"The S&P 500 Is Beating Yale's Endowment Fund"

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Taylor Larimore
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"The S&P 500 Is Beating Yale's Endowment Fund"

Post by Taylor Larimore » Wed Jun 12, 2019 2:46 pm

Bogleheads:

Article about how the simple Vanguard S&P 500 Index Fund is currently outperforming Swensen's famous Yale Portfolio:

https://www.morningstar.com/articles/93 ... -fund.html

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Beliavsky » Wed Jun 12, 2019 3:53 pm

Taylor Larimore wrote:
Wed Jun 12, 2019 2:46 pm
Bogleheads:

Article about how the simple Vanguard S&P 500 Index Fund is currently outperforming Swensen's famous Yale Portfolio:

https://www.morningstar.com/articles/93 ... -fund.html

Best wishes.
Taylor
Taylor does not mention a finding from the end of the article -- Yale has been able to choose funds that "consistently outperform their specific benchmarks."

"Yale's position, however, appears to be eternal--or at least, as close to eternal as exists with money management. Twenty years ago, for example, the fund placed 15% of its assets in domestic equities. That amount was more than today, but it was far below the norm for long-term, U.S.-based portfolios. When foreign equities were added to the tally, the fund held 26% in publicly traded stocks, as opposed to 19% today. Not so very different.

That allocation worked wonderfully during the early 2000s, when Yale largely avoided the technology-stock crash and thrashed both its rivals and the major benchmarks. More recently, the allocation has slowed the fund. That will change. The S&P 500 will not always lead.

In which case, Yale's best attribute will once again be revealed. While the fund's asset allocation garners the headlines, Swensen's real strength lies in his ability to select funds. The benefits of asset allocations come and go. But Swensen's decisions when hiring portfolio managers (Yale's endowment being a fund of funds) is an ongoing boon. After they are implemented, Yale's asset classes consistently outperform their specific benchmarks.

From 1991 through 2001, for example, the fund's U.S. equity holdings outgained their benchmarks by 4 percentage points per year, its foreign equities indexes by 3 percentage points, and its private equity funds by so much that I hesitate to write the amount. (Allegedly, 22 percentage points.) Margins have since shrunk, but they remain large enough to keep the fund competitive, despite its allocation handicap."

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by nedsaid » Wed Jun 12, 2019 3:56 pm

I would not recommend that any endowment fund invest 100% in the S&P 500 and I doubt that you would either. Have seen articles that most college endowments trying to match Yale's success have not even beaten the plain old boring and old fashioned 60% stocks/40% bonds portfolio. The article that you linked to did say that there were certain Vanguard Target Date portfolios that would have done about as well with a much simpler portfolio. It also seems that Yale's performance has trailed off in recent years. I do get your essential point that we don't have to get too fancy with our portfolios in order to have good investment results.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by dknightd » Wed Jun 12, 2019 4:08 pm

Honestly it looks like Yale is doing pretty well.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by nedsaid » Wed Jun 12, 2019 4:15 pm

David Swenson has done a great job with the Yale Endowment Fund. But doing comparisons with individual portfolios is pretty problematic. For example, I am almost 60 years old, so I could reasonably expect to live another 20-30 years. Yale, as an institution, could last for hundreds of years. I have limited scale with my own portfolio, not in the billions that Yale Endowment has. Also Yale has a vast network of talented alumni and also a tremendous reputation. Dave Swenson could call Ray Dalio and get his calls returned, if I called Ray Dalio the chances of getting a return call are zero. So an endowment with unlimited time horizon, scale, and access to the finest minds in the world can do things that I as an individual cannot.

So this would be analogous to investing a multi-generational family trust. I could hold semi-liquid or relatively illiquid assets like directly held real estate, ownership of a business, timber land. If I had enough scale, I could afford to hire talented professionals to help run the trust. In theory, the trust would have a lifespan beyond my perhaps 20-30 remaining years. But even with a large multi-generational family trust, it would not have the scale of Yale.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by MichCPA » Wed Jun 12, 2019 4:30 pm

Total shrug.

