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A 19 basis point portfolio beats the average of most college endowments

awealthofcommonsense.com

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Re: A 19 basis point portfolio beats the average of most college endowments

#51

Post by enoch_r »

zrail wrote: post #40

Blindly shoving all your money into Vanguard ETFs is a strategy that works well for almost every individual who's retirement period maxes out at 70 years (for the MMM types). An endowment is a fund of money designed to sustain operations of it's benefactor forever . Not 10 years. Not 50 years. Literally forever. When you're operating on an indefinite timescale your idea of "risk" changes considerably. Take a look at…

> They are incredibly well diversified, across domestic and international public equities, as well as private equity, commodities, fixed income securities (bonds, etc), real estate, and a category they call "absolute return", which is where they've placed money into external hedge funds. If the US economy tanks, they'll be fine. If Europe falls apart, they'll be fine. A bunch of start up unicorns fail in Silicon Valley? Fine.

This does not appear to be true. See page 14 of this paper, which shows the 2008-2009 performance of six privately endowed colleges and universities in New England. The smallest loss was 18%, the largest was 30%. Between January 1, 2008, when the S&P500 was at 1,378.76, and January 1, 2009, when the S&P500 was at 868.58, the S&P500 lost 37%. A reasonable mix of stocks and bonds would have had a similar loss as the endowments.

http://www.tellus.org/pub/Tellusendowmentcrisis.pdf

Re: A 19 basis point portfolio beats the average of most college endowments

#52

Post by jannotti »

I wonder if the returns quoted for endowments properly subtract out the salaries, build space, etc for the employees of the institution with the endowment, or just the explicit costs from outside management?

(See my clarification below. I'm talking about the costs only for the employees making investment decisions.)

Re: A 19 basis point portfolio beats the average of most college endowments

#53

Post by zrail »

tamana wrote: post #49
zrail wrote: post #40

Blindly shoving all your money into Vanguard ETFs is a strategy that works well for almost every individual who's retirement period maxes out at 70 years (for the MMM types). An endowment is a fund of money designed to sustain operations of it's benefactor forever . Not 10 years. Not 50 years. Literally forever. When you're operating on an indefinite timescale your idea of "risk" changes considerably. Take a look at…

Now explain how your theory fits that facts that 1) Harvard's endowment gets massive donations every year 2) Harvard has an incredibly high rate of return on invested capital, not low-risk low-reward

I don't see how these facts are relevant to my statements. Every endowment gets massive donations. Harvard hires very smart people to run their money and they are not beholden to anyone other than themselves for the choices they make, which gives them lots of flexibility.

Re: A 19 basis point portfolio beats the average of most college endowments

#54

Post by baking »

aninhumer wrote: post #27
xivzgrev wrote: post #9

Earlier quoted context omitted.

Anything. Vanguard index funds just track the market so there's no hedging. The main planning I could see overlap is executing large trades since they're both moving massive amounts of money.

Surely Vanguard still need to make large trades whenever the make-up of the indices change? When the (e.g.) 500th and 501st largest companies swap places, don't they need to sell one and buy the other to keep tracking a 500 share index?

The funds in the OP were Total Market Funds, not index funds.

Re: A 19 basis point portfolio beats the average of most college endowments

#55

Post by tamana »

Retric wrote: post #29
IkmoIkmo wrote: post #26

You have to consider a few things: 1) one may be interested in the opportunity of above-average returns. If the average vanguard return is 7%, and the average self-managed return is 6.9%, on average of course vanguard is in your best interest. But what if you think you can do better? Harvard's ran a 12% return for 20 years, for example. Should they forgo it because the average is a more guaranteed, safe, and on avera…

A single outlier over a few years does not mean anything. Harvard got 5.8% in 2015.

A single outlier over a single year does not mean anything either.

Re: A 19 basis point portfolio beats the average of most college endowments

#56

Post by tamana »

jannotti wrote: post #52

I wonder if the returns quoted for endowments properly subtract out the salaries, build space, etc for the employees of the institution with the endowment, or just the explicit costs from outside management? (See my clarification below. I'm talking about the costs only for the employees making investment decisions.)

Hmm? Money spent on university operations is not an investment expense.

Re: A 19 basis point portfolio beats the average of most college endowments

#57

Post by dzdt »

ropiku wrote: post #45
dzdt wrote: post #30

There is a statistics smell that he initially shows also 1y and 3y performance for the endowments, but then doesn't show these for his alternative. Probably he cherry-picked the data that supported his point and hid the rest.

From the article "1 and 3 years returns are mostly noise". He focuses on a longer term since it's a much better comparison. On a growing market it's much easier to overperform the index but then get wiped when a crash happens.

For the endowments, the 1y and 3y returns didn't look like noise. Hiding the noisy data is hiding the fact that the ETF strategy is more risky than the endowments.

Re: A 19 basis point portfolio beats the average of most college endowments

#58

Post by aidenn0 »

elbigbad wrote: post #24
robrenaud wrote: post #5

Earlier quoted context omitted.

Warren Buffet made a similar bet 8 years ago on a 10 year horizon, betting on Vanguard against some top hedge funds. Buffett is very likely to win that bet. http://fortune.com/2015/02/03/berkshires-buffett-adds-to-his... http://longbets.org/362/

This is interesting! Shoddy writing int he Fortune piece though. "The amount handed over [to charity], though, is not likely to be $1 million, because of changes that Buffett and Protégé made in the wager a couple of years ago" One paragraph later: "Buffett also issued a guarantee: He will pay the winning charity $1 million if the Berkshire stock bought isn’t worth that much at the bet’s end." Nitpicky I know, but it…

Read a few more lines down and they state that the amount will most likely be more than $1 million, thus keeping the previous two quotes consistent.

Re: A 19 basis point portfolio beats the average of most college endowments

#59

Post by ropiku »

dzdt wrote: post #57
ropiku wrote: post #45

Earlier quoted context omitted.

From the article "1 and 3 years returns are mostly noise". He focuses on a longer term since it's a much better comparison. On a growing market it's much easier to overperform the index but then get wiped when a crash happens.

For the endowments, the 1y and 3y returns didn't look like noise. Hiding the noisy data is hiding the fact that the ETF strategy is more risky than the endowments.

What do you mean ? The shorter term you look the more noise there is. I'm not sure that it's exactly the same 1y period, you are just averaging out a lot of funds. I would say the fact that ETFs overperformed on a long term means they are less risky not more.
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