Ben’s Lessons in Portfolio Management

Benjamin Netanyahu, after years of fierce reluctance to accept a Palestine state in the Middle East, for the first time accepted the idea of Palestine coexistence along side Israel.  There are questions concerning the motivation for his reversal, and the long list of caveats tied to his so called “vision of peace,” but clearly there is the recognition that diversity is ok.  In fact, an acceptance of diversity could lead to increased stabilization in what is undoubtedly the most volatile political arena in the entire world.

On the surface it seems that there is personal security in homogeneity, and risk in heterogeneity.  Surrounding yourself with people who act and think like you do is a low risk scenario.  Most likely they will agree with your suggestions, and support your ideas.  You will have similar communication styles, likes and dislikes.  You will feel comfortable with each other in being able to anticipate responses and foresee criticisms.

Ironically, this comfort breeds instability, and diversity actually drives the development of longer term foundations for continued growth.  One of the fundamentals of investing is portfolio diversification.  By diversifying a portfolio, you reduce the economic risk associated with a single security’s volatility.  If your portfolio is sufficiently diversified, when one stock loses value, another will gain, and the ultimate peaks and valleys will be minimized.

These same principles apply to start-up businesses.  When we interview candidates, it’s always easy to select the individuals that are most like ourselves.  They respond to questions the way we would respond, and consequently we think that they are polished and intelligent.  We tend to surround ourselves with people that think and act like we do.  They agree with our suggestions and support our ideas.  While it feels like we are creating a stable long term work environment, we are, in actuality, increasing the volatility and the risk associated with a myopic perspective.

It’s important to surround ourselves with people that think differently from us.  People that are comfortable challenging our ideas and that offer contrarian viewpoints will add the most value to our business teams.  Ultimately, this will reduce the risk in any organization, improve the quality of decision making – and therefore increase the long term stability of the management team and the organization.

Interestingly, most of our world’s problems can be traced back to a lack of appreciation for and an encouragement of diversity.  The willingness to accept, and embrace ideas and ideologies that are different from our own will improve the quality of our thoughts and reduce the volatility in our actions.  We need to recognize that solutions that are derived from diverse teams will have the benefit of multiple perspectives and ultimately make our world stronger.

I’m not sure if Mr. Netanyahu bears all of these things in mind, or if his acceptance of a Palestine state is sincere, but I applaud his efforts to evolve from his previous position and seek to accept diversity in the Middle East.  And I recognize that this is a step in the right direction from which we can all benefit.