Protect Capital.
Control Downside Risk.
Frankfurt, Germany
How We Approach Risk Management
Risk is an unavoidable part of investing — it’s the price we pay for potential returns. At Houndstooth, we believe risk management isn't about eliminating risk — it’s about understanding it, measuring it, and making sure it’s aligned with your goals at every stage.
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What it is: The risk of broad economic downturns, recessions, or global slowdowns impacting markets.
Our approach: We manage this through dynamic asset allocation and macro-aware positioning that adjusts based on leading economic indicators.
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What it is: The risk of loss due to market-wide moves, affecting all assets regardless of fundamentals.
Our approach: We use broad diversification across asset classes, regions, and styles to minimize the impact of full-market swings
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What it is: The risk that rising interest rates or inflation will erode investment returns.
Our approach: We incorporate inflation-protected securities, adjust interest-rate sensitivity across portfolios, and focus on real return assets.
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What it is: Sudden, unpredictable events like pandemics, wars, or natural disasters that cause sharp market reactions.
Our approach: We maintain a crisis response playbook, use liquidity buffers, and hold flexible, high-conviction positions that can pivot when needed.
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What it is: The potential impact of foreign exchange fluctuations on international investments.
Our approach: We apply natural hedges through multi-currency exposure and selectively hedge positions when currency risk is material.
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What it is: The risk of changes in laws, regulations, or political environments affecting specific industries or markets.
Our approach: We stay agile by using geographic diversification and staying alert to regulatory trends to adjust exposure where needed.
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What it is: The risk associated with downturns or underperformance in a specific market sector.
Our approach: Instead of rotating entire sectors, we use active sector rotation focused on fundamentals and leadership shifts, not just headlines.
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What it is: The risk of adverse conditions specific to an industry regardless of the overall market or sector.
Our approach: We focus on company quality and avoid overconcentration in vulnerable or cyclical industries.
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What it is: The risk that an investment cannot be sold quickly without significant loss in value.
Our approach: We build portfolios with structured liquidity tiers and avoid overexposure to thinly traded positions.
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What it is: The risk tied to the operational and financial health of individual companies.
Our approach: We rely on rigorous research, position sizing, and a focus on business model durability to reduce company-specific blowups.
Why Stocks Remain the Foundation for Long-Term Growth
When it comes to building wealth over time, no asset class has consistently delivered like equities. While other investments may offer stability or short-term utility, stocks provide the compounding engine that drives long-term results. At Houndstooth, we don’t just invest in equities — we specialize in them. Because owning the right asset is only half the battle; understanding and managing it is where the real edge lies.
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Historically, stocks have delivered higher returns than bonds, real estate, or cash over any 20+ year period.
Equities have been the most effective hedge against inflation.
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Reinvested earnings and dividends drive exponential growth over time.
The earlier you start, the more powerful the compounding.
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Public equities allow for fast execution, portfolio adjustments, and reinvestment.
This gives active managers more control in dynamic markets.
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Companies can raise prices and protect profits — bonds and cash can’t.
Over time, this makes equities more resilient in inflationary environments.
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Avoiding equities might feel safe, but it often leads to underperformance.
Being too conservative with assets can expose investors to long-term shortfalls.
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Not all equities are created equal — sector, business model, and leadership matter.
Active equity management can significantly enhance risk-adjusted returns.
Why Stocks Remain the Foundation for Long-Term Growth
Inflation is one of the most unpredictable forces in the financial system. As the graphic below shows, monthly inflation rates have bounced up, down, and even negative over the past decade. While the Federal Reserve targets a 2–3% annual inflation rate as “healthy,” reality is far more volatile. This unpredictability affects companies — and therefore investments — in dramatically different ways.
Equities have historically been the best first line of defense against inflation because they tend to price it in early. But not all companies respond the same way. That’s why layering active management on top of a strong equity base becomes so powerful. At Houndstooth, we believe inflation risk isn’t just an economic issue — it’s a company-by-company challenge, and that’s where our strategy shines.
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Monthly inflation data shows wide swings, including negative months — it rarely follows a straight line.
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Stocks tend to price in inflation faster than other asset classes, making them a powerful inflation-fighting tool.
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Some companies can pass inflation costs onto customers — others can’t. The differences matter more than the averages.
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Inflation can hit an entire economy or just a specific business — both layers need to be managed independently.
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Active algorithms can adjust portfolio exposure quickly based on inflation trends and company fundamentals.
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This is just one example of how we actively manage a wide range of economic risks — always adapting to change.
Dynamic Risk Management Strategies
Not all investors need the same level of risk — and that risk can change over time or with market conditions. At Houndstooth, we offer three distinct risk-setting strategies so your portfolio reflects your goals, your age, or the world around you.
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We set a consistent, agreed-upon risk level with the client, and the algorithm executes all trades accordingly. Ideal for investors who want stable exposure, regardless of age or volatility.
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This strategy gradually adjusts your risk level as you get older, becoming more conservative over time. It’s built to support long-term planning — investing aggressively early, and protecting gains later.
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Tied directly to the VIX (the market’s volatility index), this method adapts in real-time. When volatility rises, the system takes less risk. When volatility falls, it increases risk exposure — helping you stay flexible and protected.
Risk Tolerance in Action
In this Berkshire Hathaway trade example, we applied four different risk tolerance settings to show how your chosen level of risk can affect your trade entries, exits, and overall performance. Each strategy was profitable — but the timing, duration, and allocation varied significantly based on the risk tolerance.
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Additional Trade Details:
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Aggressive approach with high conviction
Entered the trade early and exited late
Bought significantly more during each opportunity
Highest total return due to more capital invested
Maximized duration and upside
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Balanced and moderately aggressive
Bought relatively early and exited slightly before the 22
Good number of buying opportunities, moderate trade duration
Solid return with reasonable capital deployed
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More conservative with tighter entry/exit timing
Fewer buys and quicker exits
Focused on preserving gains over maximizing exposure
Still profitable, with less capital at risk
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Most conservative and selective
Bought very little but at excellent average prices
Shortest trade duration, missed multiple opportunities
Made a strong return on the small capital invested
Ideal for capital preservation, not growth
Dynamic Risk. Smarter than Static.
Most traditional advisors use fixed models that set your risk tolerance once and rarely adjust it. At Houndstooth, we believe risk should evolve with you, the market, and your goals — and our dynamic approach reflects that.
Let’s Build Your Portfolio Together.
We handle every aspect of your investment strategy. Let’s discuss your financial goals and how we can help you achieve them.