The Endowment Fund Model

In an effort to keep this email short and to not turn this into a term paper, I'll just highlight basic items to ponder upon.

Following is my analysis of the economy (united states): the four keybasic perspectives to evaluate an economy.

A. Consumers: The CPI has decreased in some areas, but then again ithas increased in other areas. Check out the following link:http://www.bls.gov/news.release/cpi.nr0.htm However, the current increases in agriculture stocks (such as wheat),mortgage defaults, more consumer debt, and higher unemployment rate(close to 5 %) basically means consumers, average folks, have lessmoney to spend. Avoid industries / companies that will be mostsignificantly affected by less consumer money: travel, entertainment,restaurants, and etc. However the rich always have money, so if youwant to buy stock buy stock in high end luxury products.

B. Companies: Companies have access to money: the discount rate (5.25%) is higher than the fed funds rate (4.75 %). The next boom will bein 1. Medical industries or in companies that will help reduce medicaloperating costs 2. Companies that make eco friendly products - most innovation
Buy stock in the above sectors.

C. Political - I believe the democrats will win. Lets not forget theIran issue. When there is an attack on Iran, there will be, think ofthe war effect on oil and gas prices. Oil and gas stocks : good shortterm buy, but not long term buy.

D. Trade /Exchange rate / Dollar value: The dollar is declining andthe US Interest rate is much lower compared with interest rates aroundthe world. Short term : buy stock in companies involved in us exports.
Everything in life follows a sin curve, yes everything...LOL. Theemerging market and tech sectors are over priced, and at the top ofthe curve. The secret to successfully investing is diversification.Lately i have been analysing endowment funds. Long story short,endowment funds returns are a few points higher than that of the s&p500; the standard deviation of returns is much lower for theendowment funds than it is for the s&p 500 index funds.
What is the endowment fund model? Breaking away from the traditionalstrategy of just sticking with domestic and foreign stocks and bonds.Most investors just limit themselves to stocks and bonds.

Bonds don't make sense for our age group, the after inflationadjusted returns will be 2-3 %. Ignore bonds. The endowment fundmodel, following Harvard and Yale endowment funds, is basically investin roughly
17% in hedge funds;31% in hard assets including real estate, timber and energy;13% in private equity;31% in foreign and domestic stocks;13% in fixed income.
The returns are 3-5 % higher than that of the s&p 500 index, and thereturn deviation is in single digits compared with the s&p 500 returndeviation of double digits.

The key is to minimize the down side risk and endowment funds do thatreally well. I'll be breaking away from the traditional model thatmost individual investors follow, and invest in index funds to get themost diversification
Get the following :A. s&p 500 index fund ( large blend), get the best of value and growthcompanies: -B. small blend index fund : msci us small cap -- innovation takesplace at this level (subject to debate)C. total international index fund: msci europe index, msci pacificindex, msci emering markets index

This should give you enough diversification: hard assests, and foreignand domestic stocks.
The "head fake" is to balance this with money in private equity indexfunds and hedge funds index funds. Things have changed, there are nowtwo indexes that allow the average investor to put money in privateequity and hedge funds.
S&P Listed Private Equity Index - made up of 30 private equity firmsaround the global..
http://www2.standardandpoors.com/portal/site/sp/en/us/page.family/indices_ai/2,3,4,0,0,0,0,0,0,0,0,0,0,0,0,0.html
S&P Hedge Fund Index - hedge funds will in most cases except bearsterns hee hee...will always make money; comes down to insider tradingand connections. these big players really control the market....theindividual investor is just a pawn. so might as well invest in a indexof hedge funds.

Long story short, "Think like an endowment fund, and follow theendowment fund model".