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RP: Some investors like to copy the investment strategy of well-known fund managers. Others try to emulate the endowments of top American universities. But ordinary investors are probably better off learning from what the Norwegian government has done with its national pension fund. Elroy Dimson was one of the architects of what’s become known as the Norway Model.
ED: Well the “Norway Model” is the name that we gave to the Norwegian way of looking after its national wealth. So they’re quite new and they’ve grown a great deal because of the oil wealth in the sea around Norway. And, they perceive that wealth belonging to future generations. Everybody in Norway, when results come out, sees on the front of their daily paper how much wealthier they are or how much poorer they are. It’s a very transparent process and is one that has ensured that the fund is perceived by the population as really being there. Because it is theirs, for individual Norwegians and for their grandchildren and great-grandchildren when they are eventually born.
RP: Transparency is hugely important. Investors need to know what they’re investing in and how much they’re paying. But there are other lessons that they can learn from the Norway Model.
ED: Well, the Norwegian approach is one of going for the maximum of diversification for the minimum of cost. And, individuals can do the same thing for themselves. Norway has about 8000 different equities in their portfolio. But, an individual who puts their money into a low-cost managed fund from one of the major providers of index funds, will also have about 8000 equities in their portfolio. The individual will pay a little bit more, but it can still be remarkably inexpensive compared to alternatives. And so, they can emulate what Norway does in a way which they simply couldn’t do if they wanted to emulate Yale or Harvard or Abu Dhabi. Because those are all entities that have direct investments and private equity and so forth, which isn’t open to individuals.
RP: And that, in a nutshell, is how to invest like the Norwegian government. Diversify, keep your costs low and insist on absolute transparency. Governments and other institutional investors around the world are following Norway’s lead — and you can too.
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