The S&P 500 is beating my portfolio as well, but that is because I have 30% in bonds. Yale has beaten the target date funds for Vanguard and Fidelity, so they probably aren't doing too badly. One missing piece of information is the level of risk in the portfolio. If they have managed to reduce risk vs the normal balanced portfolio, the performance looks even better. Finally, an endowment exists to support operations of the college, therefore it needs to be more income focused than an index.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Ferdinand2014 » Wed Jun 12, 2019 4:41 pm

We live in a golden age of investing for the average Joe investor. The easy availability of low cost index funds from the S&P 500 to bonds to international has opened up savings potential like in no other time in history. We owe Jack Bogle much. Wether the S&P 500 is up or down compared to a multi billion dollar endowment run by multi million dollar talent is the irrelevant part in my mind. It’s the very fact we can compare it with a reasonable likelihood of doing as well or better with such endowments is gratifying.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Ferdinand2014 » Wed Jun 12, 2019 4:43 pm

nedsaid wrote:
Wed Jun 12, 2019 3:56 pm
I would not recommend that any endowment fund invest 100% in the S&P 500 and I doubt that you would either. Have seen articles that most college endowments trying to match Yale's success have not even beaten the plain old boring and old fashioned 60% stocks/40% bonds portfolio. The article that you linked to did say that there were certain Vanguard Target Date portfolios that would have done about as well with a much simpler portfolio. It also seems that Yale's performance has trailed off in recent years. I do get your essential point that we don't have to get too fancy with our portfolios in order to have good investment results.
“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained. I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates. It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.”- Warren Buffett 2017 Shareholder Letter

He was talking about the ‘bet’, bonds and the S&P 500.
Last edited by Ferdinand2014 on Wed Jun 12, 2019 4:58 pm, edited 1 time in total.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Ferdinand2014 » Wed Jun 12, 2019 4:45 pm

If I could marry my S&P 500 index fund I might consider it.

:D

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Northern Flicker » Wed Jun 12, 2019 5:04 pm

Taylor Larimore wrote:
Wed Jun 12, 2019 2:46 pm
Bogleheads:

Article about how the simple Vanguard S&P 500 Index Fund is currently outperforming Swensen's famous Yale Portfolio:

https://www.morningstar.com/articles/93 ... -fund.html

Best wishes.
Taylor
How exactly is it currently beating it? Did the S&P500 outperform it during the market tick that occurred when you were posting? Perhaps you meant to say that the Yale endowment underperformed the S&P500 during the performance measurement period used in the article.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by nedsaid » Wed Jun 12, 2019 5:24 pm

Ferdinand2014 wrote:
Wed Jun 12, 2019 4:43 pm
nedsaid wrote:
Wed Jun 12, 2019 3:56 pm
I would not recommend that any endowment fund invest 100% in the S&P 500 and I doubt that you would either. Have seen articles that most college endowments trying to match Yale's success have not even beaten the plain old boring and old fashioned 60% stocks/40% bonds portfolio. The article that you linked to did say that there were certain Vanguard Target Date portfolios that would have done about as well with a much simpler portfolio. It also seems that Yale's performance has trailed off in recent years. I do get your essential point that we don't have to get too fancy with our portfolios in order to have good investment results.
“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained. I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates. It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.”- Warren Buffett 2017 Shareholder Letter

He was talking about the ‘bet’, bonds and the S&P 500.
Well for one thing, Buffett runs an Insurance Conglomerate that is an actual operating company. Furthermore, his stock doesn't pay dividends so that his company has more funds for reinvestment. He doesn't have the issue of payouts as Yale Endowment does.

Yes, an endowment fund has a longer investment horizon than an individual, thus an endowment could in theory invest more aggressively and with more illiquid investments. But Yale also wants to maintain a sustainable 4% withdrawal rate and they don't want the payouts to be hugely volatile as various Yale departments that rely on those funds need to budget and to perform long term planning. So while volatility is less of a concern for an endowment fund with a much longer lifespan than an individual, I would argue that it is still a concern. At some point, endowments want some safety and don't want wild fluctuations in their portfolio balance.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by iamlucky13 » Wed Jun 12, 2019 6:04 pm

Ivy League Endowment Funds seem to be a roughly monthly topic on Bogleheads.

