How the Bogle Model Beats the Yale Model
How the Bogle Model Beats the Yale Model
Comparison of a simple Vanguard 3-fund portfolio vs College Endowment funds that "try to invest in only the best money managers – utilizing both the public and private markets – to find the very best investment opportunities. They’re well-staffed and well-educated. They have access to the best and brightest minds in finance and are able to invest in funds that are reserved only for those with many millions or even billions of dollars and the right connections."
http://awealthofcommonsense.com/2017/02 ... ale-model/
Spoiler: Vanguard has better returns in virtually all short and long term horizons and when compared to endowment size ($25M to over $1B)
http://awealthofcommonsense.com/2017/02 ... ale-model/
Spoiler: Vanguard has better returns in virtually all short and long term horizons and when compared to endowment size ($25M to over $1B)
Last edited by markelp on Mon Feb 06, 2017 6:57 am, edited 1 time in total.
Re: How the Bogle Model Beats the Yale Model
I've long wondered why people who realize they can't pick winning investments believe they can pick winning money managers.
Re: How the Bogle Model Beats the Yale Model
While I doubt the numbers would change too much, I would like to see this with a lower allocation to bonds - i.e. 50/30/20 US Eq/Int Eq/Bonds or thereabouts. Part of me thinks 40% is a little too bond heavy for this, but at the same time, college endowments are probably closer to 50-60 year olds than 30 year olds (me) when it comes to risk avoidance and such.
- Taylor Larimore
- Posts: 32839
- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
The Three-Fund Portfolio
Bogleheads:markelp wrote:Comparison of a simple Vanguard 3-fund portfolio vs College Endowment funds that "try to invest in only the best money managers – utilizing both the public and private markets – to find the very best investment opportunities. They’re well-staffed and well-educated. They have access to the best and brightest minds in finance and are able to invest in funds that are reserved only for those with many millions or even billions of dollars and the right connections."
http://awealthofcommonsense.com/2017/02 ... ale-model/
Spoiler: Vanguard has better returns in virtually all short and long term horizons and when compared to endowment size ($25M to over $1B)
This is a link to The Three-Fund Portfolio and its many advantages:
viewtopic.php?t=88005
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
-
- Posts: 3181
- Joined: Mon Feb 26, 2007 4:33 pm
Re: How the Bogle Model Beats the Yale Model
The link shows that costs are much too high for these endowments - they did not get the message yet that costs are very important :
Costs are still prohibitive. The increased competition for money managers in the institutional space has yet to really drive down costs like we’ve seen in the retail world. As long as institutions continue to pay outsized fees, the majority of them are going to receive below average results.
Costs are still prohibitive. The increased competition for money managers in the institutional space has yet to really drive down costs like we’ve seen in the retail world. As long as institutions continue to pay outsized fees, the majority of them are going to receive below average results.
-
- Posts: 3562
- Joined: Fri Aug 06, 2010 3:42 pm
Re: How the Bogle Model Beats the Yale Model
Great post! Demonstrates that a high cost complex "secret sauce" portfolio has reliably achieved only one thing relative to a simple inexpensive 3 fund portfolio over the past 10 years. The thing it has reliably achieved is lots of income and fees for those who create and market it. Take home message: the "secret sauce" is elusive. One wise choice for investors is to select a 3 fund portfolio rather than spending your time searching for the "secret sauce" that often seems to elude even the experts.
Garland Whizzer
Garland Whizzer
-
- Posts: 48952
- Joined: Fri May 11, 2007 11:07 am
Re: How the Bogle Model Beats the Yale Model
Note though that they don't say .. beats Yale Endowment.markelp wrote:Comparison of a simple Vanguard 3-fund portfolio vs College Endowment funds that "try to invest in only the best money managers – utilizing both the public and private markets – to find the very best investment opportunities. They’re well-staffed and well-educated. They have access to the best and brightest minds in finance and are able to invest in funds that are reserved only for those with many millions or even billions of dollars and the right connections."
http://awealthofcommonsense.com/2017/02 ... ale-model/
Spoiler: Vanguard has better returns in virtually all short and long term horizons and when compared to endowment size ($25M to over $1B)
Because it doesn't. The Yale Endowment does in fact have extraordinary performance. William Bernstein has an essay on David Swensen and Warren Buffett. Pointing out that every field has its geniuses, and Swensen is the genius of the endowment world.
However for smaller investors with less skill in picking alternative asset managers the Bogle model probably is a better long term bet.
-
- Posts: 48952
- Joined: Fri May 11, 2007 11:07 am
Re: How the Bogle Model Beats the Yale Model
Because historically Yale has. They were early into alternative assets, and they picked good managers.Quark wrote:I've long wondered why people who realize they can't pick winning investments believe they can pick winning money managers.
