Monday, October 19, 2009


Hey, do you remember a few years ago that there was a “new” asset allocation strategy being used by the big endowments? We are talking about Harvard and the Ivy League schools as well as other big name schools and foundations.

The “old” and outdated strategy was Modern Portfolio Theory (MPT) and up to then had been sort of universally accepted as the way to diversify your portfolio and achieve some semblance of risk moderation.

During the market run up between 2002 and 2007, the endowments thought they could both increase their returns and further moderate their downside exposure. Wow! This sounds like the Holy Grail to me. Increase returns and lower risk? Sign me up!

They thought the way to do this was to increase their investments in “alternative” investments and reduce exposure to traditional stocks and bonds. Things like hedge funds, venture capital funds and absolute return funds. Of course, these investments were doing well in the middle 2000’s like everything else.

So, the strategy was working! But, first of all, who can tell me what a hedge fund is and how it really works? You say, they hedge their bets and make money when the market goes up and when it goes down. Now, what about an “absolute return fund”? Well, it strives to make money all the time, even when the market has negative returns. Don’t we all try to do that?

All of this is not to mention that these products have abnormally high expense ratios. We are talking 2 to 5 % instead of your more normal .5% to 1% that us peons usually pay for our mutual funds. Which, by the way, try to make money all the time as well!

So, what has happened? The endowments are now disappointed with their returns in the last two years. The average endowment lost 19% between June 2008 and June 2009. The endowments such as Harvard, Yale and Princeton have lost around 25% in this period. They are now trying to unwind these "alternative" investments.

Whoa! You mean to tell me that the new strategies didn’t work? True! A simple 60/40 mix of the S&P 500 index and the Barcap Aggregate Bond Index would have “only” lost about 14%.

So, the endowments paid big money for worse than index performance!

All of this goes to show that simple is better; index performance over time is better than managed; the basics of MPT are still valid; and finally, that exotic high priced products only benefit the providers of the products and not the buyer of same!

Thursday, October 15, 2009


Okay, was this really a joke? Barack Obama is the recipient of the Nobel Peace Prize? Yes, he really is. It is not a joke.

How can this be? He has been in office since February. What peace accomplishments has he done? What if he had done something in those 8 months? About the only thing that he could have done to deserve the Nobel Peace Prize would be to make peace between the Arabs and the Israelis.

And for sure he is trying but it has not happened.

And really, aren’t these prizes supposed to be for a lifetime of accomplishments? How can this be?

Mother Theresa, Anwar Sadat. Now they were really great examples of Peace Prize recipients. But their accomplishments happened over a number of years; not 8 months!

Now we know that he didn’t ask for this. He was nominated by someone and somehow they decided to give it to him based on the potential of him achieving something. If he had any guts, he would give it back or refuse to accept it. The awards have just been cheapened.

Maybe at some point he will deserve it; but not yet.

What is going to happen next?


Barack Obama is at it again. He just can’t keep his socialistic tendencies from taking over and making these grandiose pronouncements.

Just in case you have been in outer space, he is proposing to give
$250 to each of about 57 some million Social Security recipients. You can do the math but just in case your calculator is broken that is around 14.25 billion dollars! Not that we have the extra dollars running around somewhere.

The reason for this proposed generosity is that the cost of living formula for Social Security calls for no increase this year. The formula is based on inflation in the economy and there has not been any this year.

Thus, our President thinks he should do something about it. This is akin to someone running for President of their eighth grade class and saying that "if elected, I will eliminate homework!". Now we know that can't happen nor should it happen. There are rules for homework and rules for the cost of living increases in SS.

Are we all forgetting that last year the annual cost of living increase in the SS system was over 5%! How many of you out there got a 5% raise last year? Did all the people crying about no raise this year volunteer to give back some of their excessive 5% raise last year? Not on your life!

Let’s leave the system alone for now. Follow the rules on the annual Cost of Living formula.

Not that it doesn’t need to be fixed! It does but it doesn’t need to have the benefits increased; the system is going broke. We need to find a way to reduce the payouts not increase them!


Well, we have some more news that needs some common sense applied to it.

Did you see the big announcement by the National Association of Stock Car Racing about its new Hall of Fame? If you are any kind of race fan, you couldn’t miss it.
It was plastered all over the racing press!

The inaugural members are: Bill (Big Bill) France Sr., Bill France Jr., Richard Petty, Dale Earnhardt, and Junior Johnson.

Four of these five members have solid credentials that qualify them for such a Hall of Fame. Can you guess which of the five does not?

Here is a clue. He never drove a race car and didn’t start Nascar. That leaves only the son of the founder. Bill France Jr. (little Bill?)

What are his qualifications over and above such racing stars as David Pearson, Cale Yarborough, etc?

None that is apparent. Well, maybe he gets good marks for running the organization after his daddy set him up as the President. Ok, he is a good administrator and promoter.

But, for the first class of Hall of Fame members, does he make the cut? Maybe the second or third class. But the inaugural class?

Not in my book!

Just my opinion for what it is worth.