Two important factors to keep in mind each time this topic comes up:

1.) The most-frequently discussed endowments are not benchmarked to the S&P 500, nor do they have similar investments such that the S&P 500 is a very useful comparisons ("At last report, the fund held just 3.5% of its assets in U.S. stocks." ~Morningstar).

2.) University endowments have different time frames (perpetual) and risk tolerance than individual investors.

One additional point unintentionally referenced in the article (via Morningstar's link to Swenson's book for individual investors): Swenson himself advocates "well-diversified, market-mimicking porfolios." In case that wasn't clear, he advocates individual investors stick with index funds, not to put 1/5th of their money into venture capital, for example, like his team does with Yale's money.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by JBTX » Wed Jun 12, 2019 6:18 pm

Of course 1 component of a multicomponent portfolio will occasionally beat the portfolio. That's the what happens with a diversified portfolio.

Now if an endowment fails to beat a broad index over a couple of decades on a risk adjusted basis then you have an interesting and relevant discussion.
Last edited by JBTX on Wed Jun 12, 2019 6:48 pm, edited 1 time in total.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Ferdinand2014 » Wed Jun 12, 2019 6:33 pm

nedsaid wrote:
Wed Jun 12, 2019 5:24 pm
Ferdinand2014 wrote:
Wed Jun 12, 2019 4:43 pm
nedsaid wrote:
Wed Jun 12, 2019 3:56 pm
I would not recommend that any endowment fund invest 100% in the S&P 500 and I doubt that you would either. Have seen articles that most college endowments trying to match Yale's success have not even beaten the plain old boring and old fashioned 60% stocks/40% bonds portfolio. The article that you linked to did say that there were certain Vanguard Target Date portfolios that would have done about as well with a much simpler portfolio. It also seems that Yale's performance has trailed off in recent years. I do get your essential point that we don't have to get too fancy with our portfolios in order to have good investment results.
“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained. I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates. It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.”- Warren Buffett 2017 Shareholder Letter

He was talking about the ‘bet’, bonds and the S&P 500.
Well for one thing, Buffett runs an Insurance Conglomerate that is an actual operating company. Furthermore, his stock doesn't pay dividends so that his company has more funds for reinvestment. He doesn't have the issue of payouts as Yale Endowment does.

Yes, an endowment fund has a longer investment horizon than an individual, thus an endowment could in theory invest more aggressively and with more illiquid investments. But Yale also wants to maintain a sustainable 4% withdrawal rate and they don't want the payouts to be hugely volatile as various Yale departments that rely on those funds need to budget and to perform long term planning. So while volatility is less of a concern for an endowment fund with a much longer lifespan than an individual, I would argue that it is still a concern. At some point, endowments want some safety and don't want wild fluctuations in their portfolio balance.
All true and good points. Except he wasn’t referring in any way to his business or how he manages it. He was referring to college endowments, savings minded investors, and pension funds and his thoughts on investing advice. He was very specific in his caution regarding bonds and the use of the S&P 500 for these organizations or individuals. It was in the context of his bet and the treasury bonds that were used as a holding for the $1,000,000 charity contribution for the winner.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Trader Joe » Wed Jun 12, 2019 6:41 pm

Thank you very much for the great article Taylor.

This is why I only invest in VFIAX (Vanguard 500 Index Fund Admiral Shares).

Simple and elegant.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by JoMoney » Wed Jun 12, 2019 7:11 pm

The S&P 500 is also beating the portfolio Warren Buffett suggested as a bequest for his wife's trust, but the reason was pretty obvious
Warren Buffett in BRK 2013 Annual Letter wrote:... My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.
http://www.berkshirehathaway.com/letters/2013ltr.pdf
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Investment Gems from Swenson's "Unconventional Success"

Post by Taylor Larimore » Wed Jun 12, 2019 8:00 pm

Bogleheads:

I am an admirer of David Swensen and I selected Investment Gems from his book Unconventional Success.

