Harvard University’s $42 billion endowment has lagged the S&P 500 for the 12^th year in a row. This according to a recent article in MarketWatch by contributor Mark Hulbert.

• Performance persistence is rare: Harvard’s endowment performed well in the late 1990s, and over the 15 years through mid-2008 it beat the market by over five annualized percentage points. Still, Hulbert notes, “even the best and the brightest are unable to consistently beat the market.”
• Overconfidence is an obstacle: Success breeds overconfidence, according to Hulbert. “I have no inside knowledge about the managers running the Harvard endowment,” he writes, “but it would be difficult not to let a 15-year annualized alpha of over fie percentage points go to their heads.”
• Reversion to the mean is a powerful force: In the 1990s, Harvard benefited from a major bet on timber and, in subsequent years, “continued to make a number of exotic bets in that space” that didn’t work out, leading to losses of over a billion dollars. [The university has recently announced a spin-off of its natural resources portfolio.]
• Skill is different than luck: It’s nearly impossible to discern whether performance in the short- and medium-term is due to skill or luck. So, as important as it is for Harvard’s endowment managers to avoid becoming overconfident, Hulbert argues that “it’s important for us not to confidently attribute their recent mediocre returns to a lack of skill.”
• John Bogle was right: The indexing pioneer argued that index funds are tough to beat—so, Hulbert notes, “it’s hard to justify paying the salaries of a large high-priced staff to run the endowment” at Harvard.

Hulbert concludes, “Beating the stock market is incredibly difficult. Over the past 20 years you could have beaten Harvard’s endowment by putting your money in index funds and doing nothing else. That’s amazing to contemplate.”