The Ivy Portfolio: How to Invest Like the Top Endowments By Mebane Faber (Book Review) ~ market folly

Friday, May 22, 2009

The Ivy Portfolio: How to Invest Like the Top Endowments By Mebane Faber (Book Review)

We recently read through Mebane Faber and Eric Richardson's new book The Ivy Portfolio and thought it would be prudent to start off a book review series here at Market Folly. And, what better book to kick things off with than one that details how to invest like the top endowments and institutions.

Many readers may already be familiar with Mebane, as he is the co-founder of Alphaclone, the hedge fund portfolio replication tool we've covered extensively on the blog before. Additionally, Mebane is the portfolio manager for Cambria Investment Management, author of the well known World Beta blog, and has appeared in numerous financial publications. Now, to the review!

Simply put, The Ivy Portfolio details how you as an investor can replicate the returns of some of the top endowments in the country. And, you can even do so with as few as five exchange traded funds (ETFs). The book divulges the simple principles and techniques necessary to replicate their success. In addition to this focus, Mebane and Eric also cover the worlds of alternative investments as an asset class and active management, each in their own section. In terms of hedge funds and private equity as asset classes, they highlight that there is no perfect substitute for investors that cannot access the real thing. (We strongly concur and have previously written about how various exchange traded & mutual funds out there trying to replicate hedge funds leave much to be desired). The last section of the book covers active management and the use of a timing model with the 10-month moving average to avoid bear markets. As you can see, the book offers multiple flavors to sample.

We're no stranger to tracking institutional holdings, so we'd be lying to you if we said we didn't go straight to sections that deal with hedge funds. And, we found compelling content explained in a concise manner. The book includes a section entitled Following the Smart Money, where Mebane and Eric discuss how to use 13F filings to track some of the smartest hedge funds in the game (which Market Folly readers should be very familiar with). They proposition that, "If someone told you that you could have your portfolio managed by Warren Buffett, you would be interested, right?" And, almost everyone out there would say yes.

Following the smart money for free is easy, so why not do it? The Ivy Portfolio walks you through what a 13F filing is, the benefits of using them, and how to track hedge funds through the SEC. And, the book also focuses on three case studies, examining Warren Buffett, David Einhorn (Greenlight Capital), and John Griffin (Blue Ridge Capital). Readers of the blog will of course be familiar with all three of those names. The book walks you through how to do what we here at Market Folly do each day: track the 'smart money.' As mentioned earlier, Mebane has also taken it one step further by replicating their portfolios and gains with the Alphaclone web-based software.

We found The Ivy Portfolio to be succinct, educational, and a great read for those who love investing. The book has sections geared towards numerous types of investors, so everyone is bound to find something they like. Investors using asset allocation will love the endowment section, those curious about alternatives will enjoy the private equity and hedge fund section, and active investors will love the timing model. The main thing to take away here is that regardless of your background or investment methodology, you will learn something. This book teaches you to be a better investor by helping you learn from some of the best out there with proven performance. What's not to love about that?

There's really only one thing we can say: If you enjoy reading the content on Market Folly, then you will thoroughly enjoy reading The Ivy Portfolio. That's all there is to it.

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