TRADING: To Specialise Or Not to Specialise, That Is the Question…
“Specialization is obvious: keep going straight. Breadth is trickier to grow.” – David Epstein
In his book ‘Range: why generalists triumph in a specialised world’, David Epstein tries to answer the question about whether specialising in one area is more advantageous than having a more general background. The book contains many tales of people from the arts, sports, business, science etc. who have achieved many great things. The choice between specialisation and generalisation is it depends. When activities are repetitive then the former is preferred. However, when activities are complex the latter is superior. People who have participated in a broad range of activities and situations are better able to tackle complex problems by applying various solutions that they have acquired in their past. They are more immune to “tunnel vision” when compared to a specialist. They can approach a problem like a light passing through a prism and break it down into pieces that can be solved in diverse and creative ways.
Entropy
The financial markets have always been complex. However, with central bank activity over the past decade, it has given the impression that this underlying complexity is no longer there. “Just buy the dip” (BTD) has been a mantra for the industry and has spawned an entire suite of products that have attracted billions of dollars. But like the principle of entropy, calm systems tend towards chaos and increased complexity. And so, we find ourselves in today’s world.
What do I think and how do I do it?
Two main questions that managers must be able to answer always are: what themes do I believe in and how do I express this view? Oftentimes, the answers to both questions lie outside the manager’s direct line of expertise. It may be necessary to take into consideration what is going on in another asset class for example to formulate answers to “what do I think”? and “how can I express it”? Where the manager already has knowledge, dialogue with others can help confirm views or raise additional questions that the manager had not thought of. Both of which help attain the goal of maximising profit and minimising loss.
Evolution of a Trader
Having exposure to multi-asset traders therefore can be an extremely valuable asset. Just as the process of trading has evolved to become more electronic, there is an increasing demand for traders who are able to execute and structure trades for managers across different asset classes.
With the world becoming increasingly complex, perhaps it is time to think more generally and less specifically.
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Quay Partners Group delivers bespoke investment management solutions to independent hedge fund managers and family offices.
Supun Ekanayake is a Partner at Quay Partners Investments (UK) LLP and has over 15 years’ experience trading across asset classes.