How to Get Stocks 48% Cheaper Than Warren Buffett

When you’re trading stocks, options, bonds, commodities and other financial instruments, it’s important to get a handle on what the so-called smart money is doing. The giant footprint that professional money managers leave when they move en masse into or out of a particular asset class is quite often the precursor to bigger price movements in that sector.

Now, there is perhaps no smarter money out there than the money that’s run by university endowments. These often multibillion-dollar endowment fund portfolios tend to be managed in a cautious way and rarely make drastic moves. When you see much of this segment of the smart money make a big move away from a certain asset class, you had better take notice.#-ad_banner-#

So, when I read an article in the Financial Times that detailed the recent flight out of U.S. government debt by university endowments, it grabbed my attention.

According to the Financial Times, “Many university endowments have scaled back their holdings of Treasury securities from as much as 30% in 2008-09 to zero in some cases, say people familiar with their investment strategies.”

The article quoted an unnamed university fund manager: “Treasurys were a core holding. Now everyone is holding less than 5%.” The manager added, “Today government bonds should come with a warning about interest-rate risk.”

I share this fund manager’s belief that Treasury bonds are extremely risky right now. Therefore, investors need to reduce their overall exposure to this sector much the same way university endowments have. (Not for nothing, Warren Buffett feels the same way.)

The big fear here is that once the Federal Reserve reverses its near-zero interest rate policy, and especially if the loose monetary policy known as quantitative easing slows, interest rates will spike and bond prices will plunge. Another way to put this is that the current bubble in Treasury bonds will burst, and anyone holding a significant dollar amount in bonds will get swept away by a tsunami-sized wave that could wash away much of their net worth.

So, just how bearish are some of the biggest university endowments on Treasury bonds?

Well, according to the Financial Times, Princeton University’s $17 billion endowment has converted its Treasury holdings to cash. Duke University $5.5 billion endowment has been shifting its holdings away from Treasurys and into high-yielding U.S. stocks and emerging market equities. Cornell University’s $5 billion endowment has reduced its exposure to Treasury securities to just over 3% of the fund’s total assets. And the $19 billion endowment run by Yale University has about 4% of its assets invested in the sector.

Could this be part of what some are calling the “great rotation” away from bonds and into stocks? It could be, but more importantly, do you want to own an asset class that’s systematically being sold off by some of the smartest money on Wall Street?

Action to Take –> My answer to this question is a resounding “no,” so if you have a lot of Treasury bonds in your portfolio, it’s time to put on your university endowment fund manager hat and rebalance your holdings away from Treasury bonds and into U.S. stocks, commodities and other assets that don’t need to be accompanied by a warning about interest-rate risk.

This article originally appeared on
Some of the Smartest Money Around is Dropping This Asset Class Like a Bad Habit

P.S. — I just finished reading a special report published by my colleague, Amber Hestla-Barnhart. The report details how to consistently and reliably pull income from the options market. It’s Amber’s one-of-a-kind training as a military intelligence analyst that allows her to see things others miss. It’s something I think you should see. If you’re interested, you can see the report for free when you click here.