Portfolio Management Intelligence - Analytics, Creativity, and Practical Action

Being a good portfolio manager is not about having a high IQ. Of course, you need a good base intelligence, but genius levels are not necessary. The intelligence needed for this job is different from what is measured with standard tests or found in the MBA classroom. It is also not about education from prestigious schools which have a strong signaling effect although appropriate education will help with providing foundational tools. 

Good portfolio management skills are about experience and practical knowledge applied repeatedly in order generate positive reinforced learning. There are three skills or knowledge sets needed for portfolio management: analytical, creative, and practical.

 

Analytical skill - The ability to find or measure relationships and linkages across markets and time. This could be through advanced data science but more likely through the assessment of large amounts of data that require signal extraction from noise.

Creative skill - The ability to find, manipulate, and assess new information and relationships between markets. Creativity is not about gathering information but assessing the meaning of information. 

Practical skill - The ability to convert information and learned relationships into action; make decisions or take risks. Some are very good at gathering and assessing information but cannot convert to action. A good trader will beat a great analyst who cannot take action. 

Some may say that these are the skills of any engaged businessperson or even a good artist. A businessman assesses, creates, and acts. An artist does the same. These skills are also necessary for the systematic manager who has to engage in repeated tasks. Data science skills are needed, but the true value-added for the quant manager is finding the right problem to attack with the right tools. The problem set-up is more important than the  sophistication of the tools. The features and data used in a model are more important than the techniques employed. 

Follow the thinking, not the intellect. Trust the practical narrative, not the technique. Action over elegance. Focus on the analytical decisions on not sophisticated elegance.