How have the endowments at institutions like Harvard and Yale managed to beat the S&P 500 by more than four points a year for decades? And, more importantly, are there lessons in the outperformance of the endowments at Harvard and Yale that the average retail investor can benefit from?
These are the questions asked and answered in one of the more interesting investing books on investing that I’ve read in a while. In The Ivy Portfolio, Mebane Faber, portfolio manager at Cambria Investment Management, reveals how endowments rely on strategic asset allocation, diversification and market timing to build the kind of wealth that is designed to last not just for a single lifetime, but for the lifetimes to come.
Though the use of exchange-traded funds (ETFs) and similar products, retail investors can achieve comparable investing results to some of the best-performing endowments in the country – and with less risk. For investors who have been looking for a simple guide to achieve solid returns and keep risk at a minimum, The Ivy Portfolio is well worth your time.
In this first part of our conversation with Mebane Faber, we cover the first two components of strategies behind The Ivy Portfolio: asset allocation and diversification. In the second part, to be published next week, we look at the third and final part of the picture, market timing, especially in the context of the volatility of 2007, 2008 and 2009.
Mebane Faber is also founder of AlphaClone, an investment research service that helps retail investors apply the strategies of some of the top hedge fund and money managers in the world. Readers can visit his website at MebaneFaber.com.
Part 2 of this interview is available here.
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