Enjoy:

http://socialize.morningstar.com/NewSoc ... spx#151830

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by nedsaid » Wed Jun 12, 2019 8:10 pm

Ferdinand2014 wrote:
Wed Jun 12, 2019 6:33 pm
nedsaid wrote:
Wed Jun 12, 2019 5:24 pm
Ferdinand2014 wrote:
Wed Jun 12, 2019 4:43 pm
nedsaid wrote:
Wed Jun 12, 2019 3:56 pm
I would not recommend that any endowment fund invest 100% in the S&P 500 and I doubt that you would either. Have seen articles that most college endowments trying to match Yale's success have not even beaten the plain old boring and old fashioned 60% stocks/40% bonds portfolio. The article that you linked to did say that there were certain Vanguard Target Date portfolios that would have done about as well with a much simpler portfolio. It also seems that Yale's performance has trailed off in recent years. I do get your essential point that we don't have to get too fancy with our portfolios in order to have good investment results.
“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained. I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates. It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.”- Warren Buffett 2017 Shareholder Letter

He was talking about the ‘bet’, bonds and the S&P 500.
Well for one thing, Buffett runs an Insurance Conglomerate that is an actual operating company. Furthermore, his stock doesn't pay dividends so that his company has more funds for reinvestment. He doesn't have the issue of payouts as Yale Endowment does.

Yes, an endowment fund has a longer investment horizon than an individual, thus an endowment could in theory invest more aggressively and with more illiquid investments. But Yale also wants to maintain a sustainable 4% withdrawal rate and they don't want the payouts to be hugely volatile as various Yale departments that rely on those funds need to budget and to perform long term planning. So while volatility is less of a concern for an endowment fund with a much longer lifespan than an individual, I would argue that it is still a concern. At some point, endowments want some safety and don't want wild fluctuations in their portfolio balance.
All true and good points. Except he wasn’t referring in any way to his business or how he manages it. He was referring to college endowments, savings minded investors, and pension funds and his thoughts on investing advice. He was very specific in his caution regarding bonds and the use of the S&P 500 for these organizations or individuals. It was in the context of his bet and the treasury bonds that were used as a holding for the $1,000,000 charity contribution for the winner.
All fine and dandy, but how would Yale's trustees react to its endowment fund dropping by 50%. We saw two such bear markets in a decade, 2000-2002 and 2008-2009. Could a Board of Trustees really be cool with this? I don't think so. Hence the need for less volatile asset classes (bonds) to reduce the volatility of a portfolio even at the price of return. Buffett can say what he wants, and long term he is correct, but this is not real world. I worked for a large non-profit that switched endowment funds to bonds after the 2008-2009 bear market because the Board would not accept the volatility. It was the wrong decision in my view, but they made it.
A fool and his money are good for business.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by willthrill81 » Wed Jun 12, 2019 8:15 pm

JBTX wrote:
Wed Jun 12, 2019 6:18 pm
Of course 1 component of a multicomponent portfolio will occasionally beat the portfolio. That's the what happens with a diversified portfolio.
Right. I'll bet that the Yale endowment fund beat the pants off the S&P 500 in 2008-2009.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Ferdinand2014 » Wed Jun 12, 2019 8:18 pm

Trader Joe wrote:
Wed Jun 12, 2019 6:41 pm
Thank you very much for the great article Taylor.

This is why I only invest in VFIAX (Vanguard 500 Index Fund Admiral Shares).

Simple and elegant.
What is your AA? How long have you held VFIAX? How far are you from retirement?

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by DecumulatorDoc » Thu Jun 13, 2019 10:45 am

Taylor Larimore wrote:
Wed Jun 12, 2019 2:46 pm
Bogleheads:

Article about how the simple Vanguard S&P 500 Index Fund is currently outperforming Swensen's famous Yale Portfolio:

https://www.morningstar.com/articles/93 ... -fund.html

Best wishes.
Taylor
This article, or at least the headline, is an example of "noise" that Bogleheads should be trained to ignore. What's the point? The S&P 500 beat the pants off the 3 Fund Portfolio too. Is the lesson here poor diversification wins?...hopefully not.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Elric » Thu Jun 13, 2019 11:50 am

