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Howard Marks On The Lessons Learned As Chairman Of Penn's Endowment
Much has been said in the past about the world's largest university endowment fund - that of Harvard University, whose most famous overseer is the current Pimco CIO and part-time blogger Mohamed El-Erian. Yet relatively little light has been shed on the endowment fund of that "other" school - the one with the original business school, and whose alums have been largely credit with shaping the modern financial world as it stands: the University of Pennsylvania. Also, the one which for many years has oddly underperformed its peers, yet which during the financial crisis suffered the least of its peer Ivy League peers. Until now. In his latest letter, Oaktree's Howard Marks shares the lessons he learned as the Chairman of the Penn endowment in the period from 2001 to 2010. He also analyzes the various angles from which one should approach in evaluating investment performance and track records, in his traditionally meticulous and informative style - a lesson very much needed in today's market climate of bipolar euphoria.
- The whole letter can be found below, but for those strapped for time, here are his conclusions on what makes for a successful investment strategy:
- I lean strongly toward investing defensively unless asset prices are so low and investors so chastened that less cautious behavior is called for.
- In Penn’s position endowment-wise, an emphasis on defense was appropriate.
- The euphoric market behavior of the late 1990s, and especially 1999, made elevated caution particularly compelling.
- It was certainly the events that unfolded that made my actions seem as right as they do.
- The events marking the crisis came largely as a surprise. Although I was increasingly worried in the period from late 2004 through the first half of 2007, I did not foresee the specific events of the global financial crisis of 2008, or its severity.
- Although Penn’s approach was generally cautious throughout, we increased the defensiveness of the portfolio significantly in 2006-08. Thus it can’t be argued that the portfolio stayed equally cautious all the time and eventually was bailed out by the crisis.
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Those eggheads still think the Earth is round.....pffft. They know nothing of well organized crime.
Or the history of empires and currencies.
that education institutions are actually running untaxed hedge funds?
I-gapore declares PMs tax exempt:
http://af.reuters.com/article/metalsNews/idAFL4E8DH8H420120217
a best friend's mother-in-law makes $73 hourly on the computer. She has been laid off for 6 months but last month her income was $14399 just working on the computer for a few hours. Go to this web site and read more .... LazyCash9.com
Some great points. Some times a great offense is a good defense. My small and humble play is based on the big dudes screwing the pooch and trying to sell the pups.
Sorry, but they're just gonna steal 'em back (to sell yet again).
Sell 'em? They get another generation of pooches to screw.
The current environment is cautiously euphoric viz a viz social network companies. Heck, even yelp is going public and it will never make profits.
What bothers me here is he did not see the problems coming in 2008.
All of us who read Zero Hedge now could see it coming miles away including the severity and we dont have a pot to piss in.
That's because he lives in an ivory tower. It would never occur to the masters of the universe to give the plight of an average American a second thought. We live in a new gilded age.
In an expensive part of the country a house costs over 500k when the average worker makes 45k. How the fuck does that work? I was a graduate student in the bay area from 2004-2009 and you felt it. My rent never failed to go up and my paycheck never did.
The next bubble is student loans. How is a student coming out of school with 150k or 200k in debt at 7% interest ever going to be able to afford to be a 'productive' member of society?
We went through 2008 and doubled down on financial bullshit. Now you can't go to school, raise kids and buy a house with the amount of money an average American makes in a lifetime. Does anyone up there in your ivory tower think that this might be a problem?
The USA is a Republic rapidly moving towards Oligarchy on its road to having an Emperor just like France in the 1830s or Russia today
This is the advantage of the British constitution. The monarch is too enfeebled to take control and become an emperor but if a politician with imperial delusions appears on the scene the establishment (in which the monarch plays a part) can quite effectively stab him in the back. Anyway that is how it has worked up to now.
You could see it in 1994
Fuck Penn. Fuck 'em all. They create the monsters that run rampent over our society and economy. Fuck the boarding schools. Breeding ground for psychopaths and sociopaths. Oh, look! I've got a crest over my breast. Sick fuckers.
Damn, they start early.
The University of Texas endowment fund managers are the only ones in the country worth the money they're being paid. All others are simply sucking at the sow's tits, this 'enlightened' dude included. But that doesn't change a thing - they still enjoy a privileged life and will never have to be concerned how to pay their bills.
"No one saw this coming"
How can all these "geniuses" have missed the crash? Peter Schiff, Shiller, and even my Grampa saw it. Anyone who walked into a RE office or builder and saw trhem handing out free houses---$500k, $700K and up--to people who had no jobs, no assets and no proof of income with Zero Down....
At least his guy is honest. But the moral of the story:
Listen to the news but look out the window (and read solid, credible blogs like ZH) yourself for the facts.
Anyone who walked into a RE office or builder and saw trhem handing out free houses---$500k, $700K and up--to people who had no jobs, no assets and no proof of income with Zero Down....
