FYI: (This is a follow-up article)
The Harvard Management Co., which oversees Harvard University’s endowment and other investments, just released its 2016 annual report. It's grim reading: The fund had a negative return of 2 percent and was worth about $2 billion less than a year earlier, underperforming its benchmarks by a significant margin.
At $35.7 billion, the university's endowment is the biggest in the world. And let's get it out of the way quickly -- anyone can have a bad year. But here's what should be of greater concern to alums and donors: the processes that the university and the management company use to look after this huge pile of money.
Regards,
Ted
https://www.bloomberg.com/view/articles/2016-09-23/harvard-does-a-trade-you-should-never-make
Comments
In a convoluted way, the subpar performance of Harvard's investments as directed by high paid professional teams should make us relatively uninformed amateurs happy. In the investment universe we can compete and win against heavy weight pros. That is not possible in a football contest. A professional football team would easily wipe us off the field.
There are several lessons embedded in Harvard's bad luck. Note that I said bad luck. Investing results are dependent upon luck, skill, and timing. And even the skill set is not fully dependable. What works in one timeframe may be a disaster in another period. I'm sure Harvard hired the very best team of pros with very distinguished performance records. Yet it was not enough.
What is enough? Perhaps keeping costs under tight control by being simple is a key characteristic. Exotic options like those pursued by Hedge fund operatives are a double edged sword, sometimes yielding oversized returns, but sometimes generating heart-stopping losses. Such is the current Harvard situation.
"Some you win, and some you lose, and the winners all grin and the losers say deal the cards again." That line is from a song called "The Devil" by singer/songwriter Hoyt Axton.
EDIT: If you like folk music you might give Hoyt Axton and the referenced song a try at:
https://www.google.com/search?sclient=tablet-gws&site=&source=hp&q=hoyt+acton+the+devil+song&oq=hoyt+acton+the+devil+song&gs_l=tablet-gws.3..30i10k1.3959.22310.0.26966.25.25.0.0.0.0.236.4092.0j22j3.25.0.foo,bruas=1,brua=1,brapml=1...0...1c.1.64.tablet-gws..0.25.4084...0j0j0i131k1j0i10k1j0i13k1j0i22i30k1.RmPaam7eSFk
Best Wishes to both the winners and losers. Over time places will change. There is considerable merit to a diversified portfolio of Index products. That's keeping things simple while controlling costs.