DecumulatorDoc wrote:
Thu Jun 13, 2019 10:45 am
This article, or at least the headline, is an example of "noise" that Bogleheads should be trained to ignore. What's the point? The S&P 500 beat the pants off the 3 Fund Portfolio too. Is the lesson here poor diversification wins?...hopefully not.
:thumbsup :thumbsup :thumbsup
By the same logic as the article, one should invest in one of the largest actively managed target funds, rather than the 3-fund portfolio.
Using Portfolio visualizer, since 2011, Fidelity's actively managed Fidelity Freedom 2035 fund (FFTHX) has beat a 60/40 3-fund portfolio with 40% of the stocks in international by almost a full percentage point per year. Rolling returns are also better for 1, 3, 5, and 7 year periods. Therefore, using the same logic as the article, the 3 fund portfolio has lost it's magic, and that going forward, maybe well-selected active, with moderate fees, is better than passive with low fees. Now I can hear folks screaming that past performance, especially over just such a period, isn't indicative of future results. And that may be true, just as the short-term performance of the Yale endowment v. the S&P is not necessarily indicative of future results.

Posting such an article without calling out that one can't really conclude anything from it is just an example of selecting an article based on confirmation bias.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Carol88888 » Thu Jun 13, 2019 1:44 pm

I recently bought the S&P 500 ETF so this is heartening indeed. I decided that the low fees and great performance were too hard to pass up.

(Full disclosure: This after selling out of 2 dividend funds that probably would have done just fine, too. But I wanted the simplicity of going with the classic.)

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by abuss368 » Thu Jun 13, 2019 6:03 pm

Taylor Larimore wrote:
Wed Jun 12, 2019 2:46 pm
Bogleheads:

Article about how the simple Vanguard S&P 500 Index Fund is currently outperforming Swensen's famous Yale Portfolio:

https://www.morningstar.com/articles/93 ... -fund.html

Best wishes.
Taylor
Thanks for sharing Taylor! I was fortunate enough to attend a lecture of David Swensen's.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by abuss368 » Thu Jun 13, 2019 8:00 pm

One important aspect of the Yale portfolio is the endowment has access to assets that others do not have. While most invest in public securities, Yale also invests in a lot of illiquid assets that take time to earn a return.

Simply certain doors open for David Swensen and his team that do not for most ordinary investors.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by abuss368 » Thu Jun 13, 2019 8:02 pm

I also wanted to add: In the lecture I consider myself fortunate to attend from David Swensen he was very clear: Do not do or try to do what I do with the endowment. No one can replicate or mirror that. Kind of like Warren Buffett buying a certain Bank of America investment and us buying the common stock of BOA. Not the same thing!
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by nedsaid » Thu Jun 13, 2019 8:40 pm

Elric wrote:
Thu Jun 13, 2019 11:50 am
DecumulatorDoc wrote:
Thu Jun 13, 2019 10:45 am
This article, or at least the headline, is an example of "noise" that Bogleheads should be trained to ignore. What's the point? The S&P 500 beat the pants off the 3 Fund Portfolio too. Is the lesson here poor diversification wins?...hopefully not.
:thumbsup :thumbsup :thumbsup
By the same logic as the article, one should invest in one of the largest actively managed target funds, rather than the 3-fund portfolio.
Using Portfolio visualizer, since 2011, Fidelity's actively managed Fidelity Freedom 2035 fund (FFTHX) has beat a 60/40 3-fund portfolio with 40% of the stocks in international by almost a full percentage point per year. Rolling returns are also better for 1, 3, 5, and 7 year periods. Therefore, using the same logic as the article, the 3 fund portfolio has lost it's magic, and that going forward, maybe well-selected active, with moderate fees, is better than passive with low fees. Now I can hear folks screaming that past performance, especially over just such a period, isn't indicative of future results. And that may be true, just as the short-term performance of the Yale endowment v. the S&P is not necessarily indicative of future results.

