Emulating Harvard: WSJ Has It Wrong

James Stewart had a post in the WSJ about investing like the Harvard Endowment. A caveat: You really need to be be careful reading this guy's stuff.

He says "Individual investors can emulate the principles, if not the exact returns, of Harvard's approach....But you too can achieve similar -- maybe even better -- results by embracing a variety of asset classes."

I say "No you can't."

Don't get me wrong; I can't either, not with any regularity (applies to you and me). The point here might be granular but it is important. Access to many of the sorts of asset classes are now available in exchange traded vehicles. However I don't think it is a stretch to say that in addition to the asset classes available to the super endowments, they also have a little bit of know how for when to make changes to these holdings that other people may not have.

As long commodities as we think these funds are, something tells me they did not take the full brunt of this summer's decline. If one of the endowments was 25% commodities on June 1 and somehow you knew that, took your position up to 25%, the market then corrects with much velocity which they sidestepped; they are fine. Would you have likely taken the same evasive measures? In real life did you take evasive measures?

If you had 25% or thereabouts, you better hope you did. If you had a moderate weight then you didn't need to.

Learning from and being influenced by these funds (like owning some commodities as opposed to 25%) is plausible and unlikely to leave anyone holding the bag.

Comments

[carey_jim:]

I hear many levels of irony in your tone of voice and I'm not sure that I understand exactly what you mean to say between the lines but I think your point is that the big guys and insiders know much more than we little guys do, they know it before we do and it matters for our bottom line.

However, as I've said before, I think the heart of the issue is that traders assume that markets are divine, that the laws of economics and finance are written by God and that various human bureaucracies have virtually no control over the laws and the prices they generate.

The big guys CAN be wrong and sometimes disastrously wrong. In that case, it is better for us to be huddled together, shivering in a large life raft than sleeping comfortably in a stateroom on the Titanic.

2008 Sep 05 12:17 PM

[Roger Nusbaum:]

big guys can be very very wrong, agreed. that does not mean though that the HMC and Yale guys aren't better than you or me most of the time--better than me anyway, again most of the time.

2008 Sep 05 02:31 PM

[carey_jim:]

Most people follow experts in every field from law and medicine to finance.

Knowing how to chose an expert is the problem. As everyone knows "past performance is not a predictor of ...."

But it's better than throwing darts at a dart board ... well, according to some people anyway.

I wonder how Jack Abramoff is doing these days?

2008 Sep 05 03:42 PM

[Managing Ed...:]

Of the two biggest university endowments, Yale's is probably the most transparent, owing to long-time manager David Swensen's books.

He'll readily admit to being an active, not a passive, trader. He tinkers with the portfolio daily (though his advice to retail investors is to invest passively through index funds).

He also has a cadre of two dozen analysts poring over investment options and markets.

He relies upon outside managers (e.g., managed futures) for pieces of the endowment portfolio. These allocations aren't "long-only" - there are plenty of long/short and absolute return strategies in the mix.

And, with a multi-billion dollar cudgel to wield, he can negotiate down the high fee structures built into the deals he's shown.

All these distinctions make the Yale (and similarly, the Harvard) investment universe different from the one accessible to retail investors.

Swensen's advice for the hoi polloi can be found in his book "Unconventional Success" (a synopsis can be found in the article "Illiquidity Is Beautiful" here: registeredrep.com/inve...).

2008 Sep 06 12:51 PM

[boyce 831:]

I enjoy your posts... contrarian but not dogmatic.

2008 Sep 06 03:31 PM

[Roger Nusbaum:]

thank you

2008 Sep 06 06:10 PM