What You Can Learn From Warren Buffet, Harvard, Stanford and Yale’s Investments
Ever wondered why Warren Buffett, the large university endowments of the world like Stanford, Harvard and Yale, the billion hedge funds, and the big money managers always seem to do well even when the market doesn’t? I certainly used to. I would think to myself, “hey that’s fair, they must be using insider information or they’re just lucky”!
Then I realized that there is a formula to building the proper portfolio. It can get the best returns but with the least risk possible, and can help you make money in any market.
The numbers don’t lie. The big endowments that employ an actively managed approach to investing consistently do much better than the indexes.
What do they do that’s different? How do they do it?
The days of picking stocks based on what you use around the house or picking the most popular mutual funds is long gone. Today’s market whiz kids are in effect rocket scientists who are using scientific metrics and computer driven algorithms to beat the market.
Remember, investing is a zero sum game. For every winner there is a loser. Somebody is buying up that stock at the top of the market and somebody is selling it at the bottom. Guess what? That somebody is almost always the individual investor, an average guy like you and me that gets beat in the best cases and screwed in the worst.
What do these successful investors do that’s different?
Most successful investors employ a “tactical” investment approach. That means they are watching their investments every minute of every day, ready to make a move when required, even going to cash if necessary. This is the opposite of buy-and-hold, aka buy-and-hope, which is how most investors invest.
That’s why they suffer. Remember, if you own a bunch of mutual funds, you are by definition “buy-and-hold” because funds cannot be traded; plus they are only liquid once per day at the end of the day.
These giant stars, also use all the tools that are at their disposal. These 6 asset classes are Stocks, Bonds, International, Commodities, Real Estate and Cash. Different investments perform very differently at different times. For instance, during the last crash in 2008, if you simply avoided stocks and real estate and focused on bonds and commodities, you could have had a positive return instead of a big loss. Below you can see how the big endowments invest.
The way they use cash is very different as well. The big guys only keep enough cash on hand for immediate expenses and pressing opportunities. In this low interest rate environment, cash hurts more than it helps.
Individual investors tend to keep far too much in cash an emergency fund, when all they really want is that their funds be readily available. With a tactically managed portfolio, you can keep most of your money invested with potentially high returns, knowing that you can access your money at any time because it is “liquid”. Your money can be invested and still be liquid.
I like to keep my money working for me and as little in actual cash as possible, just what I will need to spend in the next few months, knowing I can get it when I need it.
If you would like to learn more about our disciplined investment and planning approach that manages risk and delivers returns, while being conscious of forward-looking tax-strategies and retirement income opportunities, contact us today for a free no obligation consultation.
Cheers -Keith Springer