Forest or Trees

I will go ahead and give credit for this article idea to a geopolitical author I read, Peter Zeihan.  If you have not taken the time to read his newsletters or books, they are certainly worthwhile.  Peter shares a unique perspective on various subjects across the globe.  To read more of his commentary please check out the website:

 Henry Kissinger said, “To be absolutely certain about something, one must know everything or nothing about it.” It is impossible for anyone to be a subject matter expert on every existing topic, and if there is one thing that should be apparent to everyone in the investment industry, it’s that there is no one perfect way of investing.

 Far too often, we as advisors (and clients) focus on the underlying product, constantly churning the portfolio, seeking the best product of the day.  We may not give a strategy we once fully believed in time to perform or serve its role, ultimately leading to frustration and disappointment. This is a statement about any (fund, individual stock, ETF, bond), tree inside the (portfolio) forest

 We must understand that the forest and the trees are equally important.  The trees must remain alive and upright in order for the forest to exist. The forest gives purpose to the trees.

 Both the portfolio and the investment must be healthy for overall survival.  Just as our clients delegate to us as advisors, we must delegate something as well, for we cannot be experts on everything.  What then do we delegate?  How do we find balance?

 Individual security selection delegation should happen. There are literally thousands of individual companies available for selection.  Do you, as an advisor, have time to scour the universe of stocks?  Compare and contrast them, understand their risk, or run cash flow models?  Unlikely.  Sure, we can run simple screens, and remain informed on what we own, but can’t always be the subject expert when it comes to that idiosyncratic company risk.  This delegation should to happen for efficiency and risk reduction.  A great example, you may want to find an investment manager who specializes in picking disruptive biotechnology companies!  Another way we can delegate individual security selection is through ETFs, whether they are factor based or dividend weighted.  This approach provides great diversification of idiosyncratic risk. 

 Too often, we focus all our attention on trying to be the subject matter expert on every individual security when we should be tending the portfolio. The client does not have a forestry degree in portfolio management. The client likely has expertise in a completely different area. They likely know all about the forest of engineering, medicine, law, or operations…but they don’t know how to care for their investment forest! 


 While we as advisors are likely not subject matter experts on every tree, we can delegate to experts who understand the idiosyncratic risks of those companies. We can then focus on the overall forest, and construct the portfolio in a way that helps the client achieve their goals. We need to help clear a path for our clients, and ourselves, to see and admire the forest for the trees.