So it is within our careers. To succeed, we typically need to concentrate on an area of expertise where we bring unique depth and value. We also have to apply our knowledge broadly enough to ensure that we're learning from new challenges and applying our expertise as widely as possible.
Success is a function of breadth and depth. We need enough variety to keep life interesting and stimulating; we need enough depth to make our efforts not just successful, but meaning-full.
I've been hearing from a number of portfolio managers and traders who have benefited recently from concentrated bets in growth areas of the stock market, but who have been losing money lately. This has shaken their confidence and will make it difficult to reengage when opportunity arises. So much of what happens in the stock market--and across global equity, currency, and rates markets--is a rotation of assets out of one area and into others. Notice in the US stock market how raw materials and energy shares have been strong, but tech stocks have been weak. Just a matter of months ago, that was hardly the case!
Diversification means that we have the tools to find opportunity in multiple markets and the flexibility to deploy resources in those different areas. When we don't just have an edge, but a set of edges that are unique (not highly correlated with one another), we create a much smoother equity curve. Balancing the ups and downs of our returns is crucial to preserving a positive psychology.
The more we can achieve consistency of returns, the more likely it will be that we can maintain a consistent mindset.
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