How do we assess information to make sure we are making the best decision for our present and future selves? This question has fascinated me for years. If you want to live an intentional life, you need to develop a consistent way to validate whether information is true or false, the context of events, and how to forecast courses of action with their potential consequences. Defining how we proactively search for past information to provide context, how that guides our interpretation of new information, which then leads to us making a decision, is a difficult and time-consuming task for an individual. However, nearly two-hundred fifty years ago, a group of men set out on a path to build such a system not just for themselves, but an entire nation. As an American, I’ve been profoundly influenced by their ideas on the importance of being less wrong on the big questions, rather than precisely right – or wrong – on every question.

Portfolio Management for Governments

As many of you know, I have a deep appreciation for diversification. Diversification expresses a belief that the future is very difficult to predict, but that we believe humanity, powered by people pursuing their self-interest (through great businesses), will continue to improve. The genius of the Founding Fathers is that they studied history, saw the pros and cons of various governments, and then built a diversified system of government with branches that move at different speeds along the decision-making process. In investment terms, we’d call this a portfolio of low or non-correlated assets – built to weather storms and thrive long-term.

Low Correlation

When looking at ancient history, the Founders knew that a pure democracy, such as ancient Athens, was too volatile. When everyone was rowing in the right direction, Athens was a powerhouse. The problem was that a passionate voting public and persuasive demagogues could steer Athens in the wrong direction, sometimes with disastrous consequences. Instead, a Roman Republic model would serve as the starting point, with a quasi- bicameral legislature (Tribunes of the Plebs & Senate), executive branch (Consuls), and judiciary. This system of government was already designed to take into account different constituencies, timelines to interpret information, and incentives.

Tribunes were elected annually by Rome’s commoners (the plebeians) and held significant power to propose legislation and veto almost any public decision, including those of the Senate and consuls. While they could not pass laws singlehandedly, the laws they introduced were voted on by the Plebeian Council — a powerful assembly of non-aristocratic citizens. This setup gave ordinary Romans a direct voice in government and served as a fast-moving counterweight to the lifetime-appointed Senate, which represented aristocratic stability. Consuls (there were two each year) were elected by all male citizens, served one-year terms, and were commanders-in-chief during wartime.

The Founders then took this information, reviewed the failings of the Roman Republic, and retooled the ideas for the United States. The problem with the Tribunes is they represented the concerns of Rome and Italy, not the various provinces the Republic controlled. Our Congressional representatives would need to come from every state to represent their unique interests, not just the capital city. Congress can draft laws, but it cannot pass them unilaterally like the ancient Tribunes. In our system, the Senate must also pass the law before the law reaches the Executive branch, which is controlled by one individual (not two) and has the power to veto or sign the bill into law.

We also have term limits that incentivize different forms of thinking. Congressmen with two-year term limits are expected to respond rapidly to the needs of their constituents. But constituents can be wrong about the short- or long-term implications of issues so Senators, with their six-year terms, are more insulated from short-term pressures and better positioned to make strategic decisions. Finally, we have the President, who is elected by an electoral majority of all voters and has a four-year term.

Even before we get into federalism and states’ rights, we see a federal government designed to process information at different speeds and on different time scales. It aims to make the best decisions for the greatest number of people, most of the time, across time and space (yes, I’m aware of the irony here and I’ll get to that).

The Investor Policy Statement & Judiciary

The Achilles heel of the Roman Republic was that while it had a judiciary system, judiciary positions were political appointments, and while Rome had codified laws like the Twelve Tables, it lacked an independent judiciary with the power to review or overturn laws passed by other bodies. In Rome, it got to a point where the check on power was how far someone could push the other side before starting a civil war. The Founders solved this by making the judiciary a lifetime appointment and encoding their rules for governing in the Constitution. The Constitution operates similarly to an investor policy statement, a document written in advance, agreed to by the applicable parties, and governing future decisions. The Courts, with the Constitution as a guide, would be empowered to interpret the legality of laws passed by Congress or actions taken by the President. In other words, there would be an umpire—an impartial referee—in the U.S. federalist system.

Finally, while the Founders had a firm grasp of history, they wanted an informed society to be able to make changes to the Constitution. They set a high bar for constitutional change, but believed that if it was met, the change would be grounded in enduring truth. Thankfully, this is how slavery was eradicated by the law (with help from force of arms), women’s suffrage was enacted, and voting rights were given to non-property owners.

Conclusion

“The best portfolio is the one you can live with and stick to” is a common quote amongst financial advisors. This year marks 238 years since the Constitutional Convention—and our Republic is still standing strong. Not only has the United States endured, it has become the most prosperous, free, and powerful nation in history. That doesn’t mean we don’t face challenges, but I believe in a system built to safeguard individual rights, adapt over time, and seek truth through a process guided by individual self-interest. To me, that’s what makes the Founding Fathers the greatest portfolio managers in history: they built something resilient, balanced, and worth sticking with.