Customer Reviews

The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets

5 star:		(61)
4 star:		(13)
3 star:		(4)
2 star:		(2)
1 star:		(1)

 

 

Most investment books are disappointments because of one or more of these characteristics: inflated (would have been a good magazine or journal article, but doesn't deserve a book); obscure because information is withheld (in order to sell a newsletter, software, or service); obscure because it is poorly written; subjective (not data driven); or just plain wrong.

The Ivy Portfolio has none of those problems. "Not bad" isn't the same as good, but this book is good. It is full of ideas and useful information; the disclosure is extensive, allowing reproducible results; it is well written; it is data driven; it is right based on the historical evidence, and I think the recommendations will prove to be robust.

Under the theme of learning best practices from the most successful investors, Ivy has not one but three big ideas: do what the "super endowments" do (diversify into additional asset classes); employ systematic timing to reduce risk; follow the best investment managers. A non-professional (but responsible) investor will understand how to do these things after reading Ivy, and I believe will do much better than buy-and-hold management (or in practice, "winging it"). It won't take much time or special resources to manage an Ivy Portfolio. The companion website, www.theivyportfolio.com should be a good adjunct.

Any concerns? I suggest that more discussion about pitfalls in choosing ETFs to implement the less familiar asset classes would be good. More importantly, the underlying idea is patterned after endowments and hedge funds. The typical individual investor has a time horizon and risk profile driven by the life cycle: accumulation, transition, decumulation (systematic withdrawal to provide retirement income). Individuals benefit from investment volatility early in their savings career, yet volatility is treacherous for retirees, particularly in the early years of retirement. Endowments don't die. Addressing possible mismatches between management based on institutional models and the individual's situation would be helpful. Academics and quants might look for discussion of the statistical significance of the findings here, but I am satisfied with the case the authors make for the economic significance of their ideas.

Bottom line: a curious or thoughtful investor will find this book well worthwhile.

An excellent book overall. It encourages investor to look beyond the general stock and bond portfolios and to consider real estate and commodity as assets classes in their portfolios. The recommended approaches are highly actionable. The methods worked well so far into 2009.

Here are lists of minor complaints:
* It assumes that investors have a good knowledge about various ETF's, which may not be the case. It does not shows the holdings in VEU (FTSE All Word ex US ETF), which contain Nestle, BP PLC, Total SA, HSBC and Novartis etc. It does not show the composition of DBC (PowerShares DB Commodity Track) which contains 34% WTI crude oil, 17% gold, 17% heating oil, 14% wheat, 13% corn and 11% aluminium.
* Some of the recommended ETF's are very thinly traded. There are better alternative vehicles. For example, it recommends EWX (SPDR S&P Emerging Markets Small Cap) for emerging market small cap. EWX is trading about 7,000 shares a day and only has $7 million of assets. A better alternative is DGS (WisdomTree Emerging Markets Small Cap Div) which is trading around 22,000 shares a day and has $52 million in assets.
* 10 month moving average is not easy for average investor to obtain. A readily available alternative is 200 day moving average. 200 trading days equate to 9 months and 1 week. The information is available on Yahoo Finance Chart.

I have been utilizing the author's Simple Ivy Portfolio Timing Model since early 2007 in several investment accounts and have been very happy with the results during this bear market.

Don't be misled by the title. There have been a number of books written in the past few years on the subject of successful endowment fund managers and the use of alternative asset classes (most not available to the small investor). While there is a very good discussion of the Harvard and Yale Endowment Funds, the heart of this book is a well laid out step by step explanation of several methods for improving returns and managing risk that are easy to follow and implement with a discount brokerage account. While some of the information is available on the "World Beta" web site, the book is a much easier and complete way to set about using the models and strategies.

Among other useful features I appreciate in a "how to" book that this book contains is a bullet point summary at the end of each chapter.

Mebane Faber has published an eminently readable book with two sections, one dated and weak, one so useful as to make the first irrelevant.

The first section, which is really the discussion of University Endowment success, feels dated. We've been hearing about Harvard, Stanford and Yale suffering losses, budget cuts, and Harvard even went through a cash crunch. I feel the section doesn't sufficiently address liquidity problems and the risks of lost capital.