Posting such an article without calling out that one can't really conclude anything from it is just an example of selecting an article based on confirmation bias.
I hope people are investing in the S&P 500 Index for the right reasons. Lots of people are crowing at the recent success of the S&P 500 and are feeling mighty fine about it. I would argue that investors need a time horizon of decades and also need a strong belief system behind their investment choices.

If an article ran that money stuffed in a mattress was beating the Yale Fund, I suppose lots of Bogleheads would be crowing that their savings stuffed in their mattresses is at least not losing money and is doing so much better than an awful stock market. Make sure that you are doing things for the right reasons and not succumbing to recency bias. Folks here that say the S&P 500 is all they need seem to have forgotten about the bear markets of 2000-2002 and 2008-2009. Markets were down just over 50% each time. We have been in a bull market for a decade and too many here have forgotten about bear markets and the concepts of diversification.
Last edited by nedsaid on Thu Jun 13, 2019 9:14 pm, edited 2 times in total.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by nedsaid » Thu Jun 13, 2019 8:49 pm

abuss368 wrote:
Thu Jun 13, 2019 8:02 pm
I also wanted to add: In the lecture I consider myself fortunate to attend from David Swensen he was very clear: Do not do or try to do what I do with the endowment. No one can replicate or mirror that. Kind of like Warren Buffett buying a certain Bank of America investment and us buying the common stock of BOA. Not the same thing!
Yep, Bank of America will issue Preferred Stock and warrants to Warren Buffett so that he can later convert his preferred shares to common shares at a very favorable price but they won't do that just for me. Plus I don't have the scale that Buffett does. Buffett came to B of A at a time the bank was in crisis and he was able to make a heads I win, tails you lose investment. He got the best of all worlds receiving a juicy 6% yield on his original investment. Sweet deals not available to us common folks. Scale does make a difference.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by mary1969 » Thu Jun 13, 2019 9:06 pm

DecumulatorDoc wrote:
Thu Jun 13, 2019 10:45 am
Taylor Larimore wrote:
Wed Jun 12, 2019 2:46 pm
Bogleheads:

Article about how the simple Vanguard S&P 500 Index Fund is currently outperforming Swensen's famous Yale Portfolio:

https://www.morningstar.com/articles/93 ... -fund.html

Best wishes.
Taylor
This article, or at least the headline, is an example of "noise" that Bogleheads should be trained to ignore. What's the point? The S&P 500 beat the pants off the 3 Fund Portfolio too. Is the lesson here poor diversification wins?...hopefully not.
You are correct that this is noise and I have no idea why Taylor posted this. Maybe time for a few folks to get off their computers and find a new hobby.

Yale Endowment is doing just fine. See you all in a few weeks.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by abuss368 » Thu Jun 13, 2019 9:20 pm

nedsaid wrote:
Thu Jun 13, 2019 8:49 pm
abuss368 wrote:
Thu Jun 13, 2019 8:02 pm
I also wanted to add: In the lecture I consider myself fortunate to attend from David Swensen he was very clear: Do not do or try to do what I do with the endowment. No one can replicate or mirror that. Kind of like Warren Buffett buying a certain Bank of America investment and us buying the common stock of BOA. Not the same thing!
Yep, Bank of America will issue Preferred Stock and warrants to Warren Buffett so that he can later convert his preferred shares to common shares at a very favorable price but they won't do that just for me. Plus I don't have the scale that Buffett does. Buffett came to B of A at a time the bank was in crisis and he was able to make a heads I win, tails you lose investment. He got the best of all worlds receiving a juicy 6% yield on his original investment. Sweet deals not available to us common folks. Scale does make a difference.
Indeed. There is no way the average investor could make anywhere that type of deal. Some folks may be in denial but in this example, buying BOA common stock is no where near the same thing!
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by willthrill81 » Thu Jun 13, 2019 9:54 pm

