Category: Investment

When I spoke with Jack Meyer, the former head of Harvard University’s endowment, at the offices of Goldman Sachs on Fleet Street in London back in 2009, he was thoroughly chastened by the recent 25%+ drop in the value of Harvard’s endowment. A month or two later, Stanford University’s President John Hennessy, reflecting his Silicon Valley roots, was more optimistic about Stanford’s similar collapse, telling me: “Look, Nick, it’s not the end of the world. It just puts us back to where we were in 2006.” Hennessy’s optimism notwithstanding, the crash of 2008 turned much of the global financial world on its head. This included much-vaunted “Yale model” that had made Harvard and Stanford tens of billions of extra dollars over the past two decades.

Despite the challenges of the market meltdown of 2008, the “Yale model” remains one of the most powerful investment strategies around. And thanks to exchange-traded funds (ETFs), today you can duplicate this investment strategy in your own personal investment portfolio. It is also an investment approach I have implemented with impressive success through the “Ivy Plus” Investment Program for my clients at my investment firm Global Guru Capital.

For a period of more than 20 years, the investment strategies of top university endowments seemed blessed by fairy dust. The top three U.S. university endowments — Harvard, Yale and Stanford — consistently had returned more than 15% per year over the last decade. And even after the onset of the credit crunch in the summer of 2007, the Harvard endowment gained 8.6%, Stanford rose 6.2% and Yale climbed 4.5% through June 30, 2008. That compared with a drop of 15% in the S&P 500 over the same time period.

That all changed once the financial crisis hit in full force in 2008, and the top university endowments plummeted by 25%-30%. The joint losses for Harvard, Yale, Stanford and Princeton hit $23 billion in the 12 months ending June 30, 2009.

Maybe those Ivy League types weren’t so smart after all…

Since the dark days of 2008, top university endowments have staged a comeback. Primed by savvy investments in technology, Stanford’s endowment rose 14.4% in the year ended June 30, 2010, outshining returns at Harvard and Yale, which gained 11% and 8.9%, respectively.

Yale’s David Swensen: The “Babe Ruth of Investing”

You can trace the long-term investment success of top university endowments directly back to the efforts of a single man, Yale’s David Swensen.

As the Yale endowment’s chief investment officer for two decades, David Swensen has earned a reputation as the “Babe Ruth” of the endowment investment world

After taking over the Yale endowment in the mid 1980s, Swensen boasted 15.6% average annual returns through 2007 and no down years going back to 1987.

So, how did Swensen’s success single-handedly change the rules of institutional investing?

In 1985, around the time Swensen took over, Yale had more than 80% of its endowment invested in domestic stocks and bonds. But Swensen, an economics PhD, observed that no asset allocation model ever actually recommended that way. As long as their correlation with U.S. stocks and bonds was low, adding unconventional assets to your portfolio would both reduce your risk and increase your return. This led Yale to emphasize private equity and venture capital, real estate, hedge funds that offer long/short or absolute return strategies, raw materials, and even more esoteric investments like storage tanks, timber forests and farmland.

Until the fall of 2008, this approach worked almost like magic…

The “Yale Model”: Still the Best over the Long Run

But the relatively poor performance of the Yale endowment during the crash of 2008 put Swensen on the defensive. Critics pointed out that during the meltdown, a traditional portfolio of 60% stocks and 40% bonds would have lost only 13% of its value, rather than the 25% or more lost by the diversified portfolios of Harvard, Yale and Stanford.

But as Yale’s President Richard Levin pointed out in Newsweek magazine, that argument is astonishingly shortsighted. Over the past 10 years, including the crash, Yale’s endowment managed average annual returns of 11.7% to reach its current value of $16 billion. A 60/40 portfolio over the same period would have earned 2.1%, producing an endowment of only $4.4 billion. Put another way, Swensen’s strategy had earned Yale an extra $11.6 billion over 10 years. That indirectly made Swensen one of the world’s largest philanthropists, on par with Warren Buffett and Bill Gates.

Throughout the crisis, Swensen remained adamant that the model was viable over the long run. He pointed out that the single worst thing that you can do is to avoid risky assets after a market crash. He knew that Yale had suffered from poor decisions on asset allocations in its past — one that had put Harvard-level wealth out of its reach forever.

You see, at the time of the market crash in 1929, the endowments of Harvard and Yale were roughly the same size. But Yale’s trustees got spooked and invested heavily into “safe” bonds for the next five decades, while Harvard tilted more toward stocks. The result? Over the next 50 years, in relative terms, Yale’s endowment shrunk to half the size of Harvard’s.

