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OT: LA Museum decides to change investment approach - sell lots of BRKA


vinvest09
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http://latimesblogs.latimes.com/culturemonster/2009/07/natural-history-museum-faces-unprecedented-fundraising-challenges.html

 

 

Moody's also noted that the museum has revamped its unusual, longstanding policy of betting virtually all of its endowment on a single stock (albeit a diversified and legendarily lucrative one), Warren Buffet's Berkshire Hathaway. Berkshire Hathaway suffered a 31.8% loss in 2008 -- better than the S&P 500's 38.5% beating, but worse, in this economy, than a portfolio containing a substantial mixture of more conservative bonds.

 

In January, Moody's said, the museum's board voted for a more diversified approach guided by an investment advisor, and began a gradual selloff of Berkshire Hathaway, with the goal of Buffet's company making up half its portfolio instead of more than 90%. The rest will be invested in stock and bond funds.

 

A Forbes magazine story from 1998 suggested one reason for the Natural History Museum's loyalty to Berkshire Hathaway. It told how Franklin Otis Booth Jr., a onetime Los Angeles Times executive who became a billionaire thanks to a $1-million ground-floor investment in Berkshire Hathaway in the early 1960s, gave the museum a 1977 gift of $350,000 worth of stock in a company that Berkshire Hathaway subsequently acquired. The museum's holdings were converted to Berkshire Hathaway stock. "Frequently, the museum's investment managers wanted to unload the shares. Booth discouraged it," Forbes reported -- and within 21 years his initial gift had grown to $80 million.

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In January, Moody's said, the museum's board voted for a more diversified approach guided by an investment advisor, and began a gradual selloff of Berkshire Hathaway, with the goal of Buffet's company making up half its portfolio instead of more than 90%. The rest will be invested in stock and bond funds.

 

I haven't red the article, but if they decided to go from more than 90% of their portfolio in BRK to approximately 50%, it makes sense to me and I would have approved that as board member. But it doesn't mean that I would approve necessarely where they will invest the proceeds (funds....hum hum...wich ones!?).

 

I understand that one shouldn't cut the flowers, watering the weeds, but that being said, 90% in a single stock, no matter how great the business, the management and the price is, is a very very high degree of portfolio concentration. Yes, Berkshire is diversified by itself, but 90%...

 

That being said, if one would want to stick with that "90% in one single stock" policy, Berkshire would be a first class choice.

 

Just my opinion.

 

Cheers!

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http://latimesblogs.latimes.com/culturemonster/2009/07/natural-history-museum-faces-unprecedented-fundraising-challenges.html

 

 

Moody's also noted that the museum has revamped its unusual, longstanding policy of betting virtually all of its endowment on a single stock (albeit a diversified and legendarily lucrative one), Warren Buffet's Berkshire Hathaway.

In January, Moody's said, the museum's board voted for a more diversified approach guided by an investment advisor, and began a gradual selloff of Berkshire Hathaway, with the goal of Buffet's company making up half its portfolio instead of more than 90%.

 

 

... and I thought I was a concentrated investor!!  :o

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I've had this discussion a few times with other investors... as our fund once held a 90% position in BRK - currently do not own any BRK shares.

 

I contend that the only risk to worry about is BUSINESS risk. If you adopt a owner/business oriented mindset, 90% in BRK is really not concentrated at all - no single business represents an overly large percentage of the whole.

 

I don't think 90% is dangerous/risky at all - and there are at least two other guys that agree with me ;)

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It reminds me of the time (about a month before the tech bubble burst) that the Alaska Permanent Fund fired their last "value" investment advisor as he obviously did not understand the new stock market.

i believe that before this last bust they went for a couple of hedge funds (but that is a rumor)

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  • 3 years later...

I've had this discussion a few times with other investors... as our fund once held a 90% position in BRK - currently do not own any BRK shares.

 

I contend that the only risk to worry about is BUSINESS risk. If you adopt a owner/business oriented mindset, 90% in BRK is really not concentrated at all - no single business represents an overly large percentage of the whole.

 

I don't think 90% is dangerous/risky at all - and there are at least two other guys that agree with me ;)

 

 

From Allan's latest Edgar filing, BRK once again represents more than half his fund's holdings.

 

I always knew I had a long lost twin separated at birth.  :)  Just kidding.  :)

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Guest longinvestor

In January, Moody's said, the museum's board voted for a more diversified approach guided by an investment advisor, and began a gradual selloff of Berkshire Hathaway, with the goal of Buffet's company making up half its portfolio instead of more than 90%. The rest will be invested in stock and bond funds.

 

I haven't red the article, but if they decided to go from more than 90% of their portfolio in BRK to approximately 50%, it makes sense to me and I would have approved that as board member. But it doesn't mean that I would approve necessarely where they will invest the proceeds (funds....hum hum...wich ones!?).

