Post modern portfolio theory

History[ edit ] The term post-modern portfolio theory was created in by software entrepreneurs Brian M. Rom and Kathleen Ferguson to differentiate the portfolio-construction software developed by their company, Investment Technologies, from those provided by the traditional modern portfolio theory.

Post modern portfolio theory

Login This article was published on May 15, The investment strategy and opinions expressed in this article are those of the author and do not necessarily reflect those of the publisher, staff or editors at Uncommon Wisdom Daily or Weiss Research.

For some of you, this may seem like it is a "pie-in-the-sky" theory. Harry Markowitz published this concept in March in a Journal of Finance article called "Portfolio Selection," and further developed it in a book called "Portfolio Selection: Efficient Diversification of Investments.

Harry is the man, plain and simple. The end of mobile? Get all the details in just a few short hours. Simply turn up your speakers and click this link 15 minutes before noon Eastern time. I replied to him that he had just met Harry Markowitz, to which he replied, "How did you know his last name?

Markowitz noted that he called it "Portfolio Theory" because "There is nothing modern about it. A great way to think about MPT is that it causes one to not "put all their eggs in one basket.

He is doing investors a service with this work. However, investors could benefit from taking it one step further. The missing piece for investors is knowing which assets to just avoid because they offer little return and greater risk than other assets.

Given the draw-downs that most reading this article have lived through, it is understandable how many investors are willing to consider or be sold the PMPT approach.

Post modern portfolio theory

All investors have a certain risk profile. Many know that a year-old has a greater risk tolerance than a year-old. The logic goes that a year-old has more time to make up for a bear market than a year-old does. The PMPT crowd argues that measuring the risk to get a return with minimal risk is more important.

MPT finds that a loss of greater than How do we explain that?Post-Modern Portfolio Theory (PMPT) is a portfolio optimization methodology that uses the downside risk of returns instead of the mean variance of investment returns used by modern portfolio.

Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversification in investing, the idea that owning different kinds of financial assets is less risky than owning only one type.

Post-modern portfolio theory (or PMPT) is an extension of the traditional modern portfolio theory (MPT, which is an application of mean-variance analysis or MVA).

3 Flaws With Post-Modern Portfolio Theory - Uncommon Wisdom Daily

Both theories propose how rational investors should use diversification to optimize their portfolios, and how a risky asset should be priced. Post-modern portfolio theory is built on a deeper relationship between client and advisor, where the conversation focuses on the client experience as opposed to statistical metrics.

3 Flaws With Post-Modern Portfolio Theory Posted on May 15, by Geoff Garbacz If you have a money manager in charge of your assets, then there is a good chance he or she may be using Modern Portfolio Theory (MPT) to manage the portfolio in which your assets are domiciled.

Post-modern portfolio theory (or PMPT) is an extension of the traditional modern portfolio theory (MPT, which is an application of mean-variance analysis or MVA).

Both theories propose how rational investors should use diversification to optimize their portfolios, and how a risky asset should be priced.

Post-Modern Portfolio Theory (PMPT)