Sunday Morning Coffee

And we’re back! Barron’s had a couple of interesting items this weekend. First was an article that included a recap of how some the Harvard, Yale and Stanford endowments have done and the results for the year were pretty middling when compared to a simple 60/40 mix of plain vanilla stocks and bonds. The reason to mention this is not to make an argument for so called endowment style investing (they heavy weighting they all seem to have in private equity makes it impractical for most market participants) but to point out the shortsighted nature of the critique. First, there is no investment strategy or method that can beat the market over every rolling 12 month period. Another factor here is the time horizon of the fund and the way in which it may be similar to that of an individual investor. A college endowment essentially has an infinite time horizon and although there are several reasons why they report results the way they do, a given one year result very rarely matters. Down 20% in an up 25% world would probably be an exception as would down 80% in a down 50% world but I would submit that up 2% in an up 10% world would not adversely affect the school’s ability to function even if it did cost someone their job. Individuals clearly do not have infinite time horizons but someone who is 50 or 60 really does need to think about the long term. For these folks the portfolio needs to grow for quite a while longer and then produce a sustainable income for quite a while...

Sunday Morning Coffee

And we’re back! Barron’s had a couple of interesting items this weekend. First was an article that included a recap of how some the Harvard, Yale and Stanford endowments have done and the results for the year were pretty middling when compared to a simple 60/40 mix of plain vanilla stocks and bonds. The reason to mention this is not to make an argument for so called endowment style investing (they heavy weighting they all seem to have in private equity makes it impractical for most market participants) but to point out the shortsighted nature of the critique. First, there is no investment strategy or method that can beat the market over every rolling 12 month period. Another factor here is the time horizon of the fund and the way in which it may be similar to that of an individual investor. A college endowment essentially has an infinite time horizon and although there are several reasons why they report results the way they do, a given one year result very rarely matters. Down 20% in an up 25% world would probably be an exception as would down 80% in a down 50% world but I would submit that up 2% in an up 10% world would not adversely affect the school’s ability to function even if it did cost someone their job. Individuals clearly do not have infinite time horizons but someone who is 50 or 60 really does need to think about the long term. For these folks the portfolio needs to grow for quite a while longer and then produce a sustainable income for quite a while...

The Big Picture for the week of September 30, 2012

We are headed back to Arizona early on Saturday. A few pictures from our Friday in New York. The first picture is from the Knight Capital trading room which is actually in Jersey City, NJ. The second picture is a parking lot on Spring Street next to the New York Fire Museum. Interestingly both the Boston and NY fire museums can’t hold a candle to the one in Phoenx–go figure. Friday was Random Roger day at the MLB Fan Cave! We stumbled across it by accident and although it was closed while we were there, the guy working inside held the door open for me and let me take a picture. We stumbled across this view by accident as we were walking...

The Big Picture for the week of September 30, 2012

We are headed back to Arizona early on Saturday. A few pictures from our Friday in New York. The first picture is from the Knight Capital trading room which is actually in Jersey City, NJ. The second picture is a parking lot on Spring Street next to the New York Fire Museum. Interestingly both the Boston and NY fire museums can’t hold a candle to the one in Phoenx–go figure. Friday was Random Roger day at the MLB Fan Cave! We stumbled across it by accident and although it was closed while we were there, the guy working inside held the door open for me and let me take a picture. We stumbled across this view by accident as we were walking...

Someone Needs to Pay!

In the last few days it seems like there has been a little more coverage in various media circles about why no one has gone to jail as a result of the bank crisis. A lot of people probably want a pound of flesh for what was a horrible time in financial history, maybe it is more correct to phrase that in the present tense. The push back is that there have been no convictions because there is no evidence of actual illegal activity. Obviously unethical is not the same thing as illegal. The solution is complicated and I certainly don’t have all the answers but it seems to me that a basic building block of running an investment bank is knowing the law and spending a lot of money to figure out every legal thing that can possibly be done without breaking the law. If you can accept that banks want to do everything they can without getting in legal trouble then it increases the likelihood that nothing illegal was done–or very little that was illegal was done. Again, unethical and unscrupulous are not the same as illegal. If the law that existed was broken then great nail them to the wall but it does worry me that a lot of time, man hours, money and any other resources you can think of could be spent and yield no results. Conceivably any resources expended trying to find evidence of illegal activity could be spent on how to fix things going forward. One thing that is true is that no matter how many people could go to jail, it...