abuss368 wrote:
Thu Jun 13, 2019 9:20 pm
nedsaid wrote:
Thu Jun 13, 2019 8:49 pm
abuss368 wrote:
Thu Jun 13, 2019 8:02 pm
I also wanted to add: In the lecture I consider myself fortunate to attend from David Swensen he was very clear: Do not do or try to do what I do with the endowment. No one can replicate or mirror that. Kind of like Warren Buffett buying a certain Bank of America investment and us buying the common stock of BOA. Not the same thing!
Yep, Bank of America will issue Preferred Stock and warrants to Warren Buffett so that he can later convert his preferred shares to common shares at a very favorable price but they won't do that just for me. Plus I don't have the scale that Buffett does. Buffett came to B of A at a time the bank was in crisis and he was able to make a heads I win, tails you lose investment. He got the best of all worlds receiving a juicy 6% yield on his original investment. Sweet deals not available to us common folks. Scale does make a difference.
Indeed. There is no way the average investor could make anywhere that type of deal. Some folks may be in denial but in this example, buying BOA common stock is no where near the same thing!
Similarly, the story that P2P lending offers retail investors access to the same consumer credit asset class that the mega-banks can reach with credits cards is plain false.
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by abuss368 » Thu Jun 13, 2019 10:10 pm

willthrill81 wrote:
Thu Jun 13, 2019 9:54 pm
abuss368 wrote:
Thu Jun 13, 2019 9:20 pm
nedsaid wrote:
Thu Jun 13, 2019 8:49 pm
abuss368 wrote:
Thu Jun 13, 2019 8:02 pm
I also wanted to add: In the lecture I consider myself fortunate to attend from David Swensen he was very clear: Do not do or try to do what I do with the endowment. No one can replicate or mirror that. Kind of like Warren Buffett buying a certain Bank of America investment and us buying the common stock of BOA. Not the same thing!
Yep, Bank of America will issue Preferred Stock and warrants to Warren Buffett so that he can later convert his preferred shares to common shares at a very favorable price but they won't do that just for me. Plus I don't have the scale that Buffett does. Buffett came to B of A at a time the bank was in crisis and he was able to make a heads I win, tails you lose investment. He got the best of all worlds receiving a juicy 6% yield on his original investment. Sweet deals not available to us common folks. Scale does make a difference.
Indeed. There is no way the average investor could make anywhere that type of deal. Some folks may be in denial but in this example, buying BOA common stock is no where near the same thing!
Similarly, the story that P2P lending offers retail investors access to the same consumer credit asset class that the mega-banks can reach with credits cards is plain false.
Good point. :beer
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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Carol88888 » Sat Jun 15, 2019 2:08 pm

willthrill81 wrote:
Wed Jun 12, 2019 8:15 pm
JBTX wrote:
Wed Jun 12, 2019 6:18 pm
Of course 1 component of a multicomponent portfolio will occasionally beat the portfolio. That's the what happens with a diversified portfolio.
Right. I'll bet that the Yale endowment fund beat the pants off the S&P 500 in 2008-2009.
I don't think Yale did that well in 2008. The 20% allocation to real estate held it back if my memory is correct. Also, a lot other endowments following the Swenson plan owned things like land and lumber for which there was just no liquidity to get out on.

If anything, the lesson of 2008 was that plain vanilla investments do best when times are really bad.

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Re: "The S&P 500 Is Beating Yale's Endowment Fund"

Post by Carol88888 » Sat Jun 15, 2019 2:14 pm

willthrill81 wrote:
Wed Jun 12, 2019 8:15 pm
JBTX wrote:
Wed Jun 12, 2019 6:18 pm
Of course 1 component of a multicomponent portfolio will occasionally beat the portfolio. That's the what happens with a diversified portfolio.
Right. I'll bet that the Yale endowment fund beat the pants off the S&P 500 in 2008-2009.
I looked it up: "Yale's endowment produced a negative 24.6 percent return in fiscal year ending in June 30 2009."

Well, by June 30 2009, the market had already turned up so I am guessing Yale was down about 30-32% at the bottom. Not terrible. Not great.

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"When times are really bad."

Post by Taylor Larimore » Sat Jun 15, 2019 2:20 pm

If anything, the lesson of 2008 was that plain vanilla investments do best when times are really bad.
Carol:

You are correct. Total Stock Markets never fall below average.
Jack Bogle: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk. -- In my view, owning the market and holding it forever is the ultimate strategy for winners." --
Best wishes.
Taylor
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