Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

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rob65
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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by rob65 » Fri Mar 02, 2018 5:22 pm

Noobvestor wrote:
Fri Mar 02, 2018 4:48 pm
rob65 wrote:
Fri Mar 02, 2018 4:36 pm
Investing $37.6 billion with a time frame of infinity is different than what individual investors do.

With $37.6 billion, you don’t have to buy an index fund, you can run your own index fund. For reference, Schwab’s total market etf SCHB has about $11.6 billion in AUM.
That's a very selective pick. Vanguard's Total Stock has 700 billion (and 500 Index has another 400 billion). Total International has 400 billion. Total AUM is over 4 trillion. If Harvard dumped their entire ~40-billion-dollar endowment into VG, it would represent less than 1% of AUM.
Fair point, but there are many funds that would love to have $40 billion. I still contend that’s more than enough to build your own portfolio of individual stocks. That also allows them to avoid conflicts of interest - think “this month’s Harvard Medical cancer study brought to you by Altria.”

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Noobvestor » Fri Mar 02, 2018 5:43 pm

rob65 wrote:
Fri Mar 02, 2018 5:22 pm
Noobvestor wrote:
Fri Mar 02, 2018 4:48 pm
rob65 wrote:
Fri Mar 02, 2018 4:36 pm
Investing $37.6 billion with a time frame of infinity is different than what individual investors do.

With $37.6 billion, you don’t have to buy an index fund, you can run your own index fund. For reference, Schwab’s total market etf SCHB has about $11.6 billion in AUM.
That's a very selective pick. Vanguard's Total Stock has 700 billion (and 500 Index has another 400 billion). Total International has 400 billion. Total AUM is over 4 trillion. If Harvard dumped their entire ~40-billion-dollar endowment into VG, it would represent less than 1% of AUM.
Fair point, but there are many funds that would love to have $40 billion. I still contend that’s more than enough to build your own portfolio of individual stocks. That also allows them to avoid conflicts of interest - think “this month’s Harvard Medical cancer study brought to you by Altria.”
Agreed - they could effectively assemble themselves an index fund out of individual holdings. I guess my larger point was just that their endowment may sound large, but isn't so big it would shake the markets or anything if they slowly moved it into an index-like fund or portfolio.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by saltycaper » Fri Mar 02, 2018 6:23 pm

I guess anyone here who held bonds blew a ton of money over the past decade too. Ditto for anyone who didn't invest solely in Amazon. Amazon investors blew a ton of money too, unless they used leverage...
Quod vitae sectabor iter?

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by GibsonL6s » Fri Mar 02, 2018 6:59 pm

Valuethinker wrote:
Fri Mar 02, 2018 4:56 pm
WhiteMaxima wrote:
Fri Mar 02, 2018 1:39 pm
Why doesn't Havard chose 3 fund folio? Do they think they are smarter than market?
Not necessarily.

But the 3 fund portfolio ignores huge other asset classes:

- Commercial Real Estate
- other real assets like timber
- Infrastructure
- Private Equity
- Short only funds
- Venture Capital
- Frontier markets
- Credit funds

The universe of publicly traded assets is nothing like the whole universe of financial assets out there.

We argue here for those because the routes into Alternatives for individual investors are either non-existent, or inferior.

For example no one here would suggest investing in private label, unquoted REITs (Swensen takes you through the horrors) except TIAA RE annuity, which is structured much more like the sort of Commercial RE fund that pension funds and other institutional investors invest in.
An individual could access some of these via ETFs CUT and WOOD for Timber VNQ for REITS, however when I plug them into portfoliovisualizer they seem to have high correlations to stocks with lower returns and more volatility, so I would assume this is the reason for keeping it simple.

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by moneywise3 » Fri Mar 02, 2018 7:56 pm

Monkeys that can throw darts....