The second section is fantastic. It puts forward a portfolio that is mechanically trivial to replicate for an individual investor. His website has a detailed FAQ section, and he is even responsive via e-mail. The thing that struck me is that this section puts forward a model that's excellent at protecting against downside risk (which is often what makes investors leave markets at bottoms). The model is also extremely liquid, with very easy entry and exit. Its interesting that this should be called the "Ivy Portfolio" given significant drawdowns and liquidity problems within the actual "Ivys".

The subtitle to The Ivy Portfolio is "How to Invest Like the Top Endowments and Avoid Bear Markets." In my opinion this book delivers on that promise. That is saying a lot.

I have read many investment books that present great strategies that have been exhaustively researched, outlined in detailed, academically vetted, but are totally useless because they are too complicated, too expensive, or impractical for the ordinary investor to follow. This book is not one of those. For example, in the first part of this book the authors detail how top endowments, like Harvard and Yale's endowments invest their billions. I have read about those strategies before, but other authors conclude that those endowments have access to managers or investment opportunities that the ordinary investor doesn't. So don't waste your time, you can't duplicate it. It leaves you hanging -- in awe of their great investment returns, but assured that they are out of reach. Faber and Richardson don't do that. While acknowledging the special circumstances multi-billion dollar endowments enjoy, they do suggest ways that an investor without billions can emulate the strategies the top endowments employ. They even name the specific Exchange Traded Funds that can be used to follow the endowments strategies. That is very convenient, practical and helpful.

The second part of the book deals with a Tactical Asset Allocation strategy. Again I have read about many timing strategies that have a high failure rate, or require you to be glued to your computer's display to make them work. I don't want to be a day trader. The authors outline a timing strategy that only requires once a month observations -- practical for the investor who already has a full time job, or an otherwise busy life. It is a strategy that they have thoroughly backtested to show that it has improved historical portfolio returns. But more importantly, their strategy significantly reduces a portfolio's volatility. It is summed up in the book's chapter on "Winning by Not Losing." For the critics who may claim that the author's strategy was just data mining -- remember that Faber's original white paper was written in 2006 before the 2007-2009 bear market. If you had been following the timing strategy, you would have avoided a significant part of the market decline over the last two years.

I highly recommend this book, not only for what you can learn, but for presenting a roadmap you can actually follow.

Typically investors (buy and hold) allocated a percentage to stocks, bonds, and cash. Faber takes this another level with Harvard's thinking to invest more in physical assets (housing and commodities) to give your portfolio additional diversification.

The book can be summed up as BUY when the Simple Moving Average (SMA) is over the 200 Day SMA. A simple allocation is as follows. You can build the portfolio with ETFs, Mutual Funds, ETNs (more risk), closed end funds, Royalty Trusts, or MLPs.

20% Bonds
20% Domestic Stocks
20% Foreign Stocks
20% Commodities
20% REITs

Faber first wrote about this in his white paper (download it for free, you may not buy the Ivy book) called "A Quantitative Approach to Tactical Asset Allocation". You can find it on the SSRN web site. Now that Faber wrote this book, it was of course a launch pad for a new FEE BASED Web site. That site focuses on how to follow the Hedge Funds checking out 13F filings to get their stock holdings.

You can pay Faber money for this 13F service, or get it for free at the SEC, or even better go to TickerSpy and see these top 13F portfolios all for FREE. This can be timed by using a timing model at MTR Investors Group.

The book will help investors to allocate portfolios to reduce risk, and knowing what percentage to do that is important, but it could have been done in a 5 page pamphlet. You will read the book cover to cover in a couple of hours then try to sell it on Amazon as soon as possible before the price drops. You may want to SHORT the book :-)

I gave the book at 4 Stars because it expands the horizon for asset allocation, but at the same time the returns are as good as the holdings, and market timing. One of the holdings Real estate, or REITS (real estate investment trusts) tanked, and so did Harvard's Portfolio. They returned great when that asset class returned great, but now in 09 they were down 30%. So, again, to me this is another Buy and Hold concept, but still not the "shut your eyes and all will be okay" portfolio.

