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Invest Like an Institution


Every now and again, a good book comes along.

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IN SUM

Michael C. Schlachter’s new bookInvest Like an InstitutionProfessional Strategies for Funding a Successful Retirement” is a worthwhile read.

DETAILS

If you only read the books that everyone else is reading, you can only think what everyone else is thinking.” – Haruki Murakami.

Investment Geek Speak

When investment geeks talk, we digress into jargon, the individual investor hears gibberish and tunes out. To make matters worse, most institutions sell products while few sell solutions. The individual investor ends up with a collection of products that on their own may be fine but in a portfolio they simply don’t work together. So the disappointed investor moves their investment portfolio to another institution and the cycle starts again.

It doesn’t have to be this way. The premise of this blog is that individual investors can mimic pension funds to make their investment lives more successful. Still, the subject matter can be dry and technical.

But every now and again along comes an investment book that engages the individual investor with simple language and explanations.

Michael C. Schlachter’s new book “Invest Like an Institution – Professional Strategies for Funding a Successful Retirement” ought to be added to the list.

Some of the language and lessons will be familiar to readers of this blog but Schlachter’s explanations might resonate . Like “how to build a portfolio that is every bit as diversified and risk-controlled as a multi-billion-dollar institutional fund”. Sound familiar?

I parrot Schlachter’s thoughts on asset allocation. Chapter 2 shows how “determining the mix of assets that is appropriate to your needs dwarfs any other decision you make, including your selection of money managers or individual securities.” Schlachter, too, is a fan of Dollar-Cost-Averaging.

Near and dear are the mid-chapter’s 3 to 6 which talk about active versus passive investing, risk and risk mitigation. Readers should find Schlachter’s material … readable.

Chapter 7 talks about manager selection. Readers of this blog will know that here we advocate index or ETF investing for individual investors. This is based on the premise that individuals do not have the time, technology, money, access nor other resources required to do 3rd party investment manager due diligence. Nor do they have portfolio construction or simulation tools. Institutional investors do. Chapter 7 provides a simple education and reminder as to why individuals ought to index (for the bulk of their investments).

Chapter 9 deals with fees and expenses which Canadian investors know well. It’s a good read. Just don’t get upset when you realize Canadian’s pay even more.

It’s unusual for a U.S.-centric book to address Canadian-centric issues. But for any investor who is lost in the maze of Canadian regulatory bodies and muddle of financial advisor designations, Chapter 9 will, I think, help individual investors “determine if these partners are in the business of helping your best interests—or their own.”

Cocktail Chatter

Schlachter too provides a familiar warning: “contents of this book will never make for great cocktail party chatter”. I disagree. Which helps explain why I don’t get invited to a lot of cocktail parties.

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Next time? More Risk Management.
Doug Cronk CFA is a Pension Investment Officer
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