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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

  • At the beginning of the 21st century, it might have been considered laughable to waste ink on so obvious a statement. Yet, experience has a way of altering our perceptions and after over a decade of poor cumulative returns, extreme volatility and a long process of extinguishing late 1990s optimism, many today reject this idea outright or to at least have serious doubts about its veracity.

    Skepticism and concern today is quite reasonable thanks to the presence of serious and lasting global problems combined with periodic bouts of significant market volatility and falling prices. Nevertheless, it is more important than ever to remember that there is virtually no information in day to day, week to week or even month to month price changes as today鈥檚 climate is the product of 1) post-traumatic stress disorder amongst investors, 2) an undeniably confusing and complex near term outlook and 3) capital markets that are experiencing significant and troubling growing pains due to the rise of electronic trading. None of these factors alone is responsible for today鈥檚 market climate 鈥 rather, it is the interaction amongst them that has produced dizzying price changes.

  • It is undoubtedly safe to assume that very few institutional investors would be pleased to have their efforts categorized in this manner. When seeking an explanation for the frequency of this outcome, there are those who would assign responsibility to factors such as incompetence, bureaucracy, laziness, fraudulent behavior, outrageous fees, etc. With the notable exception of the last item, we believe this explanation to be inaccurate as the investment industry tends to attract intelligent, hardworking, well motivated individuals in numbers that far exceed the prevalence of mediocre outcomes that exist.

  • Writing at the close of the NCAA basketball tournament, we could not help but think about the nature of competition as it applies to investing. While this can take many forms, that which occurs between investors tends to be of most interest. Between the published returns of a number of well known institutions and the broader surveys of endowments and/or foundations, there are ample opportunities to determine who is winning and losing the battle for highest returns. Yet, the concept of competition as it applies to sporting events starts with uniformity 鈥 one objective, one playing surface, the same number of players, one set of rules, etc. As such, the translation to investing seems flawed in that pools of capital are not and never will be equivalent. They tend to serve different purposes, have access to different types of investments, are overseen by different groups of people, and possess various qualities that should dictate the risks that are worth assuming and those that are not. The disparate nature of these factors cannot be ignored and simple return comparisons will lead to deeply flawed conclusions. Is comparing one鈥檚 returns to those of other institutions a bad idea? Hardly. Knowledge is power and in that regard, peer information can be quite valuable as long as it used in a productive manner?

  • Around the first of each year, our research staff gathers to discuss and set the ten year asset class forecasts that we will utilize for analysis of client portfolios over the next twelve months. The meeting contains a whiff of above average significance as we are keenly aware of the fact the outcome contributes to decisions regarding capital allocation and the prudence of spending rates. At the same time, there is a general sense of unease around the room in that we neither individually nor collectively 鈥渒now鈥 how capital markets will behave over the next decade. This quarter鈥檚 Commentary discusses our philosophy for estimating returns and the ways in which we believe forecasts can be used to build portfolios.鈥