But what drove this insanity? In addition to the Frank fueled fannie/freddie frenzie, government union retirement funds flush with ridiculously huge socialist wage garnishing accounts flooded WS looking for "free" market returns on these ill gotten gains. While not only exempting their members from the eventual social security system meltdown, they accelerated it's demise and threw the entire US economy off the cliff to boot.
Don't forget the demand side of this thing.
imo.
I don't even live in the US and I saw it from here. When I heard about the kind of loans they were making it didn't make sense. They were ignoring hundreds of years of experience in making loans and basic banking procedure. But I thought the government, the banks and the real estate industry knew something I didn't. It turned out all they knew was how to pull a scam and run off with the money.
What crisis? What..."euphoria"? the only "euphoria" is in gold. Stocks haven't done anything in 20 years. Not that the world isn't a completely changed place in that time nor that fortunes of gargantuan size haven't been made in the process. Look at the 20 something wiz kids from Groupon! Anywho...move along. The best returns for stocks are when there is a profound lack of disruptive technologies running roughshod over us and our freedoms. That would be the late 1800's and the post World War II era up until the media stole our freedoms after 9/11. Since then? "Nothing but bankruptcy for the bulk of the USA."
The successful management of any amount of money, large or small, has very few differences. Dressing up decisions as value or defensive or growth or offensive implies the repeating of past patterns of market behaviour constrained by past regulations, opportunities and people. There is no correct formula for determining an appropriate investment strategy or formula if there is market manipulation by central banks or over spending by taxpayers in our current plague of welfare based democracies.
Although the author is modest and introspective enough to “navel gaze” he subscribes to the laws and logic of past probabilities of the distribution of returns amongst different asset classes; past performance from a nominal or relative perspective is no guarantee of future performance.
A key point discussed is long term risk of underperformance based on past performance. The period referenced encompasses a period that moved from more regulated with lower debt and more discretionary income (deregulation of past bad laws) but that is now moving into re-regulation, lower discretionary income and higher debt (regulation with new bad laws).
It would be more worthwhile to predict the loss of investment performance as a result of an emergence of welfare democracy, debt slavery and re-regulation. In other words, which assets can produce longer term (from three to 10 years) cash flows that can be reinvested without penalty from those factors for that longer term. This excludes the current failed welfare democratic model and its enabling banking system. The new potential assets exclude those from the failed banking model (all forms of debt in the systems capital structure) and government or government related investments. In fact, it would be true to say that investors who continue to use banks and government investment forms are deliberately and willingly contributing to the demise, not just of their own investment portfolios, but the demise of the rest of us by not employing investment funds in a rational, non-criminal way.
It is not a big leap to see how avoidance of these flawed banking and government assets can result in better and more relevant longer term returns; it would be better to see a discussion of how to manage the unflawed assets (let’s assume every other asset) and then discuss how endowments or pension funds or charities could use proxies as benchmarks instead of the usual liquid market benchmarks in financial instruments (S&P500 or long bond or swap rate). These proxy benchmarks could include using benchmarks constructed of investments in balance sheets of health care companies to protect against rising health care costs (watch out for taxes) and agriculture to protect against food shortages/price rises through to utility companies and security companies.
This approach would be a benchmark or model portfolio with longevity, would have high utility/comfort for the investor and would absent the investor highs and lows of either irrational exuberance or fraudulent banking behaviour and central government intervention. Welfare democracies of the developed world are no longer fit for purpose as they do not deliver utility in the form of better solutions and economies of scale for tax payers, simply because there are insufficient taxpayers. We know about banks simply extracting economic rent rather than reducing friction of capital movement within the economy already.
Oh, and NO REPRESENTATION WITHOUT TAXATION!
In Medicine there was Hipocrates Oath, "First, do no harm".
Pity they didn't teach that one at Wharton.
There is simply NO WAY any honest person at any level of business could not see what was coming. America and Taxpayers BETRAYED by ivory tower theoreticians who rationalized all the theory that underlined NAFTA, GATT, WTO, Caribbean Basin Initiative and illegal alien amnesties 1, 2, 3 et al. Home of the criminally minded arbitrageurs, pirate-raiders, leveraged buy-out kings, financiers who gobbled up firms that were current on their pension funding. Corrupted by attorneys and accountants who would lie and draft documents to enable the fraud and dysfunctional business models.
Anyone who paid attention in macro econ 101b saw this coming.
All about evil men preying on trusting countrymen to strip them of their assets and future for their children and prosperity. Fucks like our self-congratulating money-manager old PU were their enablers and beneficiaries.
America has been Betrayed, Defrauded, and Victimized By The Treason of its leaders in all fields of endeavor since the Civil War, all with effort to bring about The Collapse; well, we are finally there...
Fuckhead is just too stupid to see that his house of cards gets blown away with everything else. Just the final culmination of The Plan...
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