Since the crash of 2008, Harvard has implemented the lessons of 1929 well. Leaving its critics aghast, Harvard actually has increased its allocation to high-risk positions in alternatives, at the expense of its “safe,” fixed-income allocation.

Yes, You Can Replicate Harvard’s Success…

In 2005, Swensen published a book, “Unconventional Success: A Fundamental Approach to Personal Investment,” which explains how you can apply Yale’s investment approach to your own portfolio. Swensen argues that Yale’s investment strategy is tough for you to duplicate. After all, Yale has 20 to 25 investment professionals (Harvard at one time had as many as 200) who devote their careers to looking for investment opportunities. Yale also has the deck stacked in its favor. Its sterling reputation allows it to invest in the very best private equity and hedge funds — asset classes that are not readily available to retail investors. As Mohamed El-Arien, a former head of the Harvard endowment put it, attempting to duplicate Harvard’s results “would be like telling my son to drop out of school and play basketball with the goal of becoming the next Michael Jordan.”

Of course, highly paid investment managers like El-Arien have every reason in the world to overstate the impact of their “skill.” But this does not dilute Swensen’s basic message: to focus on the “big-picture” asset allocation decisions and move your money out of U.S. stocks and bonds into global and other asset classes. Swensen himself recommends that you model Yale’s asset allocation through a portfolio consisting exclusively of index funds with low fees.

At my firm, Global Guru Capital, I have run an “Ivy Plus” Investment Program that replicates the investment strategy of the top university endowments using Exchange Traded Funds (ETFs) for the past two years. So far, it has behaved exactly as advertised. In the 12 months between June 30, 2009 and June 30, 2010- dates for which Havard has released performance data – the performence of the fully invested “Ivy Plus” investment program has matched the Harvard endowment almost exactly.

Of course, two years isn’t a long time. But the “Ivy Plus” strategy has outperformed some of the top hedge funds in the world during some of the toughest times ever in financial markets, by sticking to a disciplined, highly diversified asset allocation strategy.

My biggest challenge? The “Ivy Plus” investment program is a hard strategy to “sell” to my potential clients. It just seems too unexciting and straightforward to believe…

The bottom line? You may not have access to the Michael Jordans of the investment world. But diversifying out of a standard U.S. stock and bond portfolio into asset classes like commodities, real estate, and global stocks and bonds can go a long way toward generating Harvard-style returns.

Maybe those guys and gals at Harvard, Yale and Stanford aren’t so dumb, after all…

An investment banker works at a staff level with a bank, who looks after raising funds for organization. These bankers normally work with investment banks or large banks, which maintain their in-house investment banking department. Since every small or large organization may not be equipped with its own in-house investment banker, they seek the help of these people to fund their organization. Investment bankers also work to help owners sell their commercial facilities, arrange for acquirers and partners. An investment banker therefore arranges for the potential investors, who provide quotations to buy that property or go into a merger with the seller’s property. However, invest banking is not a very easy job and needs both the urgent care investment banker and the owner to go through multiple processes to execute the task of selling the property or going into a merger. An investment banker therefore plays many roles to get the job done.

Origination

Origination is considered as the first process to selling any unit or for calling merging partners. In this step, the urgent care investment banker carries out three tasks. The first task is that of discovery, the second is of investigation and the third of negotiation. The first process of discovery includes searching for a prospective issue or unit which is ready to be put up for sale or mergers. The second process includes determining the value of the assets, the reputation of the urgent care center and determining the value of the property as a whole. The investment bankers then takes into account all of these facts and figures and drafts a particular value for the center. This step also involves investigating the legal factors associated with the urgent care center, its future prospective and financial history of the organization. All these values are used to determine whether an urgent care center is really worth of putting up in the market for investment. Last but not the least, the third step or the negotiation phase is carried out by the investment banker to negotiate the value of the urgent care center and its assets to meet the preferences of both the seller and the investor.

Underwriting

Underwriting, also known as public cash offering is a task performed by investment bankers, wherein the owner of the urgent care center wishes to sell off his or her issues to the public. In this case, the investment banker negotiates the rates of the issues with the issuer or seller regarding the prices of the materials put on sale. Underwriting is done in two ways, one is by negotiating the deal between the investment banker and the issuer and the other is by competitive bidding. While in the first instance, the price is fixed when both the issuer and the urgent care investment banker agrees upon and in the second case, the issuer puts off his or her issues on bid and sells off to the investment banker who pays the most desirable price. The purchased issues are then sold off to the public by the investment banker at a price higher than the cost price of the articles, which marks the investment banker’s profits.

