Sunday Morning Coffee

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 after that. And so again in most 12 month rolling periods the result may not be that important. Down 20% in an up 25% world would be very bad because aside from the drop, up 25% years don’t come along very often. Dropping 80% regardless of the circumstance would of course be a deathblow but up 2% in an up 10% world would not send anyone back to the drawing board.

In that context this circles back to having the right expectation for results over the time frame relevant to you. As a matter of philosophy this leads us to look at the entire stock market cycle and hoping to mostly go along for the ride on the way up while trying to avoid the full brunt of any large declines.

The other item from Barron’s was an article about Fraport (FPRUF) which is the Frankfurt, Germany airport stock. I started writing about these types of infrastructure investments many years (including toll roads). These should be good long term high yielding cash flow stories (and I think they are) but the shares prices can trade like deep cyclicals which is to say they can go down a lot during bear markets. 

Before the Red Sox game on Tuesday there was a ceremony commemorating the 2004 team and they drove around on the Duck Boats and Joellyn got that first picture as they went by. The second picture is a wall of antique sewing machines from a store in SoHo. The final picture is from the NY Fire Museum. 

DIGITAL JUICE