Duplicating Yale is, conversely, likely extremely difficult to do.
Re: How the Bogle Model Beats the Yale Model
From Carlson's article:
Paul
Simple + low cost is the 3-fund most efficient way to invest.This has nothing to do with active vs. passive investing. This is all about simple vs. complex, operationally efficient investment programs vs. operationally inefficient investment programs and high-probability portfolios vs. low-probability portfolios. Investing is hard enough as it is before introducing a complex, inefficient, low-probability investment style.
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Re: How the Bogle Model Beats the Yale Model
The Yale Endowment has a couple of things you and I don't have. First, scale on the order of billions of dollars to invest. Second, a virtually unlimited time horizon which is useful when you hold a lot of illiquid assets. I suspect Yale's outperformance is due to being the early bird getting the worm and a premium for holding valuable but illiquid assets. Swenson was early to the "alternative asset" party. He also profited from owning such things as private equity and directly owned real estate and timber. Yale has the scale that they could form their own real estate and timber management companies and probably do it at lower cost than a REIT.Valuethinker wrote:Note though that they don't say .. beats Yale Endowment.markelp wrote:Comparison of a simple Vanguard 3-fund portfolio vs College Endowment funds that "try to invest in only the best money managers – utilizing both the public and private markets – to find the very best investment opportunities. They’re well-staffed and well-educated. They have access to the best and brightest minds in finance and are able to invest in funds that are reserved only for those with many millions or even billions of dollars and the right connections."
http://awealthofcommonsense.com/2017/02 ... ale-model/
Spoiler: Vanguard has better returns in virtually all short and long term horizons and when compared to endowment size ($25M to over $1B)
Because it doesn't. The Yale Endowment does in fact have extraordinary performance. William Bernstein has an essay on David Swensen and Warren Buffett. Pointing out that every field has its geniuses, and Swensen is the genius of the endowment world.
However for smaller investors with less skill in picking alternative asset managers the Bogle model probably is a better long term bet.
A fool and his money are good for business.
Re: How the Bogle Model Beats the Yale Model
Duplicating Yale may be easier if you have many billions to invest, a talented team with a long track record, access to investments unavailable to almost anyone else and effectively an infinite time horizon. Even if you have all that, duplicating Yale is likely extremely difficult to do. If you don't, it's purely a matter of luck, with the odds heavily against you.Valuethinker wrote:Because historically Yale has. They were early into alternative assets, and they picked good managers.Quark wrote:I've long wondered why people who realize they can't pick winning investments believe they can pick winning money managers.
Duplicating Yale is, conversely, likely extremely difficult to do.
I should be able to run the 100m in under 10 seconds. After all, Usain Bolt did in it in 9.58.
- Hawaiishrimp
- Posts: 501
- Joined: Tue Apr 14, 2015 4:13 am
Re: How the Bogle Model Beats the Yale Model
Once I knew my financial advisor lived in Encinitas, much closer to the ocean than I was, I said "Screw that, I am firing you."
By the way, I hired him less than 2 months in total. This industry need to be made obsolete.
By the way, I hired him less than 2 months in total. This industry need to be made obsolete.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
Re: How the Bogle Model Beats the Yale Model
Just because someone lives in a nicer town than you doesn't mean they are wasting your money or should be made obsolete. You and I don't currently need a financial advisor, but many lack the time, interest, or confidence to do it for themselves. For them, a good financial advisor is a must. And if that advisor is good at their job, even at fiduciary costs, they can easily afford a home in whatever town you pick and should be allowed to without people yelling that their home is too nice therefore they are ripping you off.Hawaiishrimp wrote:Once I knew my financial advisor lived in Encinitas, much closer to the ocean than I was, I said "Screw that, I am firing you."
By the way, I hired him less than 2 months in total. This industry need to be made obsolete.
"Save as much as you can, diversify diversify diversify, and you can't go wrong with tech stocks" |
-First investing advice I recall from my parents in the 90's (two outta three ain't bad)
- patrick013
- Posts: 3301
- Joined: Mon Jul 13, 2015 7:49 pm
Re: How the Bogle Model Beats the Yale Model
I read an article last week where Harvard was busy replacing
it's investment advisor's. The article included a table of 9
of the biggest endowment funds and only 3 beat the 500 for
the time period selected. Those would most likely be invested
in higher risk investments like high yield bonds, preferred's,
hedge funds, private equity real estate, etc.. If you can guess
the estimated default or failure rate then the risks paid off
this time. Most spend simply millions for investment advisor
fees.
