You won't find a more take-no-prisoners direct advocate of passive investing than Buckingham Asset Management's Research Director Larry Swedroe. And you won't find a more prolific writer on the subject either. Right now, he's working on a book that aims to teach his readers not only to think like Warren Buffett, but to act like him. When IndexUniverse.com Managing Editor Olly Ludwig caught up with Swedroe, they talked about the nature of the current financial crisis, the dismal record of market forecasters and the enduring wisdom of bond-laddering strategies.

Ludwig: In your view, money management is never about market view. It’s about asset allocation and risk appetite, yes?

Swedroe: Right. That’s how it should be. Because the more you listen to people who forecast, the more you realize they’re wrong. For example, is there a smarter guy out there than Bill Gross? He’s a genius. But all of his forecasts the past few years have been dead wrong.

Ludwig: When I was at Reuters, every once in a blue moon, someone would write a story about how all the Wall Street forecasters were wrong, and looking back at it, I’m not sure we were snarky enough!

Swedroe: Of course not, because you wanted to anoint the latest guru! Here’s Swedroe’s view of the world: There seems to be a deep, embedded human need to believe that there’s somebody out there who can protect us from bad things. So we latch onto the latest guru, ignoring that his other 50 forecasts were wrong. And when he is proven wrong, we move on to the next guru.

My favorite line about that is: “There’s only one person who knows where the market is going, and if I ask him in this lifetime I won’t get an answer and if I ask him in the next lifetime, it won’t do me any good.”

Ludwig: Getting back to asset allocation, is it time to think of the yield or income component of a portfolio in a different way as a consequence of this 30-year-old bond market rally that a lot of people think is going to reverse at some point?

Swedroe: No. With Treasurys yielding zero, and financial repression, everyone is now saying we have to invest in hedge funds and venture capital. But the great irony is that all these things have lousy histories. And those histories get completely ignored.

If you want to have a good laugh, one of those alternatives is to invest in absolute-return strategies, and they lost 15 percent in 2008; they lost 4 percent in 2009 and they lost 0.1 percent in 2010; they lost 3.7 percent in 2011 and they’re barely above breakeven this year.

Ludwig: And if you were in an index ETF or a Dimensional Fund Advisors strategy, you were doing just fine riding the market recovery?

Swedroe: Yes, exactly! And you rebalanced. Every one of our clients who stayed the course and rebalanced is ahead of where they were at the highest point before the bear market.

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