SlideShare ist ein Scribd-Unternehmen logo
1 von 7
Downloaden Sie, um offline zu lesen
What is Modern Portfolio Theory (MPT)? Modern portfolio theory (MPT), more than
fifty years old, is not quite so modern anymore. MPT is based on two underlying
assumptions: efficient capital markets and their continuity. MPT uses the capital asset
pricing model (CAPM) and multivariate analysis to create an ‘efficient frontier’. The
CAPM is a model for the risk-based pricing of capital market assets, principally stocks.
As such, it divides risk into two basic components: systematic (beta) and unsystematic
risk (alpha).
The multivariate analysis is between the prices of the assets in the same risk class or in
the same portfolio to see which assets have risk factors that cancel each other out. In
theory, one can create a portfolio that accepts a certain level of market-based risk but
which minimizes the linkages in pricing patterns among the various possibilities. In a
sense the efficient frontiers grants an investor the biggest bang for his bet.
In theory, one could diversify away 90-95% of the unsystematic risk with fifteen un-or-
slightly correlated investments. Taken to its logical end-point, investors would cancel out
each other’s alpha returns. More radically, taken over time, the reasoning argued,
investors would cancel out their own alphas as the market caught up to them in
integrating the overlooked value driver into the security price. Thus, the rationale for
index funds – the equivalent of buying one share or bond of every security in the market
– was born.
More on the Capital Asset Pricing Model (CAPM) and its progeny. For traditional
capital markets practitioners, risk is measured by the historical volatility of asset prices.
In its purest form, the CAPM is a simple correlation model to price an asset through the
well-known equation of y=Bx+A. Beta is the correlation coefficient between the
particular asset and its larger market. The independent variable, the ‘x’, is the change in
the market value. Thus, as the dependent variable, Beta becomes a measure of
volatility relative to market volatility, or the systematic risk. The Alpha is the element of
an asset’s return that cannot be explained in relation to the market, or unsystematic risk;
in a geometric setting, the Alpha corresponds to the y-axis intercept.
The idea of a positive alpha is appealing to most investors since they want a bigger
bang for their bet. Practitioners argue that such unsystematic risk factors include things
like leadership quality, a new invention about to hit the market but not yet properly
valued, regulations or conditions unique to a particular industry. Alpha also captures, in
retrospect, poor estimates made by the market for the unaccounted for return, under the
CAPM has nowhere else to go. As one may expect, the CAPM has met with a great
deal of skepticism for its heroic assumptions:
1. immediate and accurate impounding of information into asset prices;
2. capturing so many different elements of market risk in the beta of companies so
varied in their exposures to these elements;
3. the continuity of stock prices; as well as,
4. the irrelevance of the basic supply and demand elements of the security itself on
the trading floor.
In the 1970s and 1980s, several multivariate models sought to break the Beta out into
four or five specific value-drivers. Under these correlation-driven models, expected
returns are those which the market, or the set of value drivers, predicts as captured by
the beta or the correlation coefficients (B1, B2…) plus the historical alpha. The implicit
assumption was that these few elements would capture almost all of the market risk.
Other assumptions remained the same as they did under the CAPM. These models
have faced controversy over which factors ought to be included.
The eclipse of the CAPM and MPT. For example, one such ‘value driver’ was the
price of oil. When that crashed and stayed low for more than a decade from the mid-
1980s on, that model lost its predictive power. That is to say: the past is always trying
catch up with the present. These statistically based pricing models are ingenious but
have never been accepted by a particular class of investors: technical analysts. These
people look to specific price changes, or pricing patterns over a short period of a
specific security (stock or bond). This ‘chartist’ method implies strongly that asset prices
are not continuous but change discretely. These ‘chartists’ are not alone. Though
focused on other variables the following classes of investors largely disregard the
principles defined by MPT and the CAPM:
1. private equity (expertise by the fund’s partners, ability to keep information from
the market and capacity to leverage outside talent);
2. venture capitalists (more like private equity but chasing that unparalleled return in
smaller companies through disruptive technologies or products);
3. seed and angel investors (knowledge of local investment conditions; looking for
ground-floor entry into disruptions);
4. algorithmic traders (fastening artificial intelligence on the traditional discipline of
technical analysis);
5. emerging market investors (looking to exploit local market deficiencies); as well
as,
6. value and vulture investors (looking for under-priced securities, often
opportunistically and in defiance of the market).
