The Big Picture for the Week of April 11, 2010

We are on our way home today after a great time in Vancouver. This is a must visit destination.

Yesterday in the FT Gillian Tett had an article about the Government Investment Corp (GIC) of Singapore which is a sovereign wealth fund. The article had a few quotes from GIC officials questioning the Harvard and Yale models for portfolio construction.

Keeping tabs on these makes for fun reading but I believe is also very constructive for learning. My take all along has been that it makes no sense to try to copy what the endowments do but they can influence a portfolio. For example I find it noteworthy when they make changes to how much they have in "real assets." I am not a fan of 25-30% in real assets for any retail type portfolio but when Harvard or Yale, for example, goes from 20% to 30% in real assets (or some other large change) they are clearly expressing an opinion about something. Allowing that to influence you in going from 2% to 4% or some other change that would not involve you betting the house is reasonable.

A few times in the past I've mentioned Jack Meyer's (former HMC CEO) influence on me in keeping Plum Creek Timber (PCL) for quite a few years. Generally it was a good hold most of the time (not 100% of the time of course) and while I did sell it a while back the influence was clear. While I believe in the concept of timberland's low correlation it is very difficult to capture in a stock or ETF I find it useful to keep tabs on this space. Sino Forest (SNOFF) is a popular name from Canada but it seems to go in the same direction as the market but with greater degrees of magnitude.

A different type of example from endowments that can be just as important is what not to do. Harvard and Yale have always allocated large portions to various types of illiquid pools of capital. I've never been a fan of that for several reasons. I know firsthand that people have unexpected things come up that must be paid for. Paying for the unexpected becomes difficult if too much of your assets are tied up in an illiquid investment--even if it is doing well.

Additionally the crisis brought home another point which is that these types of investments don't always do well. There were all sorts of strains placed upon these pools and investors in those pools. It is well known that Harvard was in real trouble for a short while there and could only get absurdly low bids.

In the future it is a very good bet that the endowments will get it right more often than not and they will continue to be a way to learn more about investing but occasionally they will be wrong in a very noteworthy fashion and that will also be a learning opportunity.

The first picture is from the other day driving back from Deep Cove on the Iron Workers Memorial Bridge. The second picture is from Granville Island which some compare to Pike Market Place in Seattle. The food was good and the shopping was not (yippee). The last picture is from the West End.