No matter how solid one's stock selection process is, there is always the unforeseen risk. In order to control risk, no single holding exceeds 5% of the portfolio. Additionally, the portfolio employs a proprietary “Dual Diversification” strategy, which diversifies holdings across industries and economic Life Cycles.

The portfolio will not be over-weight or under-weight in any industry or “Life Cycle” class by more than 5%. We diversify across industries because we can't forecast market sentiment or future economic shocks. We diversify across Life Cycle because we can't forecast shifts in sentiment between “Growth” and “Value” styles.

Research shows that traditionally defined “Growth” or “Value” portfolios perform about the same over the long term, but in the near term experience significant volatility relative to each other.

We believe Life Cycle diversification provides a bridge linking the two styles, which has the benefit of lowering portfolio volatility, while maintaining excess returns.

Our thesis is that Dual Diversification will force our excess return to come from stock selection, not industry selection or style selection and result in a high information ratio.