People argue that Venture Capitalists, Private Equity and Emerging Markets investors
actively diversify their portfolios, consistent with MPT. But three behavior and
investment propositions of these investors belie that assertion. First, most high-risk
investors don’t diversify across the economy; they focus on one industry, segment or
investment venue. Second, in the case of angel investors and venture capitalists, one
can argue that diversification does not seek to eliminate unsystematic, or company-
specific, risk. Instead, these funds are using proprietary knowledge to increase the
likelihood of finding a disruptive company (GOOGLE, Facebook, et al.) from one in a
thousand to one in twenty. Finally, the target companies of these investors tend either to
have few (if any) historical antecedents thus breaking down continuity of asset values.
The legacy and rapid eclipse of Modern Portfolio Theory. The practitioners of MPT
changed the standard of fiduciary responsibility from the prudent man rule (looking at
the risk / reward trade-off of each investment in isolation) to the prudent expert rule
(premised on the belief that portfolio diversification would permit greater risk assumed
on a particular investment embedded in a diversified portfolio). The implicit assumption
was that people would never knowingly bet on a company destined to go out of
business. Over the last thirty years, the capital markets have not so much rejected MPT
as made it irrelevant. These factors are simply of few of the shifts that changed the
investment landscape radically in one or two generations.
 The death of conglomerates in the 1980s and 1990s. With the thinking of Michael
Porter’s competitive advantages, many of the leading consulting firms rejected
portfolio investing practices of large conglomerates in favor of focusing on ‘core
competencies’ that could be protected by barriers of entry and defended by
market share. The rise of maverick investor-businessmen, like T. Boone Pickens,
ushered in this trend in the early 1980s.
 The advent of individual investors in the late 1970s. There have always been
individual investors, namely wealthy people with money they can afford to lose
and entrepreneurs with their sweat-equity. This arena widened in the later 1970s.
Though the ERISA retirement act introduced the idea of “prudent professionals”
in 1974, enshrining MPT, that glory was short-lived. By the 1980s, individual
retirement accounts had become popular through a loop-hole in provision 401-k
of the internal revenue code.
 The first technology wave of 1982-2000. By the 1980s and Apple computer,
Silicon Valley had emerged as a distinct economic ecosystem (under
development since the 1930s). This was the first wave of disruptions toward
individual computing and mass-marketed information technologies. This
phenomenon made the venture capital bet – staked as it is in inefficient and
discontinuous markets – more plausible versus ‘settling’ for market returns.
 The stock market crash of 1987. Program trading was caught in a feed-back loop
that denied the managers the ability to control their portfolios. While the dramatic
one day decline reflected a ‘hyper-efficient’ adjustment of the New York Stock
Exchange to empirically verifiable stressors, the precipitate decline argued for
structural discontinuities and inefficiencies across the market.
 Accelerated liquefaction of financial assets 1988-2008. This factor emerged with
the need to expand the credit pool with the then-record deficits of the 1980s.
Asset securitization converted normally illiquid assets (e.g., home mortgages or
car loans) into a source of liquidity by bundling up thousands of similar assets
and factoring them en-masse to the capital markets. One unintended
consequence of this practice was to diffuse the ‘unsystematic’ risks of assets like
sub-prime mortgages or car-loans across the capital markets.
 Globalization in the 1990s and 2000s. MPT had been based upon the U.S.
securities markets, though it was easily extended to other developed nations.
Globalism brought all manners of markets, some drastically less efficient and
more susceptible to insider manipulation. MPT and the CAPM simply could not
be one size fits all. The best signals of the discrete changes among and within
markets were the Asian financial crisis of 1998 and 9-11. Markets were not
impervious to manipulation and sharp discontinuities.
 The collapse of defined benefit pensions and other rewards for careerism.
Individuals started usurping the professional role in investing their funds in thrift
savings plans when the middle-class squeeze become more evident in the
1990s. This trend increased as pension plans became strained and switched to
defined contribution plans or as collapsing companies wiped out people’s
retirement and profit sharing funds. Individual investing, disengaged from
financial expertise, gained its fullest bloom with individual day traders in the late-
1990s, inter-net investing through companies like eTrade in the 2000s and
crowd-funding during the current decade.
 The second technology wave, starting 2006. This is the wave of social media.
The idea of sharing information has extended to services and will eventually
permeate the sector of capital goods. The big winners here are household names
like Facebook, Über, Linked-In, Air BnB, Slideshare, etc. Disruptive companies
