I have talked about investing and academics in this blog a couple of times already. But I wanted to talk more about it in this week’s post anyway. Ivy League schools are generally perceived as being the best academic universities in America.
In order to be the best, they have to attract the best and this is done by offering generous scholarships, not letting tuition increase too much and maintaining funding research and infrastructure. All this is made possible by those large endowments that Ivy League schools sit on. The endowment can be thought of as savings.
But the thing that most individual investors can learn from Harvard and other Ivy League schools is how they have managed to get high returns on their endowment. The Big Three managed to get over a 20 percent return over the last year. This is not always the case, but a lot of the Ivy League schools have obtained impressive returns.
The strategy is to diversify and get the endowment exposed to foreign markets with a lot of investment in emerging markets. There are venture capital and hedge fund investments. An example of an investment in an emerging market is to put money in rubber plantations in Indonesia.
There are certain investment policies that endowments are governed by. For instance, there could be a instruction that only between 10 percent to 14 percent should be allocated to bonds. When bond prices increase, these endowments will look to sell so that their holdings don’t exceed 14 percent. This is also known as selling high. When bond prices fall, these endowments will start buying to keep their holdings above 10 percent in the portfolio.
This is totally contrary to what the majority of retail investors do. But it is fair to say that retail investors will not have the same advantages as a $20 billion endowment. In other news on the Harvard Report, a woman was allegedly raped in the early morning hours in Harvard Yard. The woman was not a student and not affiliated with the university.