158 THE CREATIVE INVESTMENT TEAM
and therefore, well, DIFFERENT! (Like that in itself is bad.) In
short, you will run a risk.
So, let me present a half-baked idea that I’ve been toying with.
Perhaps it will encourage you to run with an idea of your own.
I started with the idea that diversification in portfolios is good.
Most investors understand and use this principle. Then I played
with that idea a little, turning it this way and that. For example,
what kind of diversification? Geographic? Okay. Market size? All
right. Industry exposure? Sure. Most portfolio managers would
agree that you don’t want to be too lopsided with any of these
factors, unless, of course, that’s your strategy (for instance, if you
want to invest only in small-cap stocks). Fine.
Short of making a conscious bet on some factor, most manag-
ers try to balance out their portfolios.
Then, I thought, is there an area where this principle doesn’t
hold? Where all managers are loading up on a certain factor with-
out offsetting it? Twenty years ago, one could have said, yes, all
the companies in most portfolios are run by white, middle-aged
males. Therefore, that factor is not being diversified; it’s constant
throughout. (Today, the diversity funds mentioned elsewhere in this
book are addressing this issue.)
How about another factor? Can you think of one that is cur-
rently undiversified in today’s portfolios? The one that jumps out
for me, given my interests, is personality types. Companies—or
portfolios—that aren’t balanced in this regard will suffer in the
marketplace. For example, I’ve been working with a distribution
company that has a good mix of lions, owls, and dolphins, but no
foxes. That’s a problem because foxes are natural salespeople. They
are the ones who make it happen. Another company that I consult
with is lousy with lions at the top, even though they are in a busi-
ness that requires radical change. Not a good outlook, I’d say. This
concept of balancing the types within a company or portfolio makes
sense to me. But can you imagine what a risk it would be to imple-
ment with client money!?14-25 ware 158 1/19/01, 1:15 PM