Diversification goes beyond asset allocation


A recent academic paper studied investment firms who employ Portfolio Managers with similar academic backgrounds vs. those with diverse backgrounds.  Evidence suggests that most portfolio management firms prefer colleagues from similar backgrounds. Typical to many investment firms, Portfolio Managers must have a Chartered Financial Analyst designation and a degree in Business Administration or Economics. At the end of the day, this study found that long termed returns tend to be higher with the firms employing Portfolio Managers with diverse academic and experiences. More importantly: They’re also more prudent risk managers, delivering returns with smaller maximum monthly losses and shallower maximum drawdowns.

“These results are consistent with the view that the members of a diverse team, by serving as effective checks and balances for each other, help curb idiosyncratic and errant behavior” the authors wrote. Diverse teams are also better at avoiding behavioral biases that hurt investment performance. Working with colleagues from different backgrounds can make managers more aware of entrenched ways of thinking. 

Over my career working as an Investment Advisor and then a Portfolio Manager with large investment firms, I was quite aware of this “sameness” tendency within the industry. In an effort to incorporate differing analytics to my stock picking methodology, I studied Technical Analysis in the mid 1990’s. I became one of the first Chartered Market Technicians in Canada (I believe I was number 40!). One interesting story is that the Market Technicians Association, who reviewed my final research paper in pursuit of the designation, were located in one of the twin towers in NYC. Thankfully, the staff of the MTA escaped unharmed during the terrorist attack of 2001…but my paper became dust in the wind. As such, the review and approval of my paper was delayed a couple of years as they regrouped – but it was eventually done, and the the designation was awarded January 2003.

At that time, I used brokerage fundamental research to compliment my Technical Analysis – but the big firms really don’t do a good job of looking under new rocks for hidden gems. After I took my ValueTrend Management Equity Platform out of the big bank firm and went independent after 2007, I looked to bring in a Fundamental Analyst. I wanted someone who would, as the paper above suggests, offer a different background both academically and from an experience perspective. In 2012 Craig Aucoin joined ValueTrend. Craig’s background was on the trading desk of a large brokerage, and later in a research advisory capacity for a large private investor.  He obtained his CFA and has been a Portfolio Manager at ValueTrend for many years. Craig’s strength has always been in pointing out my own biases – particularly with stocks that exhibit strong technicals – sometimes without the solid backdrop of a predictable business model. He saves me from buying lousy stocks that have some momentum for the time being. We focus only on good stocks with good charts. Both conditions must be present.

Craig, on the other hand, can be almost too conservative with the risk side of our analysis. We have some dynamic discussions at times surrounding stock picks and selling strategies. As the study above notes with diverse Portfolio Manger backgrounds – Craig and I “check and balance each other”. At the end of the day, we note this diversity in analytics has helped us provide more predictable returns with less volatility. Our Equity Platform line chart, here,  illustrates this relatively smooth rate of return (with the exception of the COVID crash!).

So why do I mention all of this background, given that many readers of this blog are “loners” when making their investment decisions? Well, the answer is simple: You read this blog to learn about Technical Analysis. ValueTrend has a “contrarian” perspective at times. You can combine the Technical Analytics I endeavor to pass on with my contrarian sentiment indicators that I like to address in the blog. Now, I’d like to suggest that you add a completely different viewpoint to your learning and investing process. Combining solid research and education from diverse backgrounds can help you experience some of the benefits that Craig and I find in our process.

A few worthy analysts worth exploring with greatly differing strategies than my own include:

  • Howard Marks of Oaktree Capital (he writes a regular newsletter free of charge).
  • You could also consider reading publications like Investors Digest, Moneyletter, MoneySaver – all of whom present various opinions (I write for all three of these publications, but I am only one of many who do so).
  • Paid subscriptions to research services like 5i Research, or even Seeking Alpha’s premium services might help offer new perspectives.
  • Brooke Thackray publishes videos, and an excellent newsletter focusing on seasonal patterns – and its free. Plus, he writes a fantastic rant at the end of some of his pieces. Great fun – Brooke always presents an interesting perspective
  • Read a fundamental investment book such as those by Peter Lynch (One up on Wall street) or Benjamin Graham (The Intelligent Investor). They’re old, but still good.
  • Learn about little known analytical tools that might give you an edge over most investors; not to be too self-promotional, but my new book Smart Money, Dumb Money; beating the crowd through contrarian investing is coming out in July.  I believe it will be quite enlightening to readers looking for that edge. BTW–I did a video on Friday outlining one of these tools. Here is the link for all of my videos.

The bottom line is to get some push-back in your investment process. Sometimes a different analytical approach will find holes in your bullish argument. And that might end up saving you money. Or, that might end up pointing out some new ideas.

Do you have favorite research services that offer perspectives outside of technical analysis? Pass them on in the comment section below!

Happy trading!



  • Great blog, Keith. Wondering though, did you mean 5i Research or is there a 4i Research?

    • Thanks for catching that Fred. I just corrected it! I was thinking of my own four-eyed glasses wearing self!

  • Hi Keith,

    Did you ever obtained the CFA designation, and if not, just curious why did not, as you mentioned the traditional path to being a portfolio manager is the CFA. With the backdrop that CMT or TA is officially frowned upon by stodgy PMs, its curious that you chose to pursue CMT over CFA, assuming you did not.
    I always enjoyed your blogs and articles you contributing writers to certain newsletters as you have a easy to understand, conversational approach to imparting knowledge to the market operations.

    • Silver- When I was about 19 years old I was fortunate to have been influenced to read a book called “Think and Grow Rich”–I have literally read the book (and listened to audio reads of it, and read every updated version, and interpretations of it….) about 100 times through my life. Not a joke.
      One of the key thoughts expressed by Napoleon Hill was “Specialized Knowledge”. Another chapter talked about forming a “Master mind group” –aka experts to consult with from differing specialties. In that book, he tells the story of Henry Ford when he sued a journalist for calling him “ignorant”.
      After many questions by the journalist in the court trying to show the jury that Ford didn’t have much of a broad level of knowledge–Ford finally said” If I wanted to know any of the things you just asked, I have a row of pushbuttons on my phone that will connect me to people who work for me who know the answer, or will find it for me. I hire other people to be experts at different things. Why should I hamper my brain by filling it with a myriad of information when I need only focus on one thing, and hire others who have specialized knowledge in other things?”

      It was for that reason that I chose to get my CMT and try to be an “above average” Technical Analyst–a purist with specialized knowledge and strive to be amongst the best in the field. I was originally able to get my PM license with a CIM designation and a certain level of assets and experience (before that I was an Investment Advisor). As for the CFA–I relied on outside expertise for fundamentals (research, quant programs, etc), and eventually hired a CFA (Craig). Craig is a smart CFA. I am a decent CMT. We each know a lot about a little (one specialty) rather than a little about many things.
      In a nutshell- I believe you cannot be great at a lot of things. Only good at best. But you can become great if you focus on one thing.
      Lance Armstrong never made it as a bodybuilder, and Arnold Schwarzenegger never won the TDF. Even at my old age level, I could beat Tiger Woods in a bicycle race, but not at golf.
      You get the idea…

  • As usual great post Keith. Big fan of your blog and videos. Really like diversification around different asset classes.


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