Charles D. Ellis - Figuring It Out: Sixty Years of Answering Investors Most Important Questions

1. Chapter 1
2. Chapter 10
3. Chapter 27
4. Chapter 31
5. Chapter 38

1. Chapter 1
2. Chapter 5
3. Chapter 12
4. Chapter 25
5. Chapter 33

CHARLES D. ELLIS

Copyright 2022 by Charles D. Ellis. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Names: Ellis, Charles D., author. | John Wiley & Sons, publisher.

Title: Figuring it out : sixty years of answering investors most important questions / Charles D. Ellis.

Description: Hoboken, New Jersey : Wiley, [2022] | Includes index.

Identifiers: LCCN 2022015212 (print) | LCCN 2022015213 (ebook) | ISBN 9781119898955 (cloth) | ISBN 9781119898979 (adobe pdf) | ISBN 9781119898962 (epub)

Subjects: LCSH: Investments. | Portfolio management.

Classification: LCC HG4529.5 .E445 2022 (print) | LCC HG4529.5 (ebook) | DDC 332.6dc23/eng/20220414

LC record available at https://lccn.loc.gov/2022015212

LC ebook record available at https://lccn.loc.gov/2022015213

Cover image(s): GETTY IMAGES | CASSP
Cover design: PAUL McCARTHY

To Burt Malkiel, dear friend over many wonderful years as co-author, and delightful source of understanding and wisdom. No one could be a better companion in striving to figure out the dynamic world of investing.

1. Elements of Investing.
2. Vanguard.
3. Rebalance and Wealthfront.
4. CFA workshop at Princeton.
5. Pew Charitable Trusts.
6. Yale School of Management.

To invest well is not easy. At least that's what the data suggestsjust look at the well-documented consistently poor performance of most portfolios, whether individual or institutional. But it doesn't need to be as hard as we have made it, says this book. If we focus on what really matters over the long term, we can each help ourselves and our clients figure out what's most important for eventual success. We tend to allow short-term influences to occupy far too large a share of mind, to the detriment of focusing on actions that will improve long-term outcomes.

That central message is what this book is about, and embedded in it is a timeless roadmap that investors and investment practitioners can and should follow. It is a set of principles derived from the many front-row seats that Charley Ellis has occupied over the last six decadesa period that encompasses the most profound transformations that have taken place in the investment industry.

Charley's keen observations and writings over these years elucidate what has changedand also what has been enduring. The essays of this book represent (1) his foundational principles for succeeding in the business of investment management; and (2) his unambiguous insights and guidance that make investment stewardship much less dauntingfor the sophisticated as well as the lay investor.

The power of Charley's insights comes from their validation in history. He teaches us that figuring it out in investing is being able to see in current and future developments what matters and what does not, which in turn needs to be anchored in a well-developed understanding of the past and the nature of the forces that have brought us to the present. That's why wise people study history and seek out the original documents. That's why we read biographies of great leaders. And that's why historians say the best way to understand the present is to understand the past and the best way to understand the past is to study what came before and caused it. And that's why we ask new friends, Please tell me your personal story. This book provides just such narratives through a documentary history of this period of great industry change.

Each essay yields enduring insights and lessons, among them:

• For clients of investing organizations, individuals and institutions will both benefit from behind-the-scene insights into the degree of change in the very nature of the daunting challenges faced by all active managers. As Dorothy said to Toto: We're not in Kansas any moreagain!
• For those who are aiming to make their careers in this remarkably well-paid field of endeavor or are early in their careers as practitioners, here is an opportunity to appreciate how change is itself a powerful constant in the investment space, and how critical it is to anticipate and embrace innovation and evolution.
• For practitioners near the completion of their careers, there are provocative reminders of past developments we underestimated (to our regret) or recognized only slowly. And they keep coming!
• For those who seek metaphorical investing advice that will remain ingrained, The Loser's Game, Murder on the Orient Express, and Investing Success in Two Easy Lessons are must reads.
• For those who wonder where and how fees can so adversely affect investors' long-term welfare, several essays make it all quite clear.
• For those who still harbor hopes that indexing may have had its day, the negative case is clearly presented.