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I was frustrated, overworked, wondering if I was really allocating client accounts the right way. I was tired of paying high management fees to managers and I looked all over for a solution. I simply couldn’t find what I was looking for.

Strategic managers aren’t engineered to protect clients the way my clients want to be protected. Strategic managers simply cannot protect clients in a down market. It’s simply not what strategic managers are built to do. They buy and hope. They take their lumps and tell you to ride it out, leave your money with them.

So then you’re told you need to diversify. But exactly the time that you need diversification the most is often exactly the time traditional diversification lets you down the most. In those stressful market times, that’s when those “efficient frontier” portfolios have correlations go to one and diversification isn’t worth a hill of beans. Think about 2008. Think about 2001. Those were the times when you needed diversification, and what good did it do to have money in different countries or in commodities or emerging markets? They all cratered.

So I looked at tactical managers. It seemed like every time the market sneezed, they’d go to cash or make some other decision I could never understand. They’d get whipsawed back and forth. Have you ever seen that happen?
I wanted something that looked like a strategic portfolio in a bull market, but offered some protection from a bear market. I looked. And looked. I couldn’t find it.

So I built it.

In the early 1990s, when I was a stockbroker, I started writing some rudimentary computer code to help me pick stocks. Using that algorithm as the foundation, I began working on it to fix what I knew were some of its inherent weakness (since I had used it for years).

We adapted it to the most important aspect of the investment management process: asset allocation decisions. What we developed is a fundamentally different approach to asset allocation; smart asset allocation. We call it Smart Diversification®.
After years of testing, adjusting and working with a team of coders, we began using it. That is the sole reason I built it. There was not the first thought of sharing it with anyone.

But as I spoke with other advisers, I realized many of us felt the same way I had. Other advisers were looking for the same thing I was. They hated telling clients to “just ride it out” with a strategic manager, suspecting they were standing like a deer in the headlights staring at a bear market. They hated trying to explain to clients why the market was up double digits and their tactical manager was down double digits.

I realized I wasn’t the only one.

That’s why we launched Luken Investment Analytics in 2013.