A 19 basis point portfolio beats the average of most college endowments • Hacker News Board

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

#71

Post by gburt » Tue, Mar 01, 2016, 6:33 PM UTC

rbcgerard wrote: post #61

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…

I wonder how much of the difference between the "bogle" portfolio and the endowment portfolios can be explained by simply adding Real Asset beta and Alternative beta?

What does this mean (in laymen terms)?

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

#72

Post by enoch_r » Tue, Mar 01, 2016, 6:44 PM UTC

wdewind wrote: post #63

enoch_r wrote: post #51

Earlier quoted context omitted.

> 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 Vall…

Right, in 2008 when the entire economy tanked they also tanked. You can't really out-diversify the entire economy tanking. What happened in the years after that? Oh right that paper has no idea because it was last updated in 2010.

Right, I completely agree with you. You can't really out-diversify the entire economy tanking.

But GP's claim seemed (to me) to be that that's exactly what university endowments do (or attempt to do). GP claimed that universities aren't looking for return or low volatility, they're looking to 'be fine' when the economy tanks. To check whether they succeeded, I looked at university endowment performance during a period when the economy tanked, and found that they still didn't do any better than an average index fund investor would have.

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

#73

Post by wdewind » Tue, Mar 01, 2016, 9:02 PM UTC

shoover wrote: post #70

wdewind wrote: post #68

Earlier quoted context omitted.

The major point of OPs statement is that while sometimes you can get lucky for a short period of time (which is what you just cherrypicked), for an endowment you can't really do stuff like that because you are so big and have such a long term perspective. Regardless, I'm not seeing the narrative you describe in your graph.

I agree with the OP's point, but you mentioned 2008 and what happens after that and I'm saying you can diversify in a way that handles those kinds of economic events. (The strategy I mentioned also got really lucky in the 70s and held up cumulatively since then. Of course you can make it unlucky by picking different dates, too e.g. ignore the 70s or 2001 or 2008.) The chart page doesn't explain things very well, so i…

Sorry but your examples don't add up. You're showing a 20 year time frame of outperformance, and admitting there are places where performance is a negative, and then claiming all of this shows that there is a strategy that works well all the time. Definitionally this is not true. Correct me if I'm misunderstanding, totally possible.

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

#74

Post by gburt » Tue, Mar 01, 2016, 9:09 PM UTC

tamana wrote: post #56

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.

I think he meant the financial managers.

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

#75

Post by shoover » Tue, Mar 01, 2016, 10:39 PM UTC

wdewind wrote: post #73

shoover wrote: post #70

Earlier quoted context omitted.

I agree with the OP's point, but you mentioned 2008 and what happens after that and I'm saying you can diversify in a way that handles those kinds of economic events. (The strategy I mentioned also got really lucky in the 70s and held up cumulatively since then. Of course you can make it unlucky by picking different dates, too e.g. ignore the 70s or 2001 or 2008.) The chart page doesn't explain things very well, so i…

Sorry but your examples don't add up. You're showing a 20 year time frame of outperformance, and admitting there are places where performance is a negative, and then claiming all of this shows that there is a strategy that works well all the time. Definitionally this is not true. Correct me if I'm misunderstanding, totally possible.

Sorry the examples are confusing. I mention periods of relative underperformance as a nod to your cherrypick comment: yes, the time frames matter in both directions. The question is how much the strategy goes up or down relative to the benchmark and for how long.

My claim with respect to this thread is that there is a strategy that outperforms in certain conditions like the 2008 selloff and 1970s inflation and does so without the risk of losing the gains as soon as the market turns around.

Relative to stocks or 60/40 during a bull market, it doesn't look so good, but it still generates positive returns, holding for some time any edge gained during the earlier conditions.

The overall result is a smooth climb, so I do claim it works well (enough) all the time. I don't claim absolute outperformance long term.

The best chart for what I'm trying to show is beneath the data table in [1]. And the Envy calculator at [2] has great data back to 1972 for different assets (and lets you change the start date).

[1] http://www.crawlingroad.com/blog/2008/12/22/permanent-portfo...

[2] http://portfoliocharts.com/calculators/