Portfolio Management

Portfolio Management

Back Office Support

9. Back Office Support

BridgePortfolio.com (BP) is a valuable part of our 13 step Investment Process. They maintain online model portfolios with stock weightings that are updated each day to reflect market conditions.

We can change these stocks and weightings online as needed. When we make a change, BP creates a trade sheet, submits it to the Custodian and checks to see that the order has been properly executed. BP also monitors all changes in the accounts, such as dividends, stock splits, account contributions and distributions.

In addition to the daily updates of stock weight statistics, BP provides monthly updates of statistics for each account, including: performance, holdings, sector and industry diversification charts, cash flow and tax cost statistics. BP also provides model portfolio performance data.

BP is a seamless, private label provider of these back office services. In laymenís terms, this means that, except for this description of these much appreciated services, the advisor / client does not know BPís valuable role. Since BP provides similar back office services for tens of thousands of accounts with $1.7 billion in managed assets, its expertise enables Foundation Financial to provide services that are comparable to larger firms.

Sell Discipline

10. Sell Discipline – avoid excessive erosion of capital with a predetermined plan

In most portfolios, a few stocks will soar and a few will falter, while most stocks perform in line with the average portfolio return.

Performance can be enhanced by identifying and selling an underperformer as soon as possible. Our sell-discipline guidelines are:

  • Absolute Decline – review carefully any stock that declines by over 20% from its high
  • Relative Decline – review carefully any stock that declines significantly more (over 20%) than its peers
  • Watch List – maintain a list of stocks that fit in the above two categories and review them monthly
  • SELL – when it seems unlikely that the performance of a stock that has declined considerably will improve significantly within 12 months

Also, after a major values violation has been identified and confirmed, the stock will be sold.

Management and Reports

11.-13. Management and Reports – tools for accountability

What is active investment management? At Foundation Financial, active management means diligent and disciplined attention to the basics of our 13-step Investment Process. Like Warren Buffet, our desired holding period is forever. We seek to find and own good companies and participate in their ongoing growth with no portfolio turnover. Yet both investment merit and company values change. Therefore, active investment management involves identifying and acting on these changes.

For some people, active management implies market timing – the short-term attempt to buy low and sell high. We are not market timers. Studies show that the law of averages usually catches up with even the best market timers. Our main investment focus is based on the adage, “The time in the market (benefiting from compound growth) is more important than the timing of the market.” We do attempt to make sensible judgments regarding intermediate term sector performance during different phases of the economic and market cycles.

The last three steps of our Investment Process are:

  • 11. Monthly Monitoring – track performance and MPT characteristics to identify and implement adjustments needed to achieve a good risk-adjusted, long-term return
  • 12. Quarterly Report – publish and explain the results to investors and their advisors
  • 13. Annual Review – conduct in-depth, company-by-company, structural and tactical reviews each year and make appropriate adjustments consistent with this Investment Process

Our goal is to achieve good risk-adjusted return by investing in companies that reflect biblical values. The 13-step Investment Process helps us achieve this goal.