When the economy declines, is it time to invest?
When the economy declines, is it time to invest?
Buy low and sell high is the elusive goal of investors. Unfortunately, many find themselves tempted or forced to do the opposite: to buy high, when optimism is rampant, and to sell low, amid doom and gloom. The Cornell Investment Committee, alas, appears to have succumbed to the classic investment mistake of selling at the bottom.
The sidebar to "Endowments 101" (May/June 2009) shows that the equity portion of the Cornell endowment dropped from 58 percent in June 2008 to 30 percent in March 2009 while cash increased from 4 to 18 percent. With 20/20 hindsight, the opposite would have been far better. However, the Investment Committee cannot be faulted for their failure to anticipate the market crash last year; nearly all of us made the same mistake. They can be faulted for selling any more than absolutely necessary near the market bottom. A significant amount of long-term invested funds were moved into more liquid investments [as President David Skorton noted in his May/June 2009 column] "in order to preserve the corpus of our endowment and ensure adequate liquidity." In other words, stock was sold at the bottom of the market partly because of necessity and partly because of fear.
March 2009 is likely to have marked the market's low point. In that month, Cornell should have been "all in" to maximize future returns. Instead, an extraordinary amount of money was to be found under the institutional equivalent of a mattress. Perhaps the Investment Committee felt it was too early to recommit capital—that is a plausible justification. But let us not forget the words of the nineteenth-century French financier Baron Rothschild, who is reported to have said that the time to invest is when there is "blood in the streets." I think all of us could agree that the financial streets are bloody enough. It is time for the timid to test the waters, even if the water feels like Cayuga Lake in May.
Paul Aho '73
Storrs, Connecticut
Editor's Note: During Reunion Weekend, James Walsh, the University's chief investment officer, told alumni that the endowment had recovered somewhat and was, as of May 31, down 26 percent compared to June 30, 2008. (As of February 28, as our article stated, its value had declined 31 percent.) Walsh also said that the Investment Committee would be actively pursuing opportunities to invest the cash over the next eighteen months.
It's funny (well, actually not so funny) how similar the asset allocations of Cornell and our brethren institutions were. You'd think that with all that brain power one or more of these highly regarded chief investment officers would have realized that they couldn't all be right, but they could all be wrong. To have virtually no cash reserves [last year] when pundits had been warning since 2007 that our tapped-out consumer economy was about to run into the proverbial brick wall is unconscionable. Even I, a history major with no economics or accounting courses to his credit, saw the handwriting on the wall.
John Cederholm '64
Marion, Massachusetts
History Revisited
While not receiving nearly as much fanfare as the takeover of the Straight ("Getting It Straight," March/ April 2009), a significant event took place at Cornell in the fall of 1957. The then-freshman class, with only four African Americans among its approximately 2,200 members, elected an African American to serve as president. My thanks to my classmates—we are still amazing.
Edward Furtick Jr. '61
Freshman Class President
White Plains, New York
The very day of the Straight takeover was the day the majority of our admissions letters went in the mail. In the following days, we had numerous calls from those accepted, wondering about events on campus, and we enlisted Cornell students to provide their version of what was going on. In the midst of all the turmoil, we were especially impressed when an African American student came by our office and asked what he could do to help.
Robert Storandt '40
Director Emeritus of Undergraduate
Admissions
Ithaca, New York
Tom Jones '69, MRP '72, interviewed by the Daily Sun in April of this year, repeated his belief that he could have resolved all of the issues, had the opportunity for a face-to-face meeting with President James Perkins presented itself. The reality is that neither Jones nor the official leadership of the Afro-American Society (AAS) wanted that, failing on numerous occasions to show up for meetings that the administration had scheduled to discuss their demands. One of the difficulties presented by the AAS was its refusal to make public the demands that it had made in December and its refusal to discuss the issues in any public forum, save for the occasional "statement" delivered anonymously to the Sun.
As of the fall semester of 1968, the University had already approved a Center for Afro-American Studies, with a headquarters facility designated and plans to begin course offerings the following fall.
This was not enough: the AAS demanded that Cornell authorize a degree-granting college within the University, funded by Cornell but administered by and exclusively for black students. President Perkins indicated his opposition to such a college, suggesting that he could consider it but saying, "It would involve a rearranging of my own personality." It is sad that the AAS actions throughout the spring semester of 1969 led to the premature end of Perkins's leadership of Cornell, as at the time he was their best friend on campus and one of the nation's strongest and most vocal supporters of educational opportunities for blacks.
Perhaps it is most telling that the seven-point agreement signed by the University in return for ending the siege of the Straight said nothing about the broader issues of educational opportunities for blacks at Cornell. Instead, it focused on insulating the members of the AAS from taking responsibility for their own actions, requiring the University to drop judicial actions against five students involved in previous disruptions and promising the AAS and its individual members would be held harmless for their acts and the associated costs involved in the takeover itself.
Michael A. Smith '69
Watchung, New Jersey
Forward Thinking
I was happy to see the article about climate change ("Hot Topic," March/April 2009). The author, Sharon Tregaskis '95, mentioned becoming climate neutral and getting to zero emissions. The problem with that goal is that the atmosphere is already unstable, as can be seen in melting glaciers and other symptoms. If we want to stabilize the climate and save natural wonders such as glaciers and the sequoia forests, we need to go carbon negative.
In a sidebar, you mentioned the cash-strapped condition of the University. The interesting thing is that if Cornell had invested in a clean power plant, that investment would be doing fine right now. Clean energy investments such as wind and solar power generally have long lives, so each year the value of the installation is almost the same as the year before—and the financial dividend is virtually free power from then on. Just as important, this would show applicants that Cornell is forward-thinking, which would tend to attract forward-thinking students who will become leaders of the future and remember that Cornell is their alma mater. Let's stop counting billions in the bank and start making wise investments in our future.
Scott Peer '80
Glendale, California
It's nice to learn that Cornell is conserving more than ever, although we conservation majors in Fernow Hall were well ahead in doing that back when I was there. Cornell's administrators should keep in mind that balance between ecology and economics is best. This should come as no surprise, since the words share the same Greek root—"oikos"—meaning house or place to live. Broadly speaking, they refer to the house we have in common: the world. You could say that ecology is the world as it exists in nature and economics the management of the world to serve humankind. Almost all environmental disputes are caused by ecology and economics being out of balance.
Gerald Schneider '61
Kensington, Maryland
South Hill Revisited
While touring prospective colleges with my son, we visited Ithaca College to check out their music school. I was completely blown away by the talent and spirit of the students there. I left realizing that I had squandered an opportunity while I was at Cornell by not spending any time attending the concerts and recitals offered at IC. Later, I read Liz DeLong's "Letter from Ithaca" (November/December 2008). Yes, we Cornellians did crack jokes about IC students—how wrong we were! I now know that students from all over the country seek admission to its very selective music school. And . . . yes, IC does have a better view of the lake.
Mark Gibson '76, DVM '80
Brooklyn, New York
Corrections—May/June 2009
"Endowments 101," pages 42-49: Ronald Ehrenberg has asked us to publish this clarification: "I erroneously left readers with the impression that no spending could occur from endowments whose market value was less than the value at the date when the donor made the gift to Cornell. In fact, under current New York State law, Cornell is permitted to spend any income (dividends, interest, rents, and the like) that such 'underwater' endowments produce. I am grateful to several readers for pointing this out to me." "Sunshine State," page 53: The article states that Harris Rosen '61 is the father of four teenagers, three girls and a boy. It's actually three boys and a girl. We regret the error.