come out of nowhere, or so it seems; they cannot be anticipated as there are few
(if any) historical antecedents. MPT is not designed for an economy of individual
achievement and serial disruption. The status quo never calms down enough for
the concepts to apply.
 The near melt-down of 2008. This situation was potentially catastrophic. What
triggered the global tantrum was a small segment of the loan market, securitized
sub-prime mortgage loans hidden beneath portfolios of securitized assets backed
by high-ratings and credit support. When this market collapsed, the soft belly of
securitized assets soon emerged to collapse banks around the world. In
diversifying securities, many institutional investors unwittingly doubled up on the
risk by purchasing vastly under-priced collateralized securities backed by terrible
assets.
 Excess liquidity, historically low volatility of the money supply post-2008. The
liquidity push by the Federal Reserve after the dot-com bust, 9-11 and,
especially, the quantitative easing of the Federal Reserve and other state banks
(including the European Central Bank) following the 2008 debacle, has set the
market up for a liquidity trap (in which no amount of liquidity spurs activity) and
could be followed by a possible run-away inflation if the velocity of money
accelerates too quickly for liquidity to be withdrawn from the system.
Reframing the idea of MPT in the age of the Unicorn. MPT is gone; it was a great
theory for a corporate civilization at her zenith, when the status quo seemed to be
everlasting and people had little reason to question authority or their future prospects.
For the good reasons noted above, plus many others, MPT is not that hot a topic of
discussion anymore. What we see in the post-MPT world is a clutter of index funds,
which can not escape sudden societal reversals (e.g., run-away inflation) and people
throwing ‘Hail Mary Passes’.
To be sure, the variants of the long-bombers may not resemble each other. Yet they do
share a desire to beat the odds. Venture Capitalists and, increasingly, Private Equity
Funds are looking for that one-in-a-thousand company that will bury the dozens of
losses. These companies are known as Unicorns (e.g., Paypal and Twitter). What does
a Unicorn look like? There are many examples. Snapchat is a good one because its
value proposition and product concepts seem to require a leap of faith. Snapchat
provides for the sharing of self-deleting photos and text so people do not have to worry
about a stupid picture wrecking their careers as it careens across the inter-net.
This product concept, while relevant, would strike many people as narrow. Yet, in three
years the assessed value of Snapchat has risen from a set living room furniture to
between $10 and 20 billion. Since valuations are speculative, funding histories give a
more concrete picture of the way of the Unicorn. Snapchat was created as a concept in
2011 in the living room of a student’s family. It received its first financing of less than
half a million dollars a year later. In just thirteen more months, in June 2013, Snapchat
had raised 195x the amount of its first round. In another two years, until now, Snapchat
has raised in excess of 11x the amount of money it had in 2013, to $1.1 billion and
‘implying’ a valuation of $15 billion or more.
So where does portfolio investing fit in? Absent three to five investments in their
best portfolio companies (less than 1%), Kleiner Perkins or Sequoia would consist of a
group of geniuses running a fund that barely matches the performance of market-index
funds. This statement is not intended to disparage the titans of Sand Hill Road but to
clarify just how strong – and elusive – the Unicorn is. Yet, two of the key concepts – one
implicit and one explicit – of MPT remain alive and well. The explicit value is the wisdom
of intentional diversification. That is to say: diversification willfully and willingly
undertaken by those not seeking unicorns but more reliable returns on controlled
investments. The other is the ‘people’ part of market efficiency.
The returning relevance of diversification. Venture Capitalists claim to diversify their
portfolios. That is not true. Most focus on narrow segments of emerging industries. That
is a wise idea: capitalize on the superior knowledge of the fund managers to make the
most educated bets. Yet diversification is really a by-product of the venture capital
discipline. At their founding, most of these disruptors (i.e., the portfolio companies) have
limited capital appetites. The investments have to go somewhere.
Secondly, the thinking goes, by investing in hundreds of companies, of which two or
three need to succeed as disruptors for the fund to make out-sized returns for – and
‘earn’ out-sized fees from – investors, Venture Capital funds increase their chance of
catching a Unicorn; cast a wider net to catch more fish elevates the chance that the
mermaid will turn up, too. So diversification is not intended to smooth returns and
mitigate risks in this case. Truly, Venture Capital funds are swinging for the fences on
every pitch, waiting for one to be a hanging curve-ball.
People, people, people. The other principle left standing from the MPT framework is
the ‘people’ factor in market efficiency. This idea is implicit in the mechanics of how an