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Alexa9 » Fri Mar 02, 2018 8:08 pm

LeSpy wrote:
Fri Mar 02, 2018 9:07 am
I think corruption is also a factor. The managers of the fund get eventual kickbacks for allowing wall street firms to sell their investment ideas/products to the fund.

https://www.nakedcapitalism.com/2013/07 ... pound.html
That was the first thing I thought of. Hedge Funds, Endowment Funds are full of corruption (I would guess) :twisted:

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by badbreath » Fri Mar 02, 2018 8:33 pm

Ben Carlson at A Wealth of Common Sense who was once a job working for an investment office of a large endowment fund looks at endowments vs the Vanguard three fund. Guess who did the best.

http://awealthofcommonsense.com/2018/02 ... ent-model/
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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by GeraniumLover » Fri Mar 02, 2018 9:27 pm

WhiteMaxima wrote:
Fri Mar 02, 2018 1:39 pm
Why doesn't Havard chose 3 fund folio? Do they think they are smarter than market?
And given the timeframes and money involved, why bother with bonds?

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by GeraniumLover » Fri Mar 02, 2018 9:36 pm

nimo956 wrote:
Fri Mar 02, 2018 4:06 pm
Yes, exactly. It's not the managers' money at stake though, so what do they have to lose if they swing for the fences?
Their job?

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Taylor Larimore
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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Taylor Larimore » Fri Mar 02, 2018 9:47 pm

valuethinker wrote: But the 3 fund portfolio ignores huge other asset classes:

- Commercial Real Estate
- other real assets like timber
- Infrastructure
- Private Equity
- Short only funds
- Venture Capital
- Frontier markets
- Credit funds
It appears that "other asset classes" did not improve the simple low-cost Three-Fund Portfolio.
Better diversification" is the last refuge of the scoundrel. -- Jack Bogle
Best wishes.
Taylor
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Re: Harvard blows $1Billion picking [exotic things besides] stocks, averaged 4.4% returns over last decade

Post by #Cruncher » Fri Mar 02, 2018 10:31 pm

From the Bloomberg article:
Harvard over the past decade ended June 30 posted a 4.4 percent average annual return, among the worst of its peers. It even lagged the simplest approach: Investing in a market-tracking index fund holding 60 percent stocks and 40 percent bonds, which earned an annual 6.4 percent.
eye.surgeon wrote:
Fri Mar 02, 2018 12:35 am
The S&P return over the same time period was 9.8%.
Both these growth rates (a 60:40 stock:bond index fund and the S&P 500) look overstated. According to Morningstar the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) grew at only a 4.9% annual rate and the Vanguard 500 Index Fund Admiral Shares (VFIAX) at only a 7.2% annual rate over the 10 years ending 6/30/2017. For comparison I've tacked them onto the bottom of the chart from the article:

Code: Select all

MIT               7.6%  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Columbia          7.3%  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Princeton         7.1%  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Yale              6.6%  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
809 college avg   4.6%  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Harvard           4.4%  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

VG 60:40 (VSMGX)  4.9%  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
VG 500 (VFIAX)    7.2%  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Also the title of the thread is incorrect. According to the title of the Bloomberg article the endowment fund "Blew $1 Billion in Bet on Tomatoes, Sugar, and Eucalyptus", not "picking stocks".

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by folkher0 » Fri Mar 02, 2018 10:39 pm

nisiprius wrote:
Fri Mar 02, 2018 4:41 pm
folkher0 wrote:
Fri Mar 02, 2018 12:36 pm
Seems to me that the endowment of a research University would have very different goals and timeframes than the average boglehead saving for retirement.
That's what I used to think. Until it transpired in 2008-2009 that Harvard had been investing 80% of its operating cash in the endowment fund, and the crash instantly resulted in layoffs, the end of research programs, and a sudden complete halt to their construction program in Allston. Time frame of infinity, my deleted expletive.

I’m not arguing that Harvard’s investing strategies are wise, or that their money managers have a unique insight that other large investors do not, or even that blowing a billion dollars on teak and eucalyptus isn’t reckless.

I have no idea what the current and historical composition of Harvard’s endowment is. And I haven’t a clue what it takes to manage an endowment of that size. I do remember working at a major research university (not Harvard) in 2008 and having building plans delayed, hiring freezes and pay cuts. The financial crisis undoubtedly affected many endowments.

But I do suspect that with a large enough fund and a long enough time frame stocks and bonds might not provide enough diversity.

Considering the endowment of Harvard likely predates the founding of the US Treasury and the US stock market, let alone index funds, I'm willing to concede that a certain scale and timeframe might warrant a different strategy.

