Thursday, July 15, 2021

A Tale Of Two Investment Strategies

In the wake of the financial crisis of 2008-09, I accepted Stanford’s Faculty Retirement Incentive Program.  I officially retired on March 15, 2010.  My retirement account is 95% in an S&P index fund.  After taking 11 Minimum Distribution Requirement payments, the balance in my account still increased 240%, or 3.4 times.

In comparison, Stanford’s endowment, after accounting for its slightly 1% higher payouts, increased only 80%. This overstates Stanford’s return because annual gifts contributed additional amounts to the endowment over the past decade. Adjusting for those gifts puts the gain around 65-70%.  So, I’ve done 4 times better than Stanford.

In 2010, Stanford compared its performance against the S&P, which Stanford outperformed.  in 2020, Stanford compared its performance against other universities.

Was I smarter or just lucky?  First, I believe in the American economy. Second, things change.  Stanford’s asset allocation model puts 6% in domestic equities.  Stanford missed the boom in FAANG and similar tech stocks.  Why?  There were no new multibillionaire start up hot shots among the Stanford Management Company’s selection of investment partners or on the supervisory Stanford Trustees Finance Committee.

As if that weren’t bad enough, Stanford advises its retirees to increasingly shift from equities to fixed income bonds as they age. Those who did lost millions.

Will Stanford change its investment strategy in this decade?  Who can tell?  Old people do not have new ideas.  New ideas require new people.