Trying to Invest Like Harvard
I had a discussion recently with somebody who was unhappy with the results of his investing strategy. (Surprise!) We discussed one way he could do it differently and he asked me, “If that is such a good idea, why doesn’t Harvard do it that way?”
I get this question a lot, and I understand why people ask it, given that endowment managers like David Swenson from Yale have tried to explain to individuals what they can learn from their own successes. But I still think it’s the wrong question entirely. Since investing success is often about asking the right questions, here are a few for consideration and discussion:
1) How do we know Harvard doesn’t do it that way? We know quite a bit about how many of the large university endowments invest, but there is still plenty that we don’t know.
2) Why would you want to do what Harvard or Yale’s endowment has done? The question isn’t whether Harvard’s endowment has done well or poorly; the question is what does it matter? Your investing goals as an individual or family will be different from the goals of a large university endowment.
3) There’s a lot we can learn from the successes and failures of the largest university endowments, but can we really get the same kinds of deals as they can? One practical implication of this reality is reflected in the fees we pay for access to alternative investments and hedging strategies, for those of us who use them. They cost us individual investors a lot. And we should never forget that those fees make an enormous difference in our performance.
This is a little bit like Groucho Marx saying that, “I refuse to join any club that would have me as a member.” If high fees are our only option, we may be better buying certificates of deposit. But that is not the case with Harvard.
4) You and your portfolio are not the same thing as a university endowment. Expecting that the same investing strategies will work for you is a little bit like shopping at a big and tall store if you’re only 5 foot 9. It isn’t a good fit.
I understand the temptation to try to replicate the investment process of any large institutional investor, but I think it is much better to focus on finding the investing strategy that works for you and your life, and not what has worked for Harvard.
This sketch originally appeared at the New York Times, October 19th, 2010.