You may want to pay attention to what public pensions are buying and, more often than not, do the exact opposite. Case in point, a few years ago this group loaded up on “alt-investments” and hedge funds. Don’t look now, but hedge funds, which charge an exorbitant 2-and-20 (2% per year on your assets under management and 20% of your investment gains), are going out of business left and right.
And then, as reported yesterday in The WSJ, the California Public Employees Retirement System (CALPERS) spent more than $2 billion on Southern timberland and harvested the trees at depressed prices to pay interest on money borrowed to buy it. It has since sold much of its land at a loss. You can’t make it up. Some are saying that CALPERs can afford to take the loss. That’s false. It’s already in hock to its retired teachers and other members.
Remember, to be a successful long-term investor, you need to think about each dollar you save as if it were your child. You will do everything in your power to keep it safe. Because once you do that, you begin to respect the unspeakable pain a loss can bring to a portfolio.
Don’t look now, but the public pension crowd is embracing passive indexing full bore—that should be a dire warning to those who own passive index funds.