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by n00b590 » Fri Mar 02, 2018 10:57 pm

WhiteMaxima wrote:
Fri Mar 02, 2018 1:39 pm
Why doesn't Havard chose 3 fund folio? Do they think they are smarter than market?
Illiquidity premium

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by randomguy » Fri Mar 02, 2018 11:48 pm

Taylor Larimore wrote:
Fri Mar 02, 2018 9:47 pm
valuethinker wrote: But the 3 fund portfolio ignores huge other asset classes:

- Commercial Real Estate
- other real assets like timber
- Infrastructure
- Private Equity
- Short only funds
- Venture Capital
- Frontier markets
- Credit funds
It appears that "other asset classes" did not improve the simple low-cost Three-Fund Portfolio.
Better diversification" is the last refuge of the scoundrel. -- Jack Bogle
Best wishes.
Taylor
Except of course Harvards returns have been better than the 3 fund portfolio
http://www.hmc.harvard.edu/docs/Final_A ... t_2016.pdf

10 years
Harvard 5.7
3 fund 4.9
US 6.9

20 years
Harvard 10.4
3 fund 5.8
US fund 7.3%

I don't know about you but I would much rather make 10.4% over 20 years instead of 5.6% or even 7.3%. Unless you are a short term thinker, periods of underperformance should be expected with any diversification strategy. From 1972-2011, gold and US stocks had basically identical returns. (9.29% to 9.65%). But if you look at individual 10 year periods, you will find the performance of each of them diverges quite a bit.

Now the question is the current dip an expected result or has something material changed which renders there strategy no longer valid. In this case you have to factor in Harvard lost the management team that gave them these outsized results and that the investment world might no longer be the same.

I know a bunch of pension funds are moving to replace stock pickers with index funds BUT a lot of them are keeping their real estate, VC, natural resources, and hedge funds investments. If I had the scale (i.e A top Sand hill road VCs would return my calls or enough to run my own property management company to handle real estate), I would seriously consider several of those options.

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Lancelot » Sat Mar 03, 2018 3:53 am

eye.surgeon wrote:
Fri Mar 02, 2018 12:35 am
Their 4.4% return over the last decade makes me look like a financial genius. The S&P return over the same time period was 9.8%. They could have invested in a single S&P index fund
Might be difficult to justify their salaries investing in an index fund :sharebeer
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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by jharkin » Sat Mar 03, 2018 8:51 am

If I was aHavard student or alum I would be particularly livid the money managers got paid hundreds of millions for this disaster.. The university cold have just fired the lot and put it all in VSTAX... :oops:

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by michaeljc70 » Sat Mar 03, 2018 10:40 am

I'm not justifying what Harvard does or is doing, but 10 years is a rather arbitrary time period. What about over 20 or 30 years? They tend to invest in a lot of alternative assets (like many hedge funds) which underperform in bull markets.

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Valuethinker » Sat Mar 03, 2018 12:55 pm

Taylor Larimore wrote:
Fri Mar 02, 2018 9:47 pm
valuethinker wrote: But the 3 fund portfolio ignores huge other asset classes:

- Commercial Real Estate
- other real assets like timber
- Infrastructure
- Private Equity
- Short only funds
- Venture Capital
- Frontier markets
- Credit funds
It appears that "other asset classes" did not improve the simple low-cost Three-Fund Portfolio.
Better diversification" is the last refuge of the scoundrel. -- Jack Bogle
Best wishes.
Taylor
Taylor

You will have seen random guy's reply.

If they had out 100 per cent in US stocks they would have done better still.

But that does not mean it would have been a good strategy.

David Swenson's book on endowment investing is a good read. Taking one through the case for an Alternatives approach and the issues. In the same vein I recommend the Yale Endowments annual report which comments on asset allocation.

