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Foundation Investment Advisors and Consultants

Insights and Publications

Colonial Consulting provides insights and analysis on current conditions and challenges, market environment, and industry trends.

Quarterly Commentaries

  • There are many biases that can come into play when making decisions; where one lives and works, where one grew up, and the company we keep (and have kept in the past) all play a meaningful and often not readily apparent role. These biases are inherent to being human 鈥 everyone has them, and while some are self-aware enough to acknowledge them, others are not. In the work we do as investment advisors, allowing such biases to affect our process could lead to poor decision making 鈥 not only in single instances, but in a systematic and serial manner. In this way, an awareness of the biases and other flaws which affect our decision making becomes quite important. Decision making in the investment world is often governed by what psychologists call "heuristics". Most clearly defined, heuristics refers to the way in which we find adequate, though often imperfect answers to difficult questions. In essence, it is the psychological process we use during complex decisionmaking. As complex decision making encompasses the vast majority of what we do as investment consultants and researchers, understanding the way heuristics impact our processes is of paramount importance. Awareness, in our view, is the first step. Addressing them is the next...

  • In late 2007, Warren Buffett challenged hedge fund-of-funds Protege Partners to a bet. Mr. Buffett wagered $1,000,000 that an investment in the S&P 500 would be worth more after ten years than an equal investment in five fund-of-funds selected by Protege. The market was merciless from the start, delivering a global financial crisis that provided a very strong start for the hedge fund portfolio. Fast forward to today, and Mr. Buffet is in a very solid position; the S&P 500 has delivered 66% over that period, while Protege鈥檚 selection of fund-of-funds (which it has chosen not to disclose) has delivered 22%. With all due respect to the old adage 鈥渋t鈥檚 not over until it鈥檚 over,鈥 the outcome does not look promising for Protege. In 18 months, Mr. Buffet鈥檚 chosen charity 鈥 Girls Incorporated of Omaha 鈥 will likely be receiving a Protege-signed check for $1,000,000, or the equivalent of about five shares of Berkshire Hathaway Class A stock...

  • How did you spend your money today? Maybe you started at a coffee shop, cringing slightly as you paid mid-single-digit dollars for a morning caffeine jolt. Then you filled your car with a tank of gas, regretting the fact that you seem to drive everywhere when walking or cycling would be healthier and less impactful on the climate. Wracked with guilt, you stopped at a bike shop and bought a new 21-speed, instantly feeling better about your body and your carbon footprint. After that, you picked up your dry cleaning, met a friend for lunch, bought some spring bulbs at the nursery, caved on that new smart phone, took someone out for dinner and a movie, and then finally finished the day of expenditures with a newly purchased white-noise app to help you fall asleep. Sounds like a pretty good day of items purchased and services enjoyed.

  • Superman without Lex Luthor. Sherlock Holmes without Professor Moriarty. The Road Runner without Wile E. Coyote. Dorothy without the Wicked Witch of the West. Harry Potter without Voldemort. Sheriff Brody without Jaws. The Dalmatians without Cruella de Vil. Austin Powers without Dr. Evil.

    None of those work, not a single one. The simple fact is that heroes need villains, both for their own growth and development and to give life and vigor to a story. If Harry Potter just went off to Hogwarts and received good marks in wizardry, nobody would care much. If Sheriff Brody spent his days issuing citations for open containers in Amity, it would hardly make for high drama. If Dorothy skipped along the yellow brick road in a pair of ruby slippers she bought at a department store, not a single person would care. The antagonist 鈥 the villain 鈥 is vital to the narrative. Without the antagonist, we have a calm world, no narrative thrust, nothing to forge the protagonist into the hero he or she was meant to be. We need the villain to give depth and shape to the plot. Without the constant, imminent threat of danger, we don鈥檛 have a story.

    In financial markets, the villains are the areas in which investors are losing the most money, and in the world of high yield, the villain in 2015 was energy and metals and mining. Like any effective villain, this monster was ruthlessly efficient in its destruction, indiscriminately wreaking havoc on investor portfolios. While some investors maintained their allocations and endured the pain, many others decided to ditch high yield altogether, testing liquidity constraints in the high yield marketplace to such a degree that one very prominent fund, Third Avenue Focused Credit, was forced to suspend redemptions in order to maintain some semblance of value for existing investors.

    It鈥檚 clear that energy and metals and mining are important parts of the investment narrative, but for investors, the challenge becomes determining how to deal with them. The destructive path they鈥檝e carved could certainly worsen and deepen losses, and as we enter 2016, determining how to respond to this situation is of paramount importance. If a hero exists, it needs to be identified so investors can ultimately profit from these difficult times. However, before examining the areas from which this hero may emerge, it may be helpful to better understand the threat.