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Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter; a forum for us to use our meager abilities to make the world of specinvestments a better place. |
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Yale 54/50 Fund Update
A few months ago, I wrote a report on the 54/50 fund, established by Yale’s Class of 1954 alumni. The fund was capitalized in 1981-84 with a total of $380,000 and was liquidated in 2000 with $65 million, an annualized compounded return of just over 33%.
It is ironic that the public is constantly bombarded with dark stories about the imminent disasters of holding stocks. One need only look to the latest statements by Buffett and others, as well as recent emphasis on CEO mismanagement, balance sheet discrepancies, distortions of real earnings, stock options accounting, weakness of the dollar, export of jobs and the decline in U.S. manufacturing.
It is easy to spin hundreds of stories about the demise of U.S. business and the threats to returns on capital. Certain components of the market establishment are guaranteed to market such tales of woe. In this way, it is assured that the public will always be leaning in the wrong direction, and as Vic likes to say, will contribute more then their fair share to the market mistress.
I would submit there is a very clear way to tell the tale of the success of our economic system and way of doing business. It is embodied in the story of the 54/50 fund. It is instructive to occasionally review the performance of the Yale Endowment, especially as managed by David Swensen. What is truly amazing is not so much that Joe McNay’s 54/50 strategies produced a 33% annual return over a 20 year period, but that comparable investments in commonly available portfolios would have grown $300,000 to over $10 million in the same time period. For example, anyone investing the 54/50 fund in a Nasdaq index fund would have ended the millennium with over $11 million.
Recently, there have been many attacks on the U.S. economic system and way of life. The naysayers have come from the bushes in droves to cry out that it is not working and the breakdown is nigh. The 54/50 fund story highlights the fact that the U.S. system, which rewards hard work, talent, free thought and calculated risk-taking, is the greatest in the world, and should continue to produce healthy returns on capital.
Ari Siegel
September 10, 2004