Over full market cycles we aim to...
Help clients experience less volatility than the market
Goal is NOT to outperform the market
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
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.
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.)”
2013 Berkshire Hathaway Shareholder Letter
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.
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.