The burden of being Summers

[bemildred]

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But did the penetrating perspicacity of Summers' canny countenance lead to better investment returns? Far from it, Harvard's endowment was down a full 30% peak to trough. Worse than that was a similar haircut in the cash accounts, which, if the university had just kept in conservative money market or short-term bond investments, should have barely depreciated at all. This necessitated Harvard going into the chaotic non-government guaranteed money markets of the past year to borrow the difference, about $2 billion, as well as institute an emergency round of layoffs and cutbacks.

The obvious easy lesson to be learned here is, even after the markets careen from side to side and top to bottom, learning the rules of proper diversification is critical in order to keep even novice investors safe and warm and dry as others are foundering.

This does not mean diversifying by owning the same 10 large mutual funds, all owning the same stocks, that everyone else does. It does not mean owning 10 investment properties all within walking distance of each other. It does not mean owning oil at every stage of its production, from companies that pump it out of the ground to those that sell it at your local gas station.

What it does mean is that structuring an investment portfolio that possesses true diversity, from where the companies are headquartered to what socio-economic slice of the consumer market your companies' products are targeted to, and everything in between, is perhaps the only way to survive one's whole working life in the markets.

http://www.atimes.com/atimes/Global_Economy/KL10Dj01.html