efficient market works in the real world. In their hey-day, blue-chip stocks had dozens of
publicly published (“sell-side”) analysts touting the strength of the companies being
studied. Complementing that were the private opinions of hundreds of analysts and
portfolio managers (on the “buy side”) in considering various investments for their
particular investment funds.
These people would talk, exchange information, debate and hang up on each other in
the course of an investment cycle. That interaction, far more than intrinsic strengths of
the stock, bond or company, impounded the publicly available information into a
security’s price, more or less as a fuzzy. Additionally, because of investment restrictions
and fiduciary constraints, most of these CFA and other financiers were interested in
securities that would last and could be counted on, as a minimum, to accrete value over
time at least at the growth rate of the economy (i.e., real growth plus inflation).
The world as it is. If one steps back and looks at the economy of today, where
Unicorns tend to dominate the headlines, he will realize that, magical as they are,
Unicorns are products of our time. It is a commonplace to hear that the corporate career
is largely gone. That is true in two ways. Companies are relying more on ‘contractors’ to
avoid non-wage benefits and to pick up talent as needed for a particular project.
For the core base of full-time employees remaining inside the firms, one sees these
people’s careers as a string of projects – working on acquisitions, new products being
developed, constructing a school-house, etc. That ‘project’ culture is present in the start-
up where most start-ups last for three-to-five years around one product concept before
being acquired or radically changing the culture to adapt to the next disruption.
One need look only at GOOGLE and Microsoft to understand that these two companies
have not been start-ups for a long-time. They act more like monopolists in buying
potential disruptions to shut them down or trying to find a Unicorn for themselves.
Beneath that stratum of igniting rockets and benighted cash cows, there is a host of
companies that have strong value propositions and prospects, within the next three-to-
five years. Empirical findings suggest that the best valuation analysts only have clarity
for the forward eighteen months.
MPT has a home. Two lingering elements of MPT – diversification and the people
factor – remain important in looking for those three-to-five year, single project
companies (like GOOGLE and Yahoo! once were). In the end, the radical
transformation of the investment world and the global society points towards something
that MPT implied but never articulated. That is: people change businesses and
industries; technologies follow the vision.
Like securities in the capital markets, technologies are discovered, invented or
developed by people; gain their currency among people; and, attain their value through
discussions between people. All these ‘people’ factors – not just the numbers-crunching
of the CFAs and MBAs of yesteryear – create and sustain (or nullify) the value of the
single-product firms arising in the market.
Diversification becomes important not in the hope of casting a wide-enough net to snare
that Unicorn, but in accumulating an array of projects addressing defined needs with a
reasonable probabilities of success. What drives the value is not so much the disruptive
potential of the investment but the proven talent and value-add the management team
brings to the project.
What sustains the investment value, and increases it over time, is the debate about the
project (start-up), and its proposition within the larger network, at first, and then across
the larger market. By restricting the investment space to certain arenas, investment
managers can network the people behind these projects to link up to create new
products or ideas. They can also remain in the contact web of their investment space to
recycle their knowledge and experience into new ventures if their projects fail.
With the lean start-up strategy and the minimum viable product (as a working prototype
going to market), industry conditions permitting, this cycling of talent and knowledge
happens quickly. In essence, the smart investment manager will be one who is
independent but not necessarily contrarian; who will think like start-up founders and
serial entrepreneurs in focusing on the mission to make it work.
The new investor spends more time creating an environment of information exchange
and inter-project innovation than he does running a portfolio per se. As the disruptive
ideas emerge, they will change with time and re-pivots. In a sense, the portfolio will
often diversify itself, so the manager can look more to creating a ‘primordial soup’ out of
which the new enterprises emerge.
The incentive for the entrepreneur in this arrangement is has two parts. For successful
project ventures, the entrepreneur can enjoy a longer time of ownership to prove the
project’s / product’s concept and realize greater value when the big players swoop in to
take it over. The second advantage is that, should the project fail, the entrepreneur can
be confident that making the right business judgement – scuttling the business – will not
leave him alone and, seemingly, without prospects.

