfolio has added enormous value to the university. In the past 30 years, Yales's return of 12.9% per annum far exceeded the 8.8% return of a passive portfolio of 60% U.S. equities and 40% U.S. bonds. The difference in returns added $28.2 billion of value to Yale, which came partly in the form of higher payouts to support Yale's mission of teaching and research and partly in the form of higher endowment values.

The Yale investments office added these many billions of dollars through the dedicated efforts of a wordl-class team of investment professionals, currently numbering 30. The investment staff scours the world, seeking investment opportunities exploited by extraordinary investors supported by individuals organized in small entrepreneurial firms. When the Yale staff identifies a potential investment manager, they roll up their sleeves and conduct extremely thorough due dilligence. (One long-time Yale partner claimed the university contacted his third grade teacher for a reference.) After clearing the investigative phase, the staff then negociates a fair compensation structure that rewards investment success. Careful monitoring follows. Nearly all of the external managers with which Yale invests are not available to ordinary investors. Without having substantial financial resources and a high quality dedicated staff, it is nearly impossible to succeed in the cutthroat world of active management.

In 2000, I published Pioneering Portfolio Management, which outlined my principles for managing Yale's endowment. Soon thereafter, I began my book for individual investors. Initially I intended to adapt my portfolio management approach at Yale to the opportunity set for individual investors. As I investigated the world of investment alternatives, I realized that ordinary individuals do not have access to the options available to Yale. Reluctantly, with the 2005 publication of Unconventional Success, I concluded that individual should avoid active management entirely.

The investment management world is unusual in that the correct approaches are at the extremes. Sensible investors either index everything (which is the correct approach for almost all individuals and the vast majority of institutions) or manage everything actively (which is the correct approach for only those wealthy individuals and institutions that commit extraordinaty resources to achieving active management success). Unfortunately, most investors end up in the sloppy middle, paying high fees (and unnecessary taxes) for mediocre performance.

Even though I admire and heartily support Elli's approach to investing, I have two concerns. First, I worry that Ellis underestimates the value of diversification in favor of pure equity market exposure. While he endorses various forms of equity exposures – foreign developped, foreign emerging, real estate – he suggests that investors avoid long term investing in bonds. I prefer broader diversification. To the equity classes listed above, I would add allocations to US Treaury bonds and US Treasury Inflation Protected Securities. Ellis correctly notes that investors frequently fail to maintain equity exposure in times of market stress. He believes that solution is education and fortitude. I believe the solution is broad diversification (and education and fortitude). Second, Ellis suggests that investors, particularly younger investors, might benefit from modest amounts of borrowed money to increase the size of their portfolios. I worry that the well-documented tendency of investors to chase performance, buying after strong results and selling after poor, would be exacerbated by borrowed money, increasing the likelihood of untimely moves into and out of markets and adding to the individual investor's woes. These differences notwithstanding, I enthusiastically embrace the lessons fo Winning the Loser's Game.

David F. Swensen
Chief Investment Officer
Yale University
New Haven, Connecticut
November 2016

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