The Ivy Portfolio: Book Review

Jan. 06, 2017 7:24 PM ETBND, DBC, GSG, RWX, TIP, VB, VEU, VNQ, VTI, VWO11 Comments
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Opportunity Trader


  • A look into the market-beating investment strategies of the Yale and Harvard endowments.
  • Demonstration of a practical investment method traders can apply themselves on ETFs.
  • Comprehensive explanation on the historical performance of the demonstrated investment strategies.
  • Two additional active trading systems traders can mimic.

In The Ivy Portfolio, authors Mebane T. Faber and Eric W. Richardson begin the book by explaining the theory and the strategy behind the investment strategy of Harvard University and the Yale University endowments. Routinely, the endowments of Harvard and Yale have produced double-digit annual returns. Not only did they produce outstanding returns, but they realized this by also reducing volatility and drawdown.


Ivy Endowment Investment strategy

How did the endowments reach these high returns year after year? They apply an active asset allocation system in which they spread their investment over several asset classes and they rebalance the allocations on a systemically base. The main asset classes here are:

  • US stocks
  • Foreign Stocks
  • Bonds
  • Cash
  • Real Assets
  • Private Equity

While both endowments use a different approach in determining their exact asset allocation into these asset classes, their total assets will always be spread among different classes and not be concentrated into one category. The historical returns per year can be found in the table below

Source: The Ivy Portfolio book

The strength of this approach is that it forces the investor/trader to think strategically about the way he will allocate his assets over these classes. While most investors are highly focused on the stocks/sectors they buy (and the price level of the stock market), his approach will force you to spend more attention to your effective asset allocation. This will encourage traders to focus more on the overall picture of their portfolio and less on the bottom level (which stocks at which prices, which fund should I buy now, ...).

That's not to say you will easily achieve the same returns the Harvard and Yale endowments have achieved. The authors sometimes gave the impression successful investing can be cut down to effective asset allocation, but in reality, the key issue

This article was written by

Opportunity Trader profile picture
I'm an independent trader with an interest in identifying unique trading opportunities. I'm passionate about the markets and like to look for trades with an asymmetric risk/reward profile. The assets I follow range from common stocks, options, ETF's, futures to FX derivatives. I hold a Master of Science degree in Applied Economics, with a major in Finance and have been working as a Finance specialist in multiple industries.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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