Distribution

Last but never the least, the investment banker then takes the responsibility of marketing and distributing the purchased issues to reputed organizations, so that the issues can be distributed at a fare price range.

In an uncertain economic climate, keeping your finances in good shape can be a difficult task. If you have long term goals, or simply think it’s a good idea to be prepared for unexpected financial burdens, a savings or investment plan makes a lot of sense.

Saving for the future means you’ll be in a position to help your children through higher education, or insure that you retire comfortably in your old age. Whether you’ve gained experience or are new to navigating the savings and investment market, a solid, long term financial strategy gives you both options and peace of mind.

What do I need to know?

You have a range of options when it comes to choosing an investment or savings product. The approach you select should reflect your needs and long term goals and it’s a good idea to familiarize yourself with the different accounts or ‘wrappers’ financial organisations offer:

ISAs – Individual Savings Accounts offer a high-rate of interest with the added incentive of tax exemption on the money you accumulate. Be aware that there is a limit on the amount you can contribute to an ISA per year. ISAs are available in both ‘cash’ and ‘stocks and shares’ categories.

Investment bonds – a lump sum is invested in a range of funds and assets with the intention of making the highest capital gain. While this option carries increased risk, significant tax incentives are available.

Pension and retirement plans – it’s never too early to start thinking about putting money away for your retirement and tax relief on the many pension products available make this type of saving an attractive option. Keep in mind, money put into a pension scheme will not be accessible until you reach a certain pre-determined age.

Offshore investment – although a legally complex area, moving money into an offshore account may bring significant returns. While your money may grow in an offshore account, you’ll be required to pay tax on any gains should you decide to move the money back home.

What are the risks?

Choosing to save or invest depends a lot on the extent to which you want to risk your money. If you have a clear idea of an amount of money you wish to accumulate over a certain period of time, an ISA or similar savings plan could be the better option. While the amount you stand to gain may not be as much as an investment strategy, your cash will be protected against the dangers of the stock market.

On the other hand, if you feel you have the time and money to risk in an investment, the stock market can deliver the returns you’re looking for. If you don’t have the experience to devise an investment strategy on your own, finding a financial advisor to help you through your decisions is a very good idea. Financial advisors will be able to select an appropriate investment plan for your personal needs and provide information and advice at every stage.

It’s easy. The best investment is the one whose profits you keep. If your profits vanish because you –

Hold until your profit turns into a loss.
Hold until a small loss turns into a big loss, and then a huge loss.
Hold so long your annual return turns small even when you do profit.

Then you’re not making the best investment. So what can you do? You need to know about Exit Strategy and Position Sizing.

Exit Strategy
Never make an investment without knowing when and how you’ll get out. That’s called an Exit Strategy.

You should have an Exit Strategy before you invest in anything.
You should be able to write it down. Nothing fuzzy allowed.
Know what will trigger your sell order.
Good Exit Strategies let you keep your profits and cut your losses. That’s your best investment.
Wall Street Wisdom – “Cut your losses, but let your winners ride.”
A few big wins and many small losses can equal a win overall.

Position Sizing
Never risk more than 3% of your portfolio in any one position. And that’s on the high side.
Why so small? Look at what it takes to recover from a loss:
Lose 50% of your portfolio, and you’ve got to make 100% on what’s left to recover your loss. Is 100% profit easy?
Lose 25% of your portfolio, and you’ve got to make 33.3% on what’s left to recover your loss. Is 33.3% profit easy?
Lose even 10% of your portfolio, and you’ve got to make 11.1% on what’s left to recover your loss.
Small losses leave you with enough capital to keep investing.

Control risk by controlling position size. The less you invest in any one thing, the less you risk. That’s your best investment.

Your Exit Strategy affects your Position Size.
If your Exit Strategy were to sell after a 25% loss, you could put up to $12,000 of a $100,000 portfolio into one investment, because –
$12,000 X 25% = $3,000 = 3% of $100,000
If your Exit Strategy were to sell after a 10% loss, you could put up to $30,000 of a $100,000 portfolio into one investment, because –
$30,000 X 10% = $3,000 = 3% of $100,000
You risk only what your Exit Strategy will let you lose, not your total investment.

