the Yale model

I spent six years during the 1970s at Yale getting a PhD in European philosophy, before stumbling into the stock market in 1978. So I was particularly interested when in 1985 the university, which had had a checkered record managing its endowment, hired David Swensen, a Yale economics PhD who had spent a few years doing esoteric bond transactions on Wall Street, to take the endowment reins.

Swensen’s basic idea was a kind of arbitrage. He knew that a university typically didn’t need day-to-day, or even year-to-year, liquidity in its investments. So it made no sense to pay a premium price, or even the market price, to acquire liquid investments like publicly traded stocks and bonds. Better to look for virtually identical investments that one could buy at, say, a 25% discount to what a similar, publicly traded equivalent might sell for–in return for committing to maybe a ten-year holding period.

Two characteristics of this approach that would be worrying for a mutual fund are: the lack of a daily price determined by a neutral third party like Mr. Market; and the time and effort involved in eventually selling a position. But not a big deal for an endowment. Besides this, in the early days Yale pretty much had the field to itself, so it could be very picky in what it bought.

public pensions

Swensen’s success over the years spawned imitators, initially among other endowments, but also, somewhat more recently, among traditional pension funds. I suspect that for the latter group, mostly public employee pension funds, private equity was especially attractive, given that many are chronically underfunded. Two reasons: the presumed higher returns, and the absence of a daily mark to market. Why is this so key? My thought is that public employee pension funds tend to be underfunded and that legislatures are not eager to use tax receipts to make up the shortfalls. Hence, the willingness to up the risk profile of the portfolio holdings.

private assets now increasingly for sale, however

Two reasons. I think:

–more pension/endowment market buyers for private assets has meant less of a premium for taking the liquidity risk, and, probably more important,

–the Trump tariff plans seem to me to have lowered the value of any US-centric corporate assets, and especially ones that use foreign inputs. Just look at the plunge in the dollar since the inauguration. The performative cruelty of his Hitleresque use of ICE can’t be helping, either.

It’s hard to know how this will all play out. My guess, though, is that we’re nearer to to the beginning of selling pressure than the end.

This is one of the latest ideas backed by President Trump.

I know a little bit about the Pennsylvania coal mining business, but nothing about, say, West Virginia or Kentucky. Harlan County, USA, a 1976 Oscar-winning documentary, paints an ugly picture of what the mining life was like back then.

The mines in eastern PA were pretty much destroyed by flooding in 1951. They’re unlikely, in my view, to reopen. The life of miners back then, was pretty awful.

The mine owners didn’t hire and pay wages directly to miners. Instead, they rented mining time in a specific underground area to a crew of miners organized by a third-party foreman. The owner would buy the output. But the foreman and the crew took all the risk of the coal seam being sub-par or that operating problems–like injury, cave-in, explosion, noxious gas–might occur (hence, the canaries) . The actual coal seams where miners spent their days were typically only about 3’x3′, on the idea that what we might imagine as tunnels were only wasted space. It’s not something you’d wish on anyone else. Hard to understand why anyone could consider a return to the mines to be an aspirational goal.

Is this good advice?

Lean hard enough on the “all else fails” and then, probably, yes. Or maybe if you’re investing in a country, or in a market segment (think: pink sheets, the way off the beaten path speculative OTC offerings), where there’s no reliable stock information–so charts are all you have.

Charts can also be dangerous.

An example. At one point in my career, I was hired to turn around a mutual fund that had had dreadful results. I couldn’t find out much in advance either about the firm or the former manager, but the job turned out to be very important for my professional development.

When I got to my new office, I started going through the files containing research–either purchased from brokers or done internally–about foreign names I wasn’t very familiar with. What I found in the file folders was mostly charts, rather than annual reports or the former PM’s spreadsheets with earnings forecasts. Not a good sign, but not a total shock, given the poor prior performance of my new portfolio. I also noticed that all the charts had the same general shape–a gigantic plunge, followed by sideways movement. Most important, though, it became clear from examining the x- and y-axes of the charts that the brokers who prepared them had manipulated the dimensions of the axes–scrunching the X and stretching out the Y–to get the shape that would motivate my predecessor to place a buy order.

Welcome to charting …and to the international brokerage world.

Still, when the economic environment is as complex, and as uncertain, as the one we’re in now, watching how individual stocks are behaving–rather than listening to what pundits or a clueless central government are saying–will take some of the emotion out of our analysis. As an American, I’m saddened to see that the Naval Academy has removed Maya Angelou from its library but retained Adolph Hitler. How this advances seapower is a mystery to me. It’s a clear sign of the tenor of the current administration, though. But shock only makes analysis more difficult.

Nvidia

…which brings me to the (minor) thought that triggered this post–Nvidia.

