Jul 25, 2014 Update from Yale
Every year LPL’s Advisory leadership takes over one of the premier business schools in the country. Active professors take advisors through the cutting edge of finance in academia. It is the most worthwhile conference of the year for me. This year, the top 125 Advisory practices at LPL took over the Yale School of Management. I thought I would share highlights from three of the speakers from Yale.
We heard from Professor Fiona Scott Morton on Healthcare. She looks at the affordable care act as way to reorganize how we finance healthcare. She points out that currently healthcare spending is at 20% of GDP. Payment will now be based on a diagnosis instead of a list of billed procedures. This is going to lead to a massive change in how Doctors and Hospitals interact. She believes they are trying to incentivize “Health” instead of healthcare. From an investment standpoint, it is going to be a tough time for imaging and testing. Hospitals will become Cost centers instead of profit centers making strong Rehabilitation and skilled nursing centers more attractive. Device improvements will need to be game changes to lead to long term profits and surprise winners will include Information Technology and Consulting.
We also got the pleasure of hearing from Dr. Robert Shiller. He was fresh off receiving his Nobel Laureate in Economics for 2013. An honor that he shared with a past speaker at one of these events Dr. Eugene Fama as well as Lars Peter Hansen. While the work of Fama and Shiller has been fantastic, it is fascinating that both could win in the same year. Fama is a pioneer of Efficient Markets and Modern portfolio theory. As a behavioral finance economist, Shiller believes that markets are not rational. He successfully predicted the housing “bubble” of 2007. He looks at rising prices like an epidemic. Prices rise, until they don’t. My favorite quote from Dr Shiller when asked to make a prediction on where we are going now “I’d rather tell you about the fundamental uncertainty of it all”. Sounds like a politician to me.
Andrew Metrick, the Deputy Dean and Professor of Finance and Management also shared insight into the management of the $20.7Billion Dollar endowment. He also addressed some of the distinctions between managing massive institutional money and individual client funds. Many of the principles overlap. The endowment believes strongly in Equity. At their scale and scope, they have access to both public and private equity, but believe in the long term benefits of ownership. They look for diversification. With their long term horizons, they can also look into less efficient markets for investment opportunities. With all of the massive brain power at the business school, they also believe that they should look for outside managers for all but the most routine of investments. Finally the focus on aligning incentives between the endowment and the managers. They want to make sure that they are sitting on the same side of the table. Much in the way we work with our client accounts.
All In all, it was a fantastic conference. These meetings that we go to periodically through the year provide great material to keep us on the forefront of asset management and financial planning. Being with other top advisors provides an invaluable time to share ideas and focus on what is really important, our clients. With that in mind, I want to thank you for choosing Leonard Rickey Investment Advisors. If you have any questions or would like to discuss your accounts in greater detail, please don’t hesitate to call.
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