Time To Sell?
The Dynamic Wealth Report
November 24, 2008
Harvard's Losing Billions And Billions!
Does it feel like your entire investment portfolio’s been cut in half? I
know a number of people who refuse to open their account statements.
They just don’t want to see the wreckage. They don’t want to see
how badly their portfolio’s been damaged.
The running joke is that their 401K has become a 201K.
They didn’t hedge their portfolio properly. You might feel the same way.
If you do, take heart. Many big institutional investors have the same
problem… but more on that in a moment.
Just last week I found myself in the Gold room at the Arizona Biltmore
Resort and Spa. The entire room was decked out in classic fashion. The
open bar was up on the right, and the center of the room hosted a huge
table of appetizers. At the head of the room was seating for 50 and a
big projection screen.
I knew from the second we stepped in the room… this was going to be a
big pitch.
Black and white clad service people circled like a swarm of bees. They
were passing bite size lamb chops, mushroom stuffed puff pastry, and
crab cakes. The wine flowed freely.
It was truly a top notch function.
What was going on? It was a well orchestrated alumni function. Actually
it was less of an alumni function and more of a fundraising event.
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My alma mater recently kicked off their largest fundraising event ever.
The goal… to raise more than $600 million. They want to add to the
endowment, create new student scholarships, increase the size of the
faculty, and of course add new buildings and dormitories.
The big donors had already pulled out their wallets.
One stepped up with $200 million. A few others kicked in a few million
more. As it now stands, they’re two-thirds of the way to the goal. The
presentation was very polished. The president had a very refined manner.
Then I heard something I couldn’t believe.
The school’s endowment had outperformed 95% of their peers over the last
five years. The diversification strategy the school uses served them
well. But these times are tough. In the most recent quarter they
suffered a 14% loss in the portfolio.
14% in a single quarter.
That’s a painful loss, but I soon realized, some schools are much worse
off.
Like Harvard.
Harvard manages almost $45 billion in their endowment. Like any other
big money manager, they’ve diversified their investment across a number
of different strategies. However, the endowment team does manage a small
portion of the money themselves.
Small might not be the right word. They manage about $2.9 billion.
So you’d think they’ve done amazingly well… right? They have access to
some of the smartest people in the world. Their school counts as alumni
the biggest money managers on earth.
Guess what? Harvard didn’t sidestep this massive credit crisis any
better than most investors.
Believe it or not, Harvard’s estimating a loss of 30% this year!
Why’s their performance so bad? Just take a look at what their investing
in. Keep in mind, these details come from government filings. Filings
that only cover a portion of the total endowment. That means they may
actually be a little better (or worse) off than reported.
Their biggest holding is the iShares MSCI Emerging Markets Index
(EEM). Other
top 10 investments include the iShares MSCI Brazil Index
(EWZ), the iPATHMSCI India Index (INP), and the iShares FTSE/Xinhua China Index
(FXI). All of these
are down 40% or more this year.
Harvard’s losing billions and billions in the market.
So what’s this got to do with you and your money?
Simply this… if your 401K has become a 201K don’t feel bad. The smartest
guys in the nation are losing big money themselves.
However… and this is what separates a professional investor from the
rest… they’re sticking to their investment strategy. It may seem crazy
now, but in the end it will pay off. Remember, they have a long term
view of the markets. Harvard’s been investing their endowment for more
than 250 years!
So, I encourage you to stick to your long term investment strategy. It
may seem crazy now, but in the long run you’ll be happy you did.
• Railroad Industry (Down 15%)
Over the past few years, the railroads have been a top performer. This
year however is a little different. Investors are expecting the
railroads to suffer as the recession impacts their profit margin.
Norfolk Southern (NSC) and Burlington Northern (BNI) are leading the
entire industry group lower.
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