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Clever_Username » Sat Mar 03, 2018 1:50 pm

jharkin wrote:
Sat Mar 03, 2018 8:51 am
If I was aHavard student or alum I would be particularly livid the money managers got paid hundreds of millions for this disaster.. The university cold have just fired the lot and put it all in VSTAX... :oops:
Even with their blown billion, I think they qualify for a better share class than Admiral :D
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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Taylor Larimore » Sat Mar 03, 2018 2:49 pm

randomguy" wrote:Except of course Harvards returns have been better than the 3 fund portfolio
http://www.hmc.harvard.edu/docs/Final_A ... t_2016.pdf

10 years
Harvard 5.7
3 fund 4.9
US 6.9

20 years
Harvard 10.4
3 fund 5.8
US fund 7.3%
randomguy:

It is impossible to compare The Three-Fund Portfolio with another multi-fund portfolio. Each individual investor in the 3-fund portfolio selects their own desired percentage of each fund. This, of course, results in different returns.

Best wishes.
Taylor
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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by TJSI » Sat Mar 03, 2018 3:11 pm

James Stewart in a recent NYT article discussed the under performance of endowments (College Endowments Opt for Alternatives, and Less Lucrative, Route https://www.nytimes.com/2018/02/22/busi ... ments.html ).

Avg Ten-Year Returns:

Endowments 4.6%

60-40 Index Portfolio 5.3%

70- 30 Index Portfolio 5.4%

So far, the investment in alternatives has not paid off. The endowments are sticking with their allocations. Perhaps in the very, very long run it will pay off-- but not yet.

TJSI

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Valuethinker » Sat Mar 03, 2018 5:10 pm

TJSI wrote:
Sat Mar 03, 2018 3:11 pm
James Stewart in a recent NYT article discussed the under performance of endowments (College Endowments Opt for Alternatives, and Less Lucrative, Route https://www.nytimes.com/2018/02/22/busi ... ments.html ).

Avg Ten-Year Returns:

Endowments 4.6%

60-40 Index Portfolio 5.3%

70- 30 Index Portfolio 5.4%

So far, the investment in alternatives has not paid off. The endowments are sticking with their allocations. Perhaps in the very, very long run it will pay off-- but not yet.

TJSI
Almost exactly into a 10 year bull run by stocks and bonds is not a representative time to make this comparison. If we took the performance 2000 to 2010 equities would not look so good?

The argument is the fees don't justify the performance and risk return characteristics.

For the top endowments they do. And endowments outperform other institutional investors.

Hard to imagine an institutional endowment that did not hold Commercial Real Estate. That would be one hell of an asset class to miss.

No UK institutional investor would miss that.
Last edited by Valuethinker on Sat Mar 03, 2018 5:12 pm, edited 1 time in total.

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Valuethinker » Sat Mar 03, 2018 5:11 pm

Taylor Larimore wrote:
Sat Mar 03, 2018 2:49 pm
randomguy" wrote:Except of course Harvards returns have been better than the 3 fund portfolio
http://www.hmc.harvard.edu/docs/Final_A ... t_2016.pdf

10 years
Harvard 5.7
3 fund 4.9
US 6.9

20 years
Harvard 10.4
3 fund 5.8
US fund 7.3%
randomguy:

It is impossible to compare The Three-Fund Portfolio with another multi-fund portfolio. Each individual investor in the 3-fund portfolio selects their own desired percentage of each fund. This, of course, results in different returns.

Best wishes.
Taylor
So you are arguing against your own comparison between Harvard and the 3 fund portfolio?

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by abuss368 » Sat Mar 03, 2018 5:38 pm

Incredible. There is a battle going on between Harvard and Yale University of which David Swensen steers the ship!
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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by michaeljc70 » Sat Mar 03, 2018 5:40 pm

Valuethinker wrote:
Sat Mar 03, 2018 5:11 pm
Taylor Larimore wrote:
Sat Mar 03, 2018 2:49 pm
randomguy" wrote:Except of course Harvards returns have been better than the 3 fund portfolio
http://www.hmc.harvard.edu/docs/Final_A ... t_2016.pdf

10 years
Harvard 5.7
3 fund 4.9
US 6.9

20 years
Harvard 10.4
3 fund 5.8
US fund 7.3%
randomguy:

It is impossible to compare The Three-Fund Portfolio with another multi-fund portfolio. Each individual investor in the 3-fund portfolio selects their own desired percentage of each fund. This, of course, results in different returns.