it's investment advisor's. The article included a table of 9
of the biggest endowment funds and only 3 beat the 500 for
the time period selected. Those would most likely be invested
in higher risk investments like high yield bonds, preferred's,
hedge funds, private equity real estate, etc.. If you can guess
the estimated default or failure rate then the risks paid off
this time. Most spend simply millions for investment advisor
fees.
age in bonds, buy-and-hold, 10 year business cycle
- Hawaiishrimp
- Posts: 501
- Joined: Tue Apr 14, 2015 4:13 am
Re: How the Bogle Model Beats the Yale Model
No, I respectfully disagree.jf89 wrote:Just because someone lives in a nicer town than you doesn't mean they are wasting your money or should be made obsolete. You and I don't currently need a financial advisor, but many lack the time, interest, or confidence to do it for themselves. For them, a good financial advisor is a must. And if that advisor is good at their job, even at fiduciary costs, they can easily afford a home in whatever town you pick and should be allowed to without people yelling that their home is too nice therefore they are ripping you off.Hawaiishrimp wrote:Once I knew my financial advisor lived in Encinitas, much closer to the ocean than I was, I said "Screw that, I am firing you."
By the way, I hired him less than 2 months in total. This industry need to be made obsolete.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
- Uncle Pennybags
- Posts: 1835
- Joined: Tue Oct 28, 2014 2:05 am
Re: How the Bogle Model Beats the Yale Model
Those endowment returns are tax free too; if they had to pay their own way that pile of money would be shrinking even faster.
- Taylor Larimore
- Posts: 32839
- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
Bogle Model contains Tax and Simplicity advantages
Uncle Pennybags:Uncle Pennybags wrote:Those endowment returns are tax free too; if they had to pay their own way that pile of money would be shrinking even faster.
Thank you for reminding us of a very good point.
And let's not forget the many advantages of "simplicity" listed in my signature link below.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: How the Bogle Model Beats the Yale Model
Paul,pkcrafter wrote:From Carlson's article:Simple + low cost is the 3-fund most efficient way to invest.This has nothing to do with active vs. passive investing. This is all about simple vs. complex, operationally efficient investment programs vs. operationally inefficient investment programs and high-probability portfolios vs. low-probability portfolios. Investing is hard enough as it is before introducing a complex, inefficient, low-probability investment style.
Paul
You are right on.
I was chatting with a friend the other day about my blog. She asked a simple question. What is it you want to say? I said that investing process is incredibly simple that my Italian grandmother who was not literate could understand, or a middle school student. She was interested! She knows little to nothing about investing.
The active vs. passive is too complex to explain to my friend, who would have lost interest. I am hoping the debate starts to go into that direction of simple vs. complex. Constructing a simple portfolio is....simple. Taylor has been displaying the 3-fund portfolio for 15 years.
If people can understand simplicity, then we can focus on sticking with your simple portfolio, no matter what. Psychology of investing needs more attention, IMHO.
Never in the history of market day-traders’ has the obsession with so much massive, sophisticated, & powerful statistical machinery used by the brightest people on earth with such useless results.
Re: How the Bogle Model Beats the Yale Model
I guess I find this a little sensational. Swensen himself the architect of the Yale Model wrote a whole book saying that individual investors could not and should not attempt to copy the Yale Model. He cites all the reasons in this thread: tax free status, best and brightest, access to investments, large dollars to invest etc.
I came to bogleheads through Swensen. If I had to do it all over again I probably would not slice and dice but rather go with a three fund. That being said I think the lazy portfolio he suggests, which for an individual investors follows his Yale Model's principles, but not methods or actual investments is very sound for an individual investor. Many roads to Dublin.
I came to bogleheads through Swensen. If I had to do it all over again I probably would not slice and dice but rather go with a three fund. That being said I think the lazy portfolio he suggests, which for an individual investors follows his Yale Model's principles, but not methods or actual investments is very sound for an individual investor. Many roads to Dublin.
Re: How the Bogle Model Beats the Yale Model
It is meaningless to compare returns without looking at risk. There was a study that showed risk adjusted returns of the big endowment investors to be basically determined by asset allocation, nothing to do with expert managers (I think it included Harvard during the period when it was doing well, as well as Yale). Even considering raw returns one has to be careful about the listed values of illiquid investments. The values are estimates of dubious reliability. Estimating the downside risk is really tricky when even retrospective data are unreliable because they were guesses as to what the sales price would have been, with no way to check.
Then for large investors one has to worry about the market impact of putting a large tract of land up for sale.
I would not view the returns reported by funds holding many of these investments as comparable to those composed of liquid assets. In other words, one can know the returns of VTI. One can have only a guess as to the return of raw land, real estate, hedge funds, private equity...
Then for large investors one has to worry about the market impact of putting a large tract of land up for sale.
