Diversity

Diversity provides strength to weather the storm. Whether you're at the helm of your ship at sea, hiring a crew to sail your ship or investing in the markets, embracing diversity will improve your skillset and better prepare you to achieve success.

Incorporating diversity within the world of investing enables you to match your strengths with weaknesses and overcome challenges beyond your imagine. If you do not engage the financial markets with a diverse portfolio and techniques, you may be heading for rough seas. Having a diverse investment portfolio, at the very least, will help you avoid a major hit to your balance sheet. Many investors both large and small have taken unnecessary hits due to heavy positions in one particular sector during a downturn.

 

 

Diversity With People And Investing

Building a team with people from diverse backgrounds, interests, cultures and educations provides you with a unique opportunity to tap into a resource more closely aligned with the issue or scenario you may be focused on at a given time. If everyone shares the same education, background and interests, your team may all share similar strengths and weaknesses. Too much strength in one area may prove to be a waste of assets and a lack of strength leaves your team unprepared.

This concept is easily transferered to the investment world.

If you have your investment portfolio heavy in the tech sector, you may have a really good day when the tech sector is in rally mode, but you may incur substantial losses if the tech sector is having a down day.

One of our key fundamentals for investing is to diversify our portfolio across many sectors and consistently adjust our portfolio based on news and sector performance. If we identify opportunities within one sector and potential hazards within another, we make adjustments to our portfolio to maximize the opportunities and avoid the hazards. This technique is frequently applied to all aspects of investing from adjusting positions within individual stocks to making adjustments between different sectors and even rebalancing financial assets across stocks, bonds, options and other derivatives to maximize gains and minimize risks.

Some asset managers tend to take a long term approach to thier investments and open positions based on anticipated returns six, twelve or eighteen months out. This type of management technique gives them freedom to focus on other opportunities while they wait out the full potention of a given position, but it comes with risks as well. For example: The first three quarters of 2022 have shown significant declines across the major indexes. If you opened positions in January of 2022 and thought you would just wait out for the full potential of an opportunity, odds have it you could look at that same position today and be disappointed in the results.

Here at BlackFlag, we take a different approach. We understand things can quickly change in a brief moment so we are consistently assessing our positions and making adjustments on a frequent basis. As overall market sentiment turns positive, we increase our long positions and reduce our short positions. When market sentiment turns negative, we may reduce our long positions and add to our short positions. One general rule of thumb we follow when considering every opportunity is as follows:

 

Does this position seem favorable three days from now?

Three weeks from now?

Three months from now?

If the answer to all three questions is yes, then this may well be a favorable opportunity.