Best wishes.
Taylor
So you are arguing against your own comparison between Harvard and the 3 fund portfolio?
There are thousands of combinations of asset allocations for a 3 fund portfolio. You cannot compute the performance for a 3 fund portfolio without the asset allocations. A 3 fund portfolio has no performance data tied to it. A 3 fund portfolio with 30% TSM, 15% VGTSX and 55% BND does.

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by abuss368 » Sat Mar 03, 2018 5:40 pm

Perhaps Harvard should have invested in total market index funds.
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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by Ricola » Sat Mar 03, 2018 6:25 pm

On a positive note, considering that stocks are a zero sum game, somebody benefited from Harvard's losses. Sadly those were funds were acquired by way of taxpayer subsidies and meant for the cause of education.

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by jminv » Sat Mar 03, 2018 8:14 pm

Harvard Management Company used to have a very good 15 year track record until 2005 when boss left over compensation resentment from academic types and again when they had a strong one year period with Ex-pimco manager. It went downhill with their hire after that. She’s now left. Under the prior high performing management, there was strong resentment among the various academic and alumni/donor constituencies as to HMC’s performance compensation. Read up on it if you’re interested. Hbs even wrote a case study about this.

Of course, the rationale for their losing bets in the article were that they would be compensated due to the illiquidity premium inherent in these investments. Unfortunately, they chose to invest in illiquid commodities. Commodities and commodity producing companies are not often great investments.

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by jharkin » Sun Mar 04, 2018 9:10 am

Clever_Username wrote:
Sat Mar 03, 2018 1:50 pm
jharkin wrote:
Sat Mar 03, 2018 8:51 am
If I was aHavard student or alum I would be particularly livid the money managers got paid hundreds of millions for this disaster.. The university cold have just fired the lot and put it all in VSTAX... :oops:
Even with their blown billion, I think they qualify for a better share class than Admiral :D
Hahaha true... But I dont know the ticker for the institutional class off the top of my head....

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Re: Harvard blows $1Billion picking stocks, averaged 4.4% returns over last decade

Post by uberational44 » Sun Mar 04, 2018 5:21 pm

Valuethinker wrote:
Fri Mar 02, 2018 4:50 am
WanderingDoc wrote:
Fri Mar 02, 2018 2:57 am
Interesting. What the heck were they doing investing in teak and eucalyptus? Teak produces one return every 25 years. So you'll see 0% 0% 0% ... x 24 years. ~115% year 25. Something like that. Agriculture in no way works the same as equities, and its a silly way to invest donor's funds. They should be ashamed of themselves whoever selected those "money managers".
A number of large funds (such as TIAA's Real Estate annuity fund) have gone into agricultural land. UK data says long run real return about 1% pa. It's a particularly good inflation hedge. Of course the largest fortunes in Britain are partly founded on agricultural land - it's what the aristocracy and the big college endowments etc own.

On GMO's numbers, timber has outperformed S&P500 w lower volatility (at least up to 2010: 1970 to 2010 I think). Yale has done very well out of timber, I believe - we used to have a lot of threads here about investing in PCL (Plum Creek Timber) etc. Wood prices crashed after 2008 and US construction slump, but I believe they have recovered since. The state of the Chinese construction industry of course has a significant impact, but the largest single driver is probably still US housing (since wood frame is almost universal).

The inherent return of a timber portfolio is in the growth of the wood. If financial prices are high in a given year, you sell wood. If they are low, you let the wood grow. For softwood lumber that's something like 5% p.a. - that's the long run average of how much more valuable a tree is, if you delay harvesting (*until* full maturity).

Eucalyptus I am sceptical, the world has plenty of those trees (and they burn too easily). Teak? That's clever, because there's a built-in short supply. 25 years from now, with tropical deforestation, I suspect the *only* teak in the world will be either reclaimed or plantation harvested.
"It's a pretty good inflation hedge"

It is only good inflation hedge if the land is bought when it's under-valued. There was a farmland bubble in the 1970s when investors piled into farmland to escape inflation:

https://www.google.ie/search?q=farmland ... EI2dPXNuoM:

After 1980, it burst...

As the saying goes:

When the wise do in the beginning, the fools do in the end
Marketeer investing as a hobby. Interested in modern takes on value investing, passive investing and general contrarianism.

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