My son who convinced me to buy the stock many years ago knows a lot more than I do about NVDA. As I’ve written before, to me the central issue for the stock was that the middle of last year marked the end of the period of pronounced operating leverage–when earnings would be rising much more quickly than sales. That’s because the company’s research and development effort–mostly salaries–had become tiny in comparison with the cost of having chips manufactured by TSMC. Therefore, operating profits would be purely a function of sales growth. This would mean that operating profit growth would appear to be decelerating. I also thought that the market didn’t realize this–and that the stock would sell off on this. So I sold my entire position, buying a small amount of Broadcom (AVGO) to partially replace it.

Anyway, NVDA dropped from around $150 to $92, bounced off the low to $115, and then returned to $98–where I bought a small amount back (about 2% of the money I actively manage for myself).

Who knows how this will work out. To me, wearing my buckskin jacket technical analyst uniform–sans cowboy hat, though–this looks like a double bottom, especially since the selling at (what I hope is) the low was relatively large.

Most important, this takes a lot of the emotion out of the trade.

a good day, but a very bad, no good year so far

Stocks are up today, apparently because President Trump says he won’t fire Fed Chair Powell (at least not now). Year to date, however, even with today’s morning rally, the S&P is down by about 8%, with NASDAQ and the US-focused Russell 2000 both 13% lower. In contrast, foreign markets, which have been flattish lately, are ahead by 9% in US dollars, ytd.

Superficially, this looks a lot like the 1980s, when Japan was king, or the 1990s, when the EU was being formed and, because of this, pan-European firms were being crested through M&A.

This time, however, the dominant story line is not that any area of the world looks especially prosperous. It’s about the self-immolation of the Trump-led US as an economic powerhouse, as well as the accompanying destruction of its brand as the land of the free and the home of the brave.

Thoughts on how to cope:

–value stocks, not growth stocks. A share in a growth stock is an interest in a well-managed, fast-expanding company, where the holder believes the market has underestimated how strong future earnings will likely be. Given that the federal government is acting in a way that seems to me likely to retard overall economic growth, this is a tougher game than usual. Better to look for stocks whose main virtues are that they’re really cheap and that there’s a chance (new management?) for things to start to look up. Their can’t-fall-off-the-floor-ness itself may be enough for them to shine.

–trading around positions. That is, trimming a position if it has made sharp near-term gains, with the intention of buying back if/when the price declines or establishing a larger than normal position, with the intention of trimming as/when the stock goes up. Normally, I think this is a bad idea, since stocks generally tend to respond to good government economic stewardship by going up. Today, though…

–checking out big recent losers. Again, a trading strategy–and really a sideshow rather than the main event. For example, I sold a bunch of NVDA late last year. I bought a little bit back a few days ago. Yes, this violates my first rule. But it’s a tiny position and the stock has lost a third of its value in the past few months. My intention is either to sell what I own if the stock goes up or to buy more if it goes significantly lower. I had had two issues with NVDA–valuation, and the loss of operating leverage as last year’s explosion in revenue made operating expenses insignificant. This latter was something I judged the market didn’t realize and wouldn’t take favorably when it finally noticed–which, I think, happened late last year.

The world gets to vote every business day on what it considers the outlook for just about any economic variable. As far as its assessment of the US, there are three vectors commonly used: the stock market (which is also, historically, the most powerful leading indicator of the domestic economy); the bond market and the currency.

The results, from the beginning of 2025 through now–

Treasuries: the yield on one-month T-bills is down by 10 basis points, at 4.35%; the 10-year is down by 15 bp, at 4.42%; the 30-year, which I think is less important, is up by 12bp at 4.91%.

the dollar: on a trade-weighted basis, the dollar is down by about 8% ytd. Not exactly a sign of confidence. The euro and the yen are among the biggest gainers, the Mexican peso and the Canadian $ not so much

stocks: the EAFE (Europe, Australia and the Far East) index is up in dollar terms by 6.4% ytd

the S&P 500 is down in early trading by 10.5%

NASDAQ is down by 15.9%

importantly, the Russell 2000, comprised of smaller, US-centric companies, is down by 16.3%.

If you were an EU- or Japan-based investor and concentrated on smaller US-based companies strongly tied to the US economy, you’d have lost close to a quarter of your money in less than four months. The same if you bet on NASDAQ.

my guesstimates:

–maybe 2/3 of the losses from holding US stocks this year comes from the proposed tariffs. Whatever the number is, this should be the largest loss component

–we are obviously no longer that “shining city upon a hill” where the doors are open to all. To make up a number, hostility toward immigrants probably cuts the (anemic) growth of the domestic workforce in half, leaving the US pretty much in no better than a very low gear as far as GDP growth goes. Is this another 15% of the losses?

–what’s left, 10%, I’d attribute to the lack of any effective opposition to the White House in Congress.