Taleb Tearing Modern Portfolio Theory Apart

I’ve been ranting lately about the shortcomings of modern portfolio theory. Spending time with fund researchers Lonsec and Zenith hasn’t helped my blood pressure. The point of difference is not around stock selection or returns, but risk management. We spend our lives worrying about business risk and mispriced threats, like the risk of China blowing up. Zenith and Lonsec (and the rest of the conventional financial community) aren’t worried about China. Not yet anyway. As long as your historically-measured volatility and correlation are low, you are safe. From my first day at university I’ve thought that was dumb. Volatility...

I’ve been ranting lately about the shortcomings of modern portfolio theory. Spending time with fund researchers Lonsec and Zenith hasn’t helped my blood pressure. The point of difference is not around stock selection or returns, but risk management. We spend our lives worrying about business risk and mispriced threats, like the risk of China blowing up.

Zenith and Lonsec (and the rest of the conventional financial community) aren’t worried about China. Not yet anyway. As long as your historically-measured volatility and correlation are low, you are safe.

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