iSectors® Post-MPT Allocations
Improved Application of Modern Portfolio Theory
By Vern Sumnicht MBA, CFP
Profound improvements in the science of investment portfolio management.
More than fifty years ago, in 1959, Harry Markowitz, one of the founding fathers of modern portfolio theory, published Portfolio Selectioni. The work on modern portfolio theory won Markowitz his share of a Nobel Prize. Merton Miller, along with Harry Markowitz and William Sharpe, were awarded the 1990 Nobel Prize in Economics for research on theories of “financial economics.”ii
It would be difficult to overstate the influence of MPT’s core principles on the manner in which investments are managed today. For insights into principles of portfolio management derived directly or indirectly from the research of Miller, Markowitz, Sharpe and their colleagues, see Exhibit A.
Post-Modern Portfolio Theory, including research in Behavioral Finance, has pointed the way to applications and technologies that can improve investment results and catapult the principles of MPT to a new level of usefulness. A sample of the research and Principles from Behavioral Finance can be found in Exhibit B.