Weitere ähnliche Inhalte

Was ist angesagt?

Chapter 06_ Are Financial Markets Efficient?
Chapter 06_ Are Financial Markets Efficient?Chapter 06_ Are Financial Markets Efficient?
Chapter 06_ Are Financial Markets Efficient?Rusman Mukhlis
 
growth rate implied in ipo pricing
growth rate implied in ipo pricinggrowth rate implied in ipo pricing
growth rate implied in ipo pricingshah kunal
 
The Simple Truth Behind Managed Futures
The Simple Truth Behind Managed FuturesThe Simple Truth Behind Managed Futures
The Simple Truth Behind Managed Futuresbzinchenko
 
Efficient Market Hypothesis
Efficient Market HypothesisEfficient Market Hypothesis
Efficient Market HypothesisAshish Anand
 
Designing public procurement policy in developing countries
Designing public procurement policy in developing countriesDesigning public procurement policy in developing countries
Designing public procurement policy in developing countriesSpringer
 
CHAPTER 8: FUNDAMENTAL VS. TECHNICAL ANALYSIS
CHAPTER 8: FUNDAMENTAL VS. TECHNICAL ANALYSISCHAPTER 8: FUNDAMENTAL VS. TECHNICAL ANALYSIS
CHAPTER 8: FUNDAMENTAL VS. TECHNICAL ANALYSISanyoption
 
My investment planning lecture at Griffiths University
My investment planning lecture at Griffiths UniversityMy investment planning lecture at Griffiths University
My investment planning lecture at Griffiths Universityklublok
 
The beta coefficient - blugm.com
The beta coefficient - blugm.comThe beta coefficient - blugm.com
The beta coefficient - blugm.comGaryHuynh4
 
Forum On News Analytics
Forum On News AnalyticsForum On News Analytics
Forum On News Analyticsmam3xs
 
CAPM Fama French
CAPM Fama FrenchCAPM Fama French
CAPM Fama FrenchAhmedSaba
 
The Facts and Fictions of the Securities Industry
The Facts and Fictions of the Securities IndustryThe Facts and Fictions of the Securities Industry
The Facts and Fictions of the Securities IndustrySam Vaknin
 
13020036aaa ch08-efficient-market
13020036aaa ch08-efficient-market13020036aaa ch08-efficient-market
13020036aaa ch08-efficient-marketPinal Vaghasiya
 
A Random Walk Down Wall Street
A Random Walk Down Wall StreetA Random Walk Down Wall Street
A Random Walk Down Wall Streetarcaneadam
 
Arbitrage pricing theory
Arbitrage pricing theoryArbitrage pricing theory
Arbitrage pricing theoryMahesh Bhor
 

Was ist angesagt? (20)

Chapter 06_ Are Financial Markets Efficient?
Chapter 06_ Are Financial Markets Efficient?Chapter 06_ Are Financial Markets Efficient?
Chapter 06_ Are Financial Markets Efficient?
 
growth rate implied in ipo pricing
growth rate implied in ipo pricinggrowth rate implied in ipo pricing
growth rate implied in ipo pricing
 
INEG4423 Term Paper
INEG4423 Term PaperINEG4423 Term Paper
INEG4423 Term Paper
 
The Simple Truth Behind Managed Futures
The Simple Truth Behind Managed FuturesThe Simple Truth Behind Managed Futures
The Simple Truth Behind Managed Futures
 
Efficient Market Hypothesis
Efficient Market HypothesisEfficient Market Hypothesis
Efficient Market Hypothesis
 
Designing public procurement policy in developing countries
Designing public procurement policy in developing countriesDesigning public procurement policy in developing countries
Designing public procurement policy in developing countries
 
Emh lec#3
Emh lec#3Emh lec#3
Emh lec#3
 
CHAPTER 8: FUNDAMENTAL VS. TECHNICAL ANALYSIS
CHAPTER 8: FUNDAMENTAL VS. TECHNICAL ANALYSISCHAPTER 8: FUNDAMENTAL VS. TECHNICAL ANALYSIS
CHAPTER 8: FUNDAMENTAL VS. TECHNICAL ANALYSIS
 
My investment planning lecture at Griffiths University
My investment planning lecture at Griffiths UniversityMy investment planning lecture at Griffiths University
My investment planning lecture at Griffiths University
 
The beta coefficient - blugm.com
The beta coefficient - blugm.comThe beta coefficient - blugm.com
The beta coefficient - blugm.com
 
Equity Investments
Equity InvestmentsEquity Investments
Equity Investments
 
Forum On News Analytics
Forum On News AnalyticsForum On News Analytics
Forum On News Analytics
 
Equity Investments
Equity InvestmentsEquity Investments
Equity Investments
 
CAPM Fama French
CAPM Fama FrenchCAPM Fama French
CAPM Fama French
 
Sapm
SapmSapm
Sapm
 
Summer Project
Summer ProjectSummer Project
Summer Project
 
The Facts and Fictions of the Securities Industry
The Facts and Fictions of the Securities IndustryThe Facts and Fictions of the Securities Industry
The Facts and Fictions of the Securities Industry
 
13020036aaa ch08-efficient-market
13020036aaa ch08-efficient-market13020036aaa ch08-efficient-market
13020036aaa ch08-efficient-market
 
A Random Walk Down Wall Street
A Random Walk Down Wall StreetA Random Walk Down Wall Street
A Random Walk Down Wall Street
 