 

I understand that one shouldn't cut the flowers, watering the weeds, but that being said, 90% in a single stock, no matter how great the business, the management and the price is, is a very very high degree of portfolio concentration. Yes, Berkshire is diversified by itself, but 90%...

 

That being said, if one would want to stick with that "90% in one single stock" policy, Berkshire would be a first class choice.

 

Just my opinion.

 

Cheers!

 

So they sold out BRK at a price of $95,000 (avg in 2009) to diversify into bonds and funds. Not looking smart right now, are they? Seems to me that Mr Booth had held it together for decades and had it on the bulls-eye for all those years without throwing a single dart. Now they are throwing darts all over and the museum will be poorer for a long time, thanks to the financial kool-aid advisors!! 

 

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In January, Moody's said, the museum's board voted for a more diversified approach guided by an investment advisor, and began a gradual selloff of Berkshire Hathaway, with the goal of Buffet's company making up half its portfolio instead of more than 90%. The rest will be invested in stock and bond funds.

 

I haven't red the article, but if they decided to go from more than 90% of their portfolio in BRK to approximately 50%, it makes sense to me and I would have approved that as board member. But it doesn't mean that I would approve necessarely where they will invest the proceeds (funds....hum hum...wich ones!?).

 

I understand that one shouldn't cut the flowers, watering the weeds, but that being said, 90% in a single stock, no matter how great the business, the management and the price is, is a very very high degree of portfolio concentration. Yes, Berkshire is diversified by itself, but 90%...

 

That being said, if one would want to stick with that "90% in one single stock" policy, Berkshire would be a first class choice.

 

Just my opinion.

 

Cheers!

 

So they sold out BRK at a price of $95,000 (avg in 2009) to diversify into bonds and funds. Not looking smart right now, are they? Seems to me that Mr Booth had held it together for decades and had it on the bulls-eye for all those years without throwing a single dart. Now they are throwing darts all over and the museum will be poorer for a long time, thanks to the financial kool-aid advisors!!

I doubt it. Bonds and equity have done pretty well since 2009. Decent probability they have outperformed BRK in this timeframe.

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Guest longinvestor

In January, Moody's said, the museum's board voted for a more diversified approach guided by an investment advisor, and began a gradual selloff of Berkshire Hathaway, with the goal of Buffet's company making up half its portfolio instead of more than 90%. The rest will be invested in stock and bond funds.

 

I haven't red the article, but if they decided to go from more than 90% of their portfolio in BRK to approximately 50%, it makes sense to me and I would have approved that as board member. But it doesn't mean that I would approve necessarely where they will invest the proceeds (funds....hum hum...wich ones!?).

 

I understand that one shouldn't cut the flowers, watering the weeds, but that being said, 90% in a single stock, no matter how great the business, the management and the price is, is a very very high degree of portfolio concentration. Yes, Berkshire is diversified by itself, but 90%...

 

That being said, if one would want to stick with that "90% in one single stock" policy, Berkshire would be a first class choice.

 

Just my opinion.

 

Cheers!

 

So they sold out BRK at a price of $95,000 (avg in 2009) to diversify into bonds and funds. Not looking smart right now, are they? Seems to me that Mr Booth had held it together for decades and had it on the bulls-eye for all those years without throwing a single dart. Now they are throwing darts all over and the museum will be poorer for a long time, thanks to the financial kool-aid advisors!!

I doubt it. Bonds and equity have done pretty well since 2009. Decent probability they have outperformed BRK in this timeframe.

 

This is a perfect Gotrock story (read BRK AR from 2009, I think). The $37,000 endowment caught 8 doubles over 20-30 years. We will see what the diversified portfolio will do over the next 20 or 30.

 

 

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I find this article to be really interesting. I am more surprised that the endowment kept such a concentrated portfolio for so long. While I think most on this board wouldn't have a problem with such a high level of concentration in Berkshire, I think we are a small sliver of investment professionals with that mindset. Even leaving approx. 50% of the portfolio in Berkshire is an enormous amount of concentration for an endowment of that size.

 

While I think hindsight may prove that they endowment would have been better off keeping the shares of BRK, I am still impressed in their conviction to keep 50% of their endowment within Berkshire. I think the endowment universe would aggregate better results if more boards used concentrated-low-turnover portfolios.

 

I am not familar with taxes on endowments like the one referenced in the article. Are they required to pay a capital gains tax? If so, that may make the decision even more painfull when they look back 20 years from now.

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Holding only berkshire isn't the same kind of concentration as holding only Coke, though. Berkshire is basically a mini diversified fund in itself, and it's self-adjusting in that WEB (and now Todd and Ted) will move money in whatever place is most promising at the time.

 

So they were not that concentrated, IMO.

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