Education Modern Portfolio Theory - Still Relevant?

Discussion in 'Share Investing Strategies, Theories & Education' started by blob2004, 26th May, 2019.

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What do you think of Modern Portfolio Theory?

  1. I believe in MPT

    2 vote(s)
  2. I don't believe in MPT

    1 vote(s)
  3. I am agnostic

    5 vote(s)
  1. blob2004

    blob2004 Well-Known Member

    6th Jun, 2018
    I have been a firm believer of MPT after reading a lot of Bernstein's books and podcasts, however the more I read into the theory elsewhere the more criticism I see from others.

    The main criticism surrounding MPT is that asset correlation is constantly changing - there is no point constructing a portfolio with back-tested data when the future correlation will certainly change. The efficient frontier is forever moving.

    There are some to even suggest that the correlation between stocks and bonds could change and become synchronized at some stage, rendering the old 60/40 portfolio useless in terms of risk reduction.

    There certainly have been long periods where bonds outperformed stocks, which you would have suffered if in an 100% equity allocation.

    What do you think of MPT? Is it still the gold standard of portfolio construction? Are the criticism simply from active investors trying to justify moving away?
    Zenith Chaos likes this.
  2. datto

    datto Well-Known Member

    23rd Jun, 2015
    Mt Druuiitt
    Well I believe in not keeping all your eggs in one basket as the saying goes.