The Charley Ellis Challenge

Charles D, Ellis is a really smart guy — retired academic, founder of Greenwich Associates, former Investment Committee Chair of the Yale Endowment, and the author fifteen books, including two of particular import.  These two books are Winning the Loser’s Game: Timeless Strategies for Successful Investing and The Elements of Investing (with Princeton’s Burton G. Malkiel). 

Ellis sat for an interview with Consuelo Mack recently (it may be seen here).  As most of my audience will know, Ellis is a proponent of index investing for individuals.  Over the course of the interview, Ellis makes a number of interesting and provocative points.

  • For individuals, everything begins with saving, and the earlier we start, the better (because “catching up is hard and keeps getting harder, the longer you wait).
  • A few great investors (like Warren Buffett and David Swensen) can beat the market, but most don’t, which is why indexing is smart policy.
  • The competition among the hoards of industrious and talented investors to outperform is vigorous, effectively cancelling each other out.
  • A few investment firms have clients’ interests as central (such as the Capital Group, Wellington, T, Rowe Price, American Funds and Vanguard, but most are simply “commercial” and do not.
  • Investors should diversify as broadly and deeply as possible.
  • Commodities offer no economic productivity, making investment in them entirely speculative and to be avoided generally.
  • A key to investing is simply to avoid mistakes, like panic selling and greedy buying (but doing so isn’t simple).
  • Investors need accountability to someone who knows and cares about them.
  • Individual investors need to “stabilize” their portfolios as they get older, usually by owning more high quality bonds.

The interview is well worth your careful attention.  In essence, Ellis is making the case for careful asset allocation using low-cost index funds with regular re-balancing and adjustments as needed to keep the portfolio in line with one’s risk tolerance.  This carefully articulated viewpoint leads to my statement of what I call “the Charley Ellis Challenge” — to the extent that you do not agree with or follow his advice, why don’t you and upon what evidence do you rely for not doing so?

Discuss.

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