Arbitrage pricing theory
Arbitrage pricing theoryArbitrage pricing theory
Arbitrage pricing theory
 

Andere mochten auch

La pérdida de la transferencia de tecnología en México
La pérdida de la transferencia de tecnología en MéxicoLa pérdida de la transferencia de tecnología en México
La pérdida de la transferencia de tecnología en MéxicoNed McDonnell III, CFA PMP
 
Trilingual article from 150,000+ business blogs
Trilingual article from 150,000+ business blogsTrilingual article from 150,000+ business blogs
Trilingual article from 150,000+ business blogsNed McDonnell III, CFA PMP
 
Summary on Insurance Regulatory Arbitrage Product
Summary on Insurance Regulatory Arbitrage ProductSummary on Insurance Regulatory Arbitrage Product
Summary on Insurance Regulatory Arbitrage ProductNed McDonnell III, CFA PMP
 
Ameri credit research_report_winter_2003[1] (1)
Ameri credit research_report_winter_2003[1] (1)Ameri credit research_report_winter_2003[1] (1)
Ameri credit research_report_winter_2003[1] (1)Ned McDonnell III, CFA PMP
 
La estructura de una incubadora dentro un centro de l+D+i
La estructura de una incubadora dentro un centro de l+D+iLa estructura de una incubadora dentro un centro de l+D+i
La estructura de una incubadora dentro un centro de l+D+iNed McDonnell III, CFA PMP
 
Using BIG DATA to find little gems (Finance & Social Media)
Using BIG DATA to find little gems (Finance & Social Media)Using BIG DATA to find little gems (Finance & Social Media)
Using BIG DATA to find little gems (Finance & Social Media)Ned McDonnell III, CFA PMP
 
Thought experiment on moving from Tijuana to Tecnojuana
Thought experiment on moving from Tijuana to TecnojuanaThought experiment on moving from Tijuana to Tecnojuana
Thought experiment on moving from Tijuana to TecnojuanaNed McDonnell III, CFA PMP
 
2-day sample of start-up valuation and analysis
2-day sample of start-up valuation and analysis2-day sample of start-up valuation and analysis
2-day sample of start-up valuation and analysisNed McDonnell III, CFA PMP
 
10 Things You Didn’t Know About Mobile Email from Litmus & HubSpot
 10 Things You Didn’t Know About Mobile Email from Litmus & HubSpot 10 Things You Didn’t Know About Mobile Email from Litmus & HubSpot
10 Things You Didn’t Know About Mobile Email from Litmus & HubSpotHubSpot
 
25 Discovery Call Questions
25 Discovery Call Questions25 Discovery Call Questions
25 Discovery Call QuestionsHubSpot
 
Class 1: Email Marketing Certification course: Email Marketing and Your Business
Class 1: Email Marketing Certification course: Email Marketing and Your BusinessClass 1: Email Marketing Certification course: Email Marketing and Your Business
Class 1: Email Marketing Certification course: Email Marketing and Your BusinessHubSpot
 
3 Proven Sales Email Templates Used by Successful Companies
3 Proven Sales Email Templates Used by Successful Companies3 Proven Sales Email Templates Used by Successful Companies
3 Proven Sales Email Templates Used by Successful CompaniesHubSpot
 
Counter-Insurgency Support for Takhar Province, Afghanistan
Counter-Insurgency Support for Takhar Province, AfghanistanCounter-Insurgency Support for Takhar Province, Afghanistan
Counter-Insurgency Support for Takhar Province, AfghanistanNed McDonnell III, CFA PMP
 

Andere mochten auch (20)

Integrating the Sons of Iraq (2009)
Integrating the Sons of Iraq (2009)Integrating the Sons of Iraq (2009)
Integrating the Sons of Iraq (2009)
 
Risk scoring sheet
Risk scoring sheetRisk scoring sheet
Risk scoring sheet
 
La pérdida de la transferencia de tecnología en México
La pérdida de la transferencia de tecnología en MéxicoLa pérdida de la transferencia de tecnología en México
La pérdida de la transferencia de tecnología en México
 
Trilingual article from 150,000+ business blogs
Trilingual article from 150,000+ business blogsTrilingual article from 150,000+ business blogs
Trilingual article from 150,000+ business blogs
 
MOI Iraq budget brief
MOI Iraq budget briefMOI Iraq budget brief
MOI Iraq budget brief
 
Summary on Insurance Regulatory Arbitrage Product
Summary on Insurance Regulatory Arbitrage ProductSummary on Insurance Regulatory Arbitrage Product
Summary on Insurance Regulatory Arbitrage Product
 
