Recently the writer read the book Outperform – Inside the Investment Strategy of Billion Dollar Endowments by John Baschab and Jon Piot, John Wiley & Sons Inc, 2010. The book examines what lessons can be learnt from the people who manage the funds at the larger educational institutions. If you are a college football fan, you would have heard or maybe even went to one of the larger schools profiled. The investment track record for the past number of years has been very good for endowments, why and what can individual investors learn?

Two themes which come into play are time and what is the money needed for? Time is a factor because the expectation is the institution will last for a very long time. This means the horizon for some of its investments to pay off will be longer. Balancing the time horizon is what is the money needed for? In the case of school endowments, some the money is used for the payment of operating costs of the university and scholarships. In this case, a specific amount is needed for each university as a minimum. Once it is met, then the endowment has options for investments.

Likely your portfolio is not the same size as the school’s but answering the above key questions is the first step. The reality is many of us individuals, want more sooner and we like rising markets. The method to counteract the reality is when and for what purpose?    Tomorrow will be part two.