The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets Paperback – Apr 5 2011
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"The most useful recent book could be The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets, by money managers Mebane Faber and Eric Richardson, who work at Cambria Investment Management. They analyze how the endowments of Harvard and Yale posted such world-beating performance. Then they offer a simplified model that regular people can adopt." (BusinessWeek, April 9, 2009)
"Markets left investors almost no place to hide last year, with nearly every asset class heading south. Money manager Mebane Faber of Cambria Investment Management outperformed by a mile, however.... Faber is co-author of the The Ivy Portfolio, which details his approach. Following the investment tenets of the Harvard and Yale endowments (which until last year both had sterling performance) but without using their riskier alternative assets, he demonstrates how to outperform with lower volatility." (Barron's, April 27, 2009)
"Does The Ivy Portfolio deserve a spot on Dad's bookshelf? With its graphics, tables and step-by-step guidance, the book is often more straightforward than a college financial aid form." (Wall Street Journal, June 16, 2009)
"We all know that the most impressive investment returns are from endowment funds and in particular, Yale and Harvard. Faber and Richardson take us inside these two funds and show us how to replicate that model for our portfolios. The Ivy Portfolio is an easy-to-read and -understand book that will make the process of asset allocation and investment easier for readers. And in light of the recent market turmoil, its lessons are even more important."
—John Mauldin, author of the bestselling Bull's Eye Investing and the weekly newsletter Thoughts from the Frontline
"Meb Faber makes a most compelling case for quantitative active asset allocation. Investors of all levels of sophistication will benefit handsomely from the insights and analyses presented in The Ivy Portfolio."
—Rob Arnott, Chairman, and Jason Hsu, Chief Investment Officer, Research Affiliates; coauthors of The Fundamental Index: A Better Way to Invest
From the Inside Flap
Over the past twenty years, the Yale University and Harvard University endowments have achieved unprecedented investment success. Since 1985, the Yale University endowment returned 16.62% per year, easily surpassing the S&P 500 Index's 11.98% return. The Harvard University endowment returned over 15% a year—and both endowments achieved these results with significantly less volatility than the S&P 500.
Despite the general success of the top endowments, 2008 proved difficult for many buy-and-hold investors as well as the endowments. Many asset classes finished the year with declines of 30% or more.
The Ivy Portfolio shows how individual investors can mimic the stellar long-term investment track records of these top endowments while avoiding bear markets like 2008.
The Ivy Portfolio begins by examining the theory, process, and discipline behind the success of the Yale University and Harvard University endowments. It demystifies the techniques that the ivory-tower academic practitioners use to manage their portfolios and shows step by step how an individual investor can hope to duplicate their returns using an innovative ETF-based investment strategy.
The Ivy Portfolio then demonstrates a simple tactical asset approach to dampen the impact of bear markets on long-term investment results. The model would have protected an investor from the carnage of 2008, all while eliminating the uncertainty and emotions of investing.
The Ivy Portfolio also showcases a method to piggyback the stock-picking abilities of top hedge funds, allowing investors to achieve greater success by following the valuation insights of the smart money.
The Ivy Portfolio will show investors exactly how all this can be accomplished—and allow them to achieve an unparalleled level of investment success in the process.See all Product Description
Top Customer Reviews
Most Helpful Customer Reviews on Amazon.com (beta)
The Ivy Portfolio has none of those problems. "Not bad" isn't the same as good, but this book is good. It is full of ideas and useful information; the disclosure is extensive, allowing reproducible results; it is well written; it is data driven; it is right based on the historical evidence, and I think the recommendations will prove to be robust.
Under the theme of learning best practices from the most successful investors, Ivy has not one but three big ideas: do what the "super endowments" do (diversify into additional asset classes); employ systematic timing to reduce risk; follow the best investment managers. A non-professional (but responsible) investor will understand how to do these things after reading Ivy, and I believe will do much better than buy-and-hold management (or in practice, "winging it"). It won't take much time or special resources to manage an Ivy Portfolio. The companion website, [...] should be a good adjunct.
Any concerns? I suggest that more discussion about pitfalls in choosing ETFs to implement the less familiar asset classes would be good. More importantly, the underlying idea is patterned after endowments and hedge funds. The typical individual investor has a time horizon and risk profile driven by the life cycle: accumulation, transition, decumulation (systematic withdrawal to provide retirement income). Individuals benefit from investment volatility early in their savings career, yet volatility is treacherous for retirees, particularly in the early years of retirement. Endowments don't die. Addressing possible mismatches between management based on institutional models and the individual's situation would be helpful. Academics and quants might look for discussion of the statistical significance of the findings here, but I am satisfied with the case the authors make for the economic significance of their ideas.
