Everyone wants to make money. The question is how.
Once upon a time, a college endowment was managed by a famous investor. The investor did well; sometimes very well. But a time came when that investor underperformed. He didn’t lose a lot of money, but he didn’t do as well as his peers. During the late ‘90s, while the world was going all techie, he was busily investing in infrastructure and finance. After a very bad year, they hired someone else.
Eventually, his approach was vindicated. Tech stocks pulled back and value stocks recovered. Fortunately for the college the new manager didn’t load up with tech stocks at the top. But the value-manager was gone. Did he do anything wrong?
The short answer is no. He had an investment style that worked, stuck to his guns, and was ultimately vindicated. But there was a problem: a school is a public institution. Alumni and other donors watch how its endowment does and compare it to their own investments. If the school doesn’t do as well as them it’s easy for a large donor to tell the President: “Look, I love your school, but why should I give now, when my money is growing faster than yours? I can always donate later.” Ouch!
The investor erred because he didn’t understand all the pressures a big school faces. In order to be able deliver long-term performance, an investor needs to provide short-run satisfaction. This includes all constituencies. For a school it means donors, alumni, administrators, and trustees. For a family this might mean a husband, a wife, and several generations. Expectations matter.
Investment isn’t just about making money; it’s about satisfying financial needs, both now and in the future.
Douglas R. Tengdin, CFA
Chief Investment Officer
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