Co-Founders' Monthly Note For Financial Advisors

December 2024:

Resilience Is the Goal, Not Perfection

In investing, the allure of certainty can be hard to resist. When parts of a portfolio underperform in the short term, the urge to abandon them grows, driven by a desire to focus solely on what’s working. But this desire often leads investors away from the principles of diversification — principles designed to build resilience over time, not deliver comfort in the moment.

Behavioral psychology helps explain why. 

Recency bias, our tendency to overemphasize recent outcomes, tempts us to double down on short-term winners while discarding slower-moving assets. This instinct is natural but can be dangerous. It ignores the fact that markets are dynamic, and today’s laggards can often become tomorrow’s leaders.

For trend followers, diversification is non-negotiable. A systematic, data-driven approach can be used to allocate across markets — knowing that not every position will perform at the same time. This discipline ensures the portfolio is ready for whatever comes next, even if it means enduring temporary discomfort.

Resilience, not perfection, is the goal. 

A well-diversified portfolio isn’t built to make every position shine in every market. It’s built to adapt. This means accepting the ebb and flow of performance without second-guessing the process. In moments when diversification feels frustrating, it’s worth remembering that resilience comes from sticking to the plan, not reacting to short-term noise.

As the year draws to a close, predictions about what’s ahead will swirl. Inevitably, many will miss the mark. That’s why we focus on a systematic approach, allowing markets — not opinions — to guide us. While systematic trend following isn’t immune to challenges, its emphasis on discipline and adaptability has repeatedly demonstrated value in helping navigate uncertainty.

In this Co-Founders’ Monthly Note, we explore how diversification and discipline shaped our approach in another year of unexpected twists and turns.

But first, here’s a summary of our take on what transpired in the markets in November.