Risk Management

At Silver Spring Capital, we manage risk  for each client in several ways:
  • First, we allocate assets to appropriate classes of securities in keeping with an individual client’s risk tolerance. For all but the most aggressive investors, we typically invest a significant portion of a client’s portfolio in fixed income securities.  It is our belief that asset allocation (between equities and bonds) is critical to the long term achievement of a client’s goals and objectives.  One size does not fit all and each client’s portfolio should be consistent with his or her long term goals and risk tolerance.  Continuing attention to allocation percentages and periodic rebalancing of portfolios is a significant part of our job and is one to which we devote significant time and energy.  Your mix of securities will be determined by your long term goals, market conditions and our shared desire to avoid excessive short term risk.
  • Second, we endeavor to purchase under-priced equity securities, seeking the margin of error so critical to successful long term investing.
  • Third, we do not purchase over-leveraged companies because their risk of default or bankruptcy is higher.  Debt, while necessary for most companies, can be excessive.  We will not commit your capital to a business where we perceive there to be unwarranted risk through the excessive use of leverage.
  • Fourth, we believe the most important part of making money is not losing it. While we will not guarantee that we will never lose your money, we will be diligent to limit our losses on those situations where our buying decision does not produce our expected results.  If an individual security is purchased and subsequently declines by at least 20% in value, it will, in almost every circumstance, be sold.  The only deviation from this policy will be in the event of some macroeconomic event that has significant adverse effects on the overall market (e.g. “9/11”).  In such an unusual event, strict adherence to the policy might produce unacceptable short term effects on the portfolio (requiring us to liquidate virtually all positions due to a short term correction in the overall market).
  • Fifth, our fixed income investments will mirror our equity selections in terms of their financial soundness.  We will not purchase fixed income offerings from entities of dubious credit quality in what we would consider to be a foolish pursuit of higher yields by sacrificing safety of principal.

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