Bottom line: a curious or thoughtful investor will find this book well worthwhile.
The first section, which is really the discussion of University Endowment success, feels dated. We've been hearing about Harvard, Stanford and Yale suffering losses, budget cuts, and Harvard even went through a cash crunch. I feel the section doesn't sufficiently address liquidity problems and the risks of lost capital.
The second section is fantastic. It puts forward a portfolio that is mechanically trivial to replicate for an individual investor. His website has a detailed FAQ section, and he is even responsive via e-mail. The thing that struck me is that this section puts forward a model that's excellent at protecting against downside risk (which is often what makes investors leave markets at bottoms). The model is also extremely liquid, with very easy entry and exit. Its interesting that this should be called the "Ivy Portfolio" given significant drawdowns and liquidity problems within the actual "Ivys".
Don't be misled by the title. There have been a number of books written in the past few years on the subject of successful endowment fund managers and the use of alternative asset classes (most not available to the small investor). While there is a very good discussion of the Harvard and Yale Endowment Funds, the heart of this book is a well laid out step by step explanation of several methods for improving returns and managing risk that are easy to follow and implement with a discount brokerage account. While some of the information is available on the "World Beta" web site, the book is a much easier and complete way to set about using the models and strategies.
Among other useful features I appreciate in a "how to" book that this book contains is a bullet point summary at the end of each chapter.
Here are lists of minor complaints:
* It assumes that investors have a good knowledge about various ETF's, which may not be the case. It does not shows the holdings in VEU (FTSE All Word ex US ETF), which contain Nestle, BP PLC, Total SA, HSBC and Novartis etc. It does not show the composition of DBC (PowerShares DB Commodity Track) which contains 34% WTI crude oil, 17% gold, 17% heating oil, 14% wheat, 13% corn and 11% aluminium.
* Some of the recommended ETF's are very thinly traded. There are better alternative vehicles. For example, it recommends EWX (SPDR S&P Emerging Markets Small Cap) for emerging market small cap. EWX is trading about 7,000 shares a day and only has $7 million of assets. A better alternative is DGS (WisdomTree Emerging Markets Small Cap Div) which is trading around 22,000 shares a day and has $52 million in assets.
* 10 month moving average is not easy for average investor to obtain. A readily available alternative is 200 day moving average. 200 trading days equate to 9 months and 1 week. The information is available on Yahoo Finance Chart.
Nevertheless the concepts in this book make a lot of sense.
Based on articles on this topic that came out before this book was published as well as a careful perusal of several years of Harvard Corporation annual reports, I became an acolyte of what is commonly called (unfortunately in my opinion) the Ivy League investment method. The core of this method is a broader definition of asset classes that expands beyond basic stocks and bonds to include other asset categories such as timberlands, commodities, etc. And - very importantly - it invests a more equal weighting among the categories instead of being so heavily concentrated in common stocks as most conventional sources recommend. Personally I've developed seven categories/subcategories and am moving toward a relatively equal division of funds among them.
Where the Wizards of Smart at Harvard, Yale, etc., went afoul, in my view, is they 1) used their Ivy League connections and to get into illiquid investment vehicles - private equity, hedge funds and direct ownership of timberlands - that they couldn't unwind last year without locking in large losses, 2) leveraged some of their investments to enhance returns (what could possibly go wrong with that?) and 3) kept a relatively tiny portion of their assets in dull old bonds (too common for the Ivy League wizards I guess) despite their institutions' need for large annual draws. The result when the big bad bear came wandering through Harvard Square? Not pretty. And by the way, Yale's and Harvard's stellar track records in prior years are somewhat questionable since their returns in those privately held (i.e., not publicly traded) assets are self reported.
But none of this negates the need for investors to become more creative in asset allocation strategies as The Ivy Method recommends. My results the past year from applying concepts this book suggests while using easily bought and sold mutual funds, ETFs, etc. similar to the ones The Ivy Portfolio recommends have been quite favorable.
The Ivy Portfolio is a good starting point for serious self-managing long term investors to learn to think beyond the conventional 60/40 stock/bond buy-and-hold investment method that was crushed the past 18 months.
I agree with another 4-star reviewer's criticism that some of the investment vehicles (e.g. specific ETFs) recommended by the authors are questionable. Therefore read this book for concepts and strategy but do your own - careful - research using more comprehensive fund and ETF data from a resource like Morningstar to decide which specific assets to purchase.