Our Objectives

Over full market cycles we aim to...

  • Position client capital for consistent investment results
  • Help clients experience less volatility than the market

Goal is NOT to outperform the market

 

How Do You Think About Risk?

The two major risks every investor faces:

  • The risk of losing money

  • The risk of missing opportunities

Either risk can be eliminated but not both

 

The Importance of Capital Preservation

We focus first on capital preservation and try to strike a balance between the risk of losing money and missing opportunities

 

 

Study the chart above and you will notice a 10% decline requires only an 11% return to break even.  However, larger losses become much more difficult to recover from.  For example, a 60% decline requires a 150% gain to eliminate losses and just break even.  Using a real world example, recall the October 9, 2007 to March 9, 2009 decline saw the S&P 500 drop 57% (excluding dividends) meaning a 131% return was required to rally back to even.

 

Containing Costs Matters A Lot

Fees and expenses are a constant drag on investment returns but you CAN reduce the risk of overpaying for investment management services.  As is probably clear, lower costs translate directly to higher returns, all else being equal.  Low-cost index funds are one tool we use for managing expenses.

 

“My advice to the trustee [of my will] could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)”

Warren Buffett

2013 Berkshire Hathaway Shareholder Letter

 

Vanguard LifeStrategy Funds

Utilized in our primary strategy, the four Vanguard LifeStrategy Funds are uncomplicated, inexpensive and highly diversified index funds with identical underlying investments but different static allocations.

Active Allocation

Legendary investor Warren Buffett once said, "Stop trying to predict the direction of the stock market, the economy or elections."  He also said, "Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market."  While we agree there is nobody who can consistently and accurately predict short-term stock market moves, the fact is valuation matters and there are measures of valuation that historically have been highly correlated with long-term future market returns.

 

At Foundry Capital Management we analyze multiple historically reliable valuation metrics, express an opinion on whether or not the market is fairly valued and reposition portfolios (not more frequently than quarterly) to "tilt" their exposure toward or away from stocks.

 

Our stances are not always comfortable because in the short-term we often look out of step with the crowd.  However, for investors looking past the current investing fads and far out into the future, we believe adding and reducing exposure to stocks based on hard, unemotional data can be a prudent way to successfully manage one's wealth.

 

As Mr. Buffett said, "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."  We would argue the opposite is true as well.

 

For more on the concept of "Tilting" we suggest this Washington Post article from 2013.

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