Unfortunately The Ivy Method was published shortly before Yale, Harvard, et al, announced that their endowment returns for the 12 months ending June 30, 2009 will be down 30-35%, causing drastic financial cutbacks in those hallowed ivy covered halls of knowledge. That's about the same decline as the overall S&P 500 fell in the same period. Hardly bear-proof results.

Nevertheless the concepts in this book make a lot of sense.

Based on articles on this topic that came out before this book was published as well as a careful perusal of several years of Harvard Corporation annual reports, I became an acolyte of what is commonly called (unfortunately in my opinion) the Ivy League investment method. The core of this method is a broader definition of asset classes that expands beyond basic stocks and bonds to include other asset categories such as timberlands, commodities, etc. And - very importantly - it invests a more equal weighting among the categories instead of being so heavily concentrated in common stocks as most conventional sources recommend. Personally I've developed seven categories/subcategories and am moving toward a relatively equal division of funds among them.

Where the Wizards of Smart at Harvard, Yale, etc., went afoul, in my view, is they 1) used their Ivy League connections and to get into illiquid investment vehicles - private equity, hedge funds and direct ownership of timberlands - that they couldn't unwind last year without locking in large losses, 2) leveraged some of their investments to enhance returns (what could possibly go wrong with that?) and 3) kept a relatively tiny portion of their assets in dull old bonds (too common for the Ivy League wizards I guess) despite their institutions' need for large annual draws. The result when the big bad bear came wandering through Harvard Square? Not pretty. And by the way, Yale's and Harvard's stellar track records in prior years are somewhat questionable since their returns in those privately held (i.e., not publicly traded) assets are self reported.

But none of this negates the need for investors to become more creative in asset allocation strategies as The Ivy Method recommends. My results the past year from applying concepts this book suggests while using easily bought and sold mutual funds, ETFs, etc. similar to the ones The Ivy Portfolio recommends have been quite favorable.

The Ivy Portfolio is a good starting point for serious self-managing long term investors to learn to think beyond the conventional 60/40 stock/bond buy-and-hold investment method that was crushed the past 18 months.

I agree with another 4-star reviewer's criticism that some of the investment vehicles (e.g. specific ETFs) recommended by the authors are questionable. Therefore read this book for concepts and strategy but do your own - careful - research using more comprehensive fund and ETF data from a resource like Morningstar to decide which specific assets to purchase.

The Ivy Portfolio is one of the best investing books I have ever read. It is well researched, understandable, and has an easily implementable investing strategy. It is not based on opinion but on 70 years of investment results. The basic theory of momentum investing was made simple. One of my tenets of a good analyst is to be able to accurately describe a complex system (like investment returns) in simple terms. Faber has done this in the Ivy Portfolio.

I implemented his basic 5 ETF portfolio and have had good results over the past 8 months.
His web site allows you to monitor the current BUY\SELL recomendations for each of the ETFs.

I would have paid 1000s of dollars to an investment advisor to get similar advice, and investment portfolio setup, and more money for the monthly BUY\SELL advise. I paid $30 for the book, and shared it with my business partner, who also implemented the strategy. I highly recommend it. I believe it can be implemented for portfolios as small as $30,000, or as large as millions.

Larry Salmen
Ft. Collins,CO USA

As a professional investor I have read countless numbers of investing books, most of which are useful but add only an incremental amount of knowledge. Faber's book is full of great advice that one can put to immediate use. While I haven't read many other asset allocation book to be able to truly compare, I do know that this isn't a "theory" book. Between his describing different levels of tactical allocation to describing which funds are the best to follow and piggy-back off of, there is lots of good advice for investors up to and including professionals. His reading list is something I will find of particular importance with many good articles I haven't read in the past. As a "stock-picker" I felt the book could have used a more detailed description of how he incorporates individual equities into his asset allocation plan and a deeper discussion into using a short portfolio to partially hedge and/or profit from. But these are just issues I have on a personal basis and don't detract from the overall quality and usefulness of the book. A book I will gladly recommend to others.

The most impressive thing about this book is the way the authors bring together knowledge from disparate sources into a framework most people will be able to understand and implement. The conclusions are data driven and the authors are absolutely transparent about the methodology. I would recommend this well researched, well written book for novices and experienced investors alike, as it works on many levels.