How to Have Absolutely Nothing to Talk About at Your Next Cocktail Party

I saw this interesting excerpt from the Yale Alumni Magazine (the March/April 2009 issue, which was certainly an interesting time period for the investment world).  This is from an interview with David Swensen, PhD, Yale’s chief investment officer, discussing the type of investment "advice" that one encounters in the mass media (emphasis added by me):

"Y: I was hoping you’d mention Cramer. In the new edition of Pioneering Portfolio Management, you write: “Educated at Harvard College and Harvard Law School, Cramer squanders his extraordinary credentials and shamelessly promotes stunningly inappropriate investment advice to an all-too-gullible audience.”

S: Jim Cramer exemplifies everything that’s wrong with the advice—and I put advice in quotation marks—that is given to individual investors. Investing is a serious business. We’re talking about retirement security of American citizens, and he turns it into a game. It’s a game where his listeners lose. It’s ridiculous. These high-turnover, rapid trading strategies enrich the brokers. If you look at Jim Cramer’s approach on an after-fee, after-tax basis, the individual doesn’t have a chance. … Unconventional Success [by David Swensen] is a book for the overwhelming number of individual and institutional investors who cannot manage a portfolio actively. Almost everybody belongs on the passive end of the continuum. A very few belong on the active end.

Y: Maybe we need new language, David. No one wants to be in the “passive” group.

S: No, they don’t. The basic problem is, it’s boring. The approach that I recommend is going to give you absolutely nothing to talk about at a cocktail party. You’re going to be in a corner by yourself, and no one will pay any attention to you. But you’ll end up with a better-funded retirement."

Now, there are a few Fridays when, after a glass of wine, I will put my feet up and watch "Mad Money" simply to be entertained by Mr. Cramer's frenetic energy (although hearing shouts of "boo yah" too many times will often cause me to flip the channel).  But never in a million years do I believe that this program in fact offers investment advice, yet apparently many viewers (especially those who call in) do so.

David Swensen's book recomends what are known as "passive" investments, such as index funds/ETFs and low cost funds run by Vanguard and TIAA CREF.  Yet, there are many effective ways to invest with well-run mutual funds that aren't technically "passive" - as long as basic asset allocation and modern portfolio theory principles are followed - that will give investors excellent long term results.  In other words, there are lots of ways to cook a chicken.  But the Cramer approach should NEVER be taken seriously; you may end up raw or burnt!