Ameri credit research_report_winter_2003[1] (1)
Ameri credit research_report_winter_2003[1] (1)Ameri credit research_report_winter_2003[1] (1)
Ameri credit research_report_winter_2003[1] (1)
 
La estructura de una incubadora dentro un centro de l+D+i
La estructura de una incubadora dentro un centro de l+D+iLa estructura de una incubadora dentro un centro de l+D+i
La estructura de una incubadora dentro un centro de l+D+i
 
Fund-raising package
Fund-raising packageFund-raising package
Fund-raising package
 
Conseco tranfer to work-out
Conseco tranfer to work-outConseco tranfer to work-out
Conseco tranfer to work-out
 
Using BIG DATA to find little gems (Finance & Social Media)
Using BIG DATA to find little gems (Finance & Social Media)Using BIG DATA to find little gems (Finance & Social Media)
Using BIG DATA to find little gems (Finance & Social Media)
 
Thought experiment on moving from Tijuana to Tecnojuana
Thought experiment on moving from Tijuana to TecnojuanaThought experiment on moving from Tijuana to Tecnojuana
Thought experiment on moving from Tijuana to Tecnojuana
 
2-day sample of start-up valuation and analysis
2-day sample of start-up valuation and analysis2-day sample of start-up valuation and analysis
2-day sample of start-up valuation and analysis
 
Creditory lnstinct
Creditory lnstinctCreditory lnstinct
Creditory lnstinct
 
10 Things You Didn’t Know About Mobile Email from Litmus & HubSpot
 10 Things You Didn’t Know About Mobile Email from Litmus & HubSpot 10 Things You Didn’t Know About Mobile Email from Litmus & HubSpot
10 Things You Didn’t Know About Mobile Email from Litmus & HubSpot
 
25 Discovery Call Questions
25 Discovery Call Questions25 Discovery Call Questions
25 Discovery Call Questions
 
Class 1: Email Marketing Certification course: Email Marketing and Your Business
Class 1: Email Marketing Certification course: Email Marketing and Your BusinessClass 1: Email Marketing Certification course: Email Marketing and Your Business
Class 1: Email Marketing Certification course: Email Marketing and Your Business
 
3 Proven Sales Email Templates Used by Successful Companies
3 Proven Sales Email Templates Used by Successful Companies3 Proven Sales Email Templates Used by Successful Companies
3 Proven Sales Email Templates Used by Successful Companies
 
Prt due diligence supplement
Prt due diligence supplementPrt due diligence supplement
Prt due diligence supplement
 
Counter-Insurgency Support for Takhar Province, Afghanistan
Counter-Insurgency Support for Takhar Province, AfghanistanCounter-Insurgency Support for Takhar Province, Afghanistan
Counter-Insurgency Support for Takhar Province, Afghanistan
 

Ähnlich wie Modern Portfolio Theory in the Age of Unicorns

AIAR Winter 2015 - Henry Ma Adaptive Invest Approach
AIAR Winter 2015 - Henry Ma Adaptive Invest ApproachAIAR Winter 2015 - Henry Ma Adaptive Invest Approach
AIAR Winter 2015 - Henry Ma Adaptive Invest ApproachHenry Ma
 
Risk Reduction By Diversification Of Porfolio
Risk Reduction By Diversification Of PorfolioRisk Reduction By Diversification Of Porfolio
Risk Reduction By Diversification Of PorfolioDeb Birch
 
Investing with Accurate Financial Solutions
Investing with Accurate Financial SolutionsInvesting with Accurate Financial Solutions
Investing with Accurate Financial SolutionsSteve Rodman
 
Investing with Accurate Financial Solutions
Investing with Accurate Financial SolutionsInvesting with Accurate Financial Solutions
Investing with Accurate Financial SolutionsJames Mabbutt
 
Effects On The Capital Market Union
Effects On The Capital Market UnionEffects On The Capital Market Union
Effects On The Capital Market UnionAshley Koetter
 
Efficient Market Hypotheses
Efficient Market HypothesesEfficient Market Hypotheses
Efficient Market Hypotheseslazzerir
 
Analysis Of Capital Market Efificiency And The Efficient...
Analysis Of Capital Market Efificiency And The Efficient...Analysis Of Capital Market Efificiency And The Efficient...
Analysis Of Capital Market Efificiency And The Efficient...Katie Harris
 
An Efficient Market Hypothesis ( Emh )
An Efficient Market Hypothesis ( Emh )An Efficient Market Hypothesis ( Emh )
An Efficient Market Hypothesis ( Emh )Monica Carter
 
