Book Summary
Mebane Faber and Eric W. Richardson wrote The Ivy Portfolio to answer a practical question: can an individual investor copy the way Harvard and Yale run their endowments, using ordinary low-cost ETFs? Their answer is yes, mostly. The book was published by Wiley in 2009, with a paperback edition in 2011, and runs 240 pages. It came out in the shadow of the 2008 financial crisis.
The plan has two parts. The first is the endowment “policy portfolio”: a diversified mix of asset classes: domestic and foreign stocks, bonds, real estate, and commodities, held in fixed proportions and rebalanced on a schedule. The second is a tactical overlay: a trend-following rule based on the 10-month moving average. When an asset class falls below its 10-month average, you sell it and move to cash or Treasury bills; when it rises back above, you buy back in. The idea is to cut the worst bear-market losses without trying to predict the market.
The central reference point is the Yale model built by David Swensen, whose book Unconventional Success lays out the endowment approach in full. Faber and Richardson do not claim an individual can match Yale’s returns: endowments can buy private equity and venture capital that ordinary investors cannot. What they offer is an approximation: the same diversification and discipline, built from ETFs anyone can hold.
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Who is Mebane Faber?
Mebane T. Faber is the co-founder and chief investment officer of Cambria Investment Management, where he runs quantitative, rules-based strategies. He is known as a researcher as much as a fund manager, testing simple investment rules against long stretches of market history. Eric W. Richardson co-authored the book and worked with Faber on the research behind it.
Faber’s approach is evidence-driven and deliberately unglamorous. He does not try to pick winning stocks or forecast the economy. He looks for rules that worked across decades and market cycles, states them plainly, and follows them. That mindset runs through The Ivy Portfolio: the book is less about being clever than about being disciplined, and it treats discipline as something you can build into a system.
Lessons From The Ivy Portfolio
The first lesson is that asset allocation matters more than stock picking. The endowment policy portfolio spreads money across asset classes that do not all move together, so a bad year for stocks is partly offset by a good year somewhere else. Faber and Richardson show how to build that mix with ETFs, and how rebalancing back to fixed weights forces a useful discipline: selling what has risen and buying what has fallen, on a schedule, without emotion.
The second lesson is the trend-following overlay, and it is the book’s most distinctive idea. A 10-month moving-average rule is simple enough to follow on a calendar: once a month, check whether each asset class is above or below its average. In backtests, the rule kept investors out of the worst of the 2008 decline: it is not meant to beat the market every year, but to avoid the deep losses that take years to recover from. The cost is real: in choppy markets the rule can sell low and buy back higher, and that whipsaw is the price of the protection.
The third lesson is about keeping costs and complexity low. The whole plan runs on a handful of low-cost ETFs, and that is a deliberate choice. John Bogle’s The Little Book of Common Sense Investing makes the case for low costs as the one reliable edge an investor has, and Faber and Richardson build on the same idea: every dollar of fees is a dollar that cannot compound. The plan also stays simple enough to run in an hour a month, which matters, because a plan you abandon is worth less than a simpler plan you keep.
The fourth lesson is that the system matters more than any single decision. Burton Malkiel’s A Random Walk Down Wall Street and Benjamin Graham’s The Intelligent Investor both make versions of this point from different directions: markets are hard to predict, and most investors do better with a sound process than with clever forecasts. The Ivy Portfolio is built on the same belief, but it adds a mechanical rule for getting out of the way when markets fall. Whether that extra step is worth it is the book’s central question, and the answer depends on temperament as much as on math.
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Criticisms of the Book
The main criticism is that the evidence is mostly backtested, and backtests flatter simple rules. The 10-month moving-average rule looked good in the decades Faber studied, including its performance around the 2008 crash, but past performance is not a promise. In a long sideways market, the rule can whipsaw repeatedly, and each trade adds costs and taxes that a buy-and-hold investor never pays. An investor who follows the rule has to accept years when it underperforms.
The book is also a product of its time. It was written in 2009, when the ETF menu was smaller and the endowment model looked nearly untouchable. Since then, Yale’s own results have been more mixed, and some of the asset classes the book recommends are easier or harder to hold than they were. The framework still works, but the specific funds are dated, and a reader should check current ETF options before building the portfolio.
Who is This Book For?
This book is for do-it-yourself investors who want a rules-based plan and are willing to follow it mechanically. It suits someone who is comfortable holding a diversified ETF portfolio, rebalancing on a schedule, and checking a moving average once a month. It is not for stock pickers or anyone who wants a set-and-forget portfolio: the trend rule asks for regular attention.
It also works as a next step for readers of Swensen or Bogle. If Unconventional Success convinced you that diversification is the foundation, or The Little Book of Common Sense Investing convinced you that costs are the enemy, this book shows how to put both ideas into a portfolio with a built-in defense against bear markets. It is a short, practical bridge between the theory and the trade ticket.
Final Thoughts
The promise of The Ivy Portfolio is modest, and that is its strength. It does not claim to beat the market or to predict crashes. It offers a diversified portfolio with a simple rule for stepping aside when the trend turns down, and it backs the rule with evidence rather than enthusiasm. For an investor who wants a plan they can follow without daily attention, that is a reasonable offer.
For a do-it-yourself investor who likes rules and evidence, The Ivy Portfolio is worth reading. The trend-following overlay will not suit everyone: some will find the whipsaws annoying and the trading a chore. But the book makes its case clearly, and even readers who skip the overlay will come away understanding how endowments think about diversification.