Mechanical Investment
Emotion is the investor’s enemy. People hold too long because of greed and fear.
Greed for even bigger gains. Fear of realizing a loss.

The best investment is mechanical.
Follow your Exit Strategy like a machine. Automatically. No matter what your feelings scream.
Place exit orders with your broker in advance.
Acting when the time is right makes your best investment.

Exit Strategies Explored
So what do Exit Strategies look like? Stop Orders are the best known.
Tell your broker to sell if the price falls to some specific point.
Some people use 8% below the purchase price. Others use 10%, 15%, or 25%.
Stop orders don’t always do their job.
The price can fall way below your stop point before your order gets filled.
Market makers sometimes sell to force a stock price down.
They want to trigger other people’s stop orders, so they can buy their stock cheap.

Stop Orders can also be used to sell when the price rises to some specific point.
Decide in advance on a good return –
Two or three times the amount you put at risk.
If you use technical analysis (if not, don’t worry about it),
sell near strong resistance, or
when the stock looks over-bought, or
when the trend changes, etc.

Stop – Limit Orders limit the price you’ll accept after a stop order is triggered.
You might not get out at all, if the price falls below your limit.

Trailing Stop Orders automatically raise the stop price if a stock price rises.
If you bought a stock for $50, and used a 10% trailing stop –
You’d sell if the price fell to $45.
But if the price rose to $60, your stop price would rise to $54. ($60 – 10%)
The stop price never falls after it rises.
Trailing Stop Orders are good ways to hold on to profits, but
Trailing Stop Orders may push you out of stocks sooner than you want.

Put Options work like insurance policies.
Buying a put lets you sell your stock for a safe price of your choice.
The cost of a put reduces your profit, but –
You’re safe, no matter what happens to the stock. That’s your best investment.

We all want high return investments, but what is the best way to achieve substantial long-term capital growth?

Lets look at the best investment, combined with the most powerful force in investing, and how they can create a high return investment that grows rapidly.

The Secret of High Return Investments

Albert Einstein called this: The most powerful force in the universe and investment terms hes right.

Compound interest on an investment with low downside volatility is really the secret of getting high return investments to make huge gains over the long term.

Which is the Best High Return Investment?

When looking at high return investments the best combination is an above average return, linked to low volatility, combined with compound growth.

As an investment, UK land has provided better capital growth over time than most hedge funds, mutual funds, investment trusts, equities, or shares, and with a lower downside risk.

The overall price of farmland has increased by 30% in the last 12 months, and by 130% since the early 1990s, with an average 920% growth in the last 20 years.

The 920% over 20 years is average growth, and many investors have achieved far greater gains by careful plot selection.

Why UK Land is Providing Stunning Returns with Low Risk

UK land provides above average solid growth for the following reasons:

1. Population Growth – The population of the UK in 1981 was 56.2 million. In 2001, the population had increased by about 2.6 million to 58.8 million inhabitants.

2. Immigration – In terms of immigration, there is the granting of entry to the UK, of over 170,000 people per year. This constitutes over 60% of the annual population growth. Therefore, at current rates of growth the UK can expect to see at least an additional 3.4 million inhabitants within the next 20 years.

3. Social Trends – There is a rising divorce rate in the UK. Furthermore, more people are staying single by choice, and getting married later in life.

In the next 17 years, with the rising population and increased lack of affordable housing, the UK will need another 1.5 million homes.

Compounding a Small Sum to a Million!

We can see already that land has had fantastic growth year on year, and looks set to continue. The average gain was 30%, in 2004 alone.

Lets take an example now of compound growth in action:

$50,000 invested with a compound grow of 30% annually would take just 12 years to be worth over $1,250,000!

A steady compound growth soon adds up!

Of course, bear in mind that the above illustration is subject to the fact that investors may use bigger or smaller deposits, and there is no guarantee of 30% annual growth.

To make big gains, the formula for investment success over the long term is:

A High return investment + low downside volatility + the power of compound interest = big capital growth potential

Compound interest makes you money work harder, and as the amount increases, it soon adds up.

For High Return Investments Look no Further than Land!

Land tends to rise steadily in value year on year and with low downside volatility giving steady solid growth

Many hedge funds, unit or investment trusts, can be negative for years on money invested, or even never recover at all!

When considering long-term investments, land with its good growth potential and low downside volatility, makes it the ideal investment to benefit from compound growth