I would not view the returns reported by funds holding many of these investments as comparable to those composed of liquid assets. In other words, one can know the returns of VTI. One can have only a guess as to the return of raw land, real estate, hedge funds, private equity...
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either |
--Swedroe |
We assume that markets are efficient, that prices are right |
--Fama
-
- Posts: 25617
- Joined: Thu Apr 05, 2007 8:20 pm
- Location: New York
Why the Bogle model Beats the Yale Model
[Thread merged into here, see below. --admin LadyGeek]
Nice article on CBS Marketwatch by Ben Carlson. Taylor would approve.
http://www.marketwatch.com/story/a-less ... yptr=yahoo
Nice article on CBS Marketwatch by Ben Carlson. Taylor would approve.
http://www.marketwatch.com/story/a-less ... yptr=yahoo
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: Why the Bogle model Beats the Yale Model
This is why we index. To constantly be in the top quartile or decile of "Yale-like" endowment portfolios by just "being there".
KISS & STC.
- willthrill81
- Posts: 32250
- Joined: Thu Jan 26, 2017 2:17 pm
- Location: USA
- Contact:
Re: Why the Bogle model Beats the Yale Model
What I don't get about Swensen's is the 15% in TIPS. For a retiree with a finite lifespan, I can understand it, even though I don't think it's optimal then. But for an endowment with no finite lifespan, it baffles me. Perhaps someone smarter than me can explain it. Is it simply to reduce volatility?
The Sensible Steward
-
- Posts: 146
- Joined: Sat Jan 14, 2017 3:55 pm
Re: Why the Bogle model Beats the Yale Model
Be careful about confusing Swensen's TIPS recommendation to the individual investor, vs how he invests for Yale University.willthrill81 wrote:What I don't get about Swensen's is the 15% in TIPS. For a retiree with a finite lifespan, I can understand it, even though I don't think it's optimal then. But for an endowment with no finite lifespan, it baffles me. Perhaps someone smarter than me can explain it. Is it simply to reduce volatility?
- willthrill81
- Posts: 32250
- Joined: Thu Jan 26, 2017 2:17 pm
- Location: USA
- Contact:
Re: Why the Bogle model Beats the Yale Model
So he doesn't use TIPS for Yale?Boston Barry wrote:Be careful about confusing Swensen's TIPS recommendation to the individual investor, vs how he invests for Yale University.willthrill81 wrote:What I don't get about Swensen's is the 15% in TIPS. For a retiree with a finite lifespan, I can understand it, even though I don't think it's optimal then. But for an endowment with no finite lifespan, it baffles me. Perhaps someone smarter than me can explain it. Is it simply to reduce volatility?
The Sensible Steward
-
- Posts: 146
- Joined: Sat Jan 14, 2017 3:55 pm
Re: Why the Bogle model Beats the Yale Model
Yale University's Portfolio in 2015 was only 8.5% fixed income in all, I do not know how much if any of that target was in TIPS. For a personal investor, Swensen recommends 15% TIPS.
Re: How the Bogle Model Beats the Yale Model
FYI - I merged Grt2bOutdoors's thread into here.
Re: How the Bogle Model Beats the Yale Model
Houghton College beats Harvard using Vanguard:
https://www.nytimes.com/2017/02/09/busi ... turns.html
"Houghton’s investment committee met this week, and is likely to move even further from active management, Mr. Morris (it's VP for Finance) said. “I went to the University of Chicago, where I sat in a lot of investment classes,” he told me. He learned how difficult it was for active managers to outperform market averages, “especially year after year,” he said, adding, “I’m a big believer in passive investment.”
"As for hedge funds and other high-cost alternatives, “the whole two-and-20 model” — in which investors typically pay 2 percent of assets under management and 20 percent of any gains — “is ridiculous,” Mr. Morris said. “The cost structure is outrageous. As they say on Wall Street, ‘Where are the customers’ yachts?’ I’m not going to play that game.”"
https://www.nytimes.com/2017/02/09/busi ... turns.html
"Houghton’s investment committee met this week, and is likely to move even further from active management, Mr. Morris (it's VP for Finance) said. “I went to the University of Chicago, where I sat in a lot of investment classes,” he told me. He learned how difficult it was for active managers to outperform market averages, “especially year after year,” he said, adding, “I’m a big believer in passive investment.”
"As for hedge funds and other high-cost alternatives, “the whole two-and-20 model” — in which investors typically pay 2 percent of assets under management and 20 percent of any gains — “is ridiculous,” Mr. Morris said. “The cost structure is outrageous. As they say on Wall Street, ‘Where are the customers’ yachts?’ I’m not going to play that game.”"