[HW 1.4b] How to Win the Loser’s Game

John Bogle has made immeasurable contributions to the world of finance by creating Vanguard, a firm dedicated to the passive management of investment funds.  Vanguard manages index funds, and these funds seek to match the return of the market indices, and do so with much lower fees than their active management rivals.

In this documentary, there is an excellent discussion about the difference between active management and passive management, and a strong recommendation for the latter.

We travel back to the year 1970, armed with our trusty spreadsheets.  The Treasurer of the College, who is trustworthy, though not a trustee, has asked you to look at the impressive results achieved by the manager below, and for your thoughts on whether to include this fund within the College’s endowment portfolio.


Compare the performance of this fund to its benchmark.  Ignore taxes, because 1) partnerships are flow-through entities which do not pay taxes directly, and 2) the college is not a taxable entity.  The College would invest in the Limited Partnership interest, but the treasurer would like to know what the compound returns are for both the Partnership and the LP. (You can think of the difference between the Partnership and the LP interest as representing management fees.)

Show the calculations of compound returns year by year, and show any and all appropriate supporting calculations. Because the Treasurer is busy, write a few coherent sentences in bullet point format to explain what you have done and to make a recommendation.

Also, you may want to watch this:



One comment

  1. […] a follow up to yesterday’s homework, here is a link to the source of the data, which is a famous article written in 1984 called the […]


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