From The Efficient Market Hypothesis To Behavioral...
From The Efficient Market Hypothesis To Behavioral...From The Efficient Market Hypothesis To Behavioral...
From The Efficient Market Hypothesis To Behavioral...Patricia Johnson
 
Modern Portfolio Theory and Practice
Modern Portfolio Theory and PracticeModern Portfolio Theory and Practice
Modern Portfolio Theory and PracticeDavid Roodman
 
Capital Asset Pricing Model (Capm)
Capital Asset Pricing Model (Capm)Capital Asset Pricing Model (Capm)
Capital Asset Pricing Model (Capm)Amanda Gray
 
Accounting questions
Accounting questionsAccounting questions
Accounting questionsRohit Sethi
 
Economics Of Corporate Finance Theory
Economics Of Corporate Finance TheoryEconomics Of Corporate Finance Theory
Economics Of Corporate Finance TheoryDenise Enriquez
 
Security Analysis and Portfolio Theory
Security Analysis and Portfolio TheorySecurity Analysis and Portfolio Theory
Security Analysis and Portfolio TheoryScott Rogerson
 
What Are The Pros And Cons Of The Capital Asset Pricing Model
What Are The Pros And Cons Of The Capital Asset Pricing ModelWhat Are The Pros And Cons Of The Capital Asset Pricing Model
What Are The Pros And Cons Of The Capital Asset Pricing ModelVeronica Rogers
 
WhitePaper-InvestmentRisk&Uncertainty
WhitePaper-InvestmentRisk&UncertaintyWhitePaper-InvestmentRisk&Uncertainty
WhitePaper-InvestmentRisk&UncertaintyJoel Wagonfeld
 
New Report 1SummaryFrom the USA Today article, Sprea.docx
New Report 1SummaryFrom the USA Today article, Sprea.docxNew Report 1SummaryFrom the USA Today article, Sprea.docx
New Report 1SummaryFrom the USA Today article, Sprea.docxcurwenmichaela
 

Ähnlich wie Modern Portfolio Theory in the Age of Unicorns (20)

AIAR Winter 2015 - Henry Ma Adaptive Invest Approach
AIAR Winter 2015 - Henry Ma Adaptive Invest ApproachAIAR Winter 2015 - Henry Ma Adaptive Invest Approach
AIAR Winter 2015 - Henry Ma Adaptive Invest Approach
 
Risk Reduction By Diversification Of Porfolio
Risk Reduction By Diversification Of PorfolioRisk Reduction By Diversification Of Porfolio
Risk Reduction By Diversification Of Porfolio
 
Investing with Accurate Financial Solutions
Investing with Accurate Financial SolutionsInvesting with Accurate Financial Solutions
Investing with Accurate Financial Solutions
 
Investing with Accurate Financial Solutions
Investing with Accurate Financial SolutionsInvesting with Accurate Financial Solutions
Investing with Accurate Financial Solutions
 
Effects On The Capital Market Union
Effects On The Capital Market UnionEffects On The Capital Market Union
Effects On The Capital Market Union
 
Efficient Market Hypotheses
Efficient Market HypothesesEfficient Market Hypotheses
Efficient Market Hypotheses
 
Analysis Of Capital Market Efificiency And The Efficient...
Analysis Of Capital Market Efificiency And The Efficient...Analysis Of Capital Market Efificiency And The Efficient...
Analysis Of Capital Market Efificiency And The Efficient...
 
An Efficient Market Hypothesis ( Emh )
An Efficient Market Hypothesis ( Emh )An Efficient Market Hypothesis ( Emh )
An Efficient Market Hypothesis ( Emh )
 
From The Efficient Market Hypothesis To Behavioral...
From The Efficient Market Hypothesis To Behavioral...From The Efficient Market Hypothesis To Behavioral...
From The Efficient Market Hypothesis To Behavioral...
 
Elevator 12 jpfs
Elevator 12 jpfsElevator 12 jpfs
Elevator 12 jpfs
 
Modern Portfolio Theory and Practice
Modern Portfolio Theory and PracticeModern Portfolio Theory and Practice
Modern Portfolio Theory and Practice
 
Primer on Managed Futures
Primer on Managed FuturesPrimer on Managed Futures
Primer on Managed Futures
 
Capital Asset Pricing Model (Capm)
Capital Asset Pricing Model (Capm)Capital Asset Pricing Model (Capm)
Capital Asset Pricing Model (Capm)
 
Accounting questions
Accounting questionsAccounting questions
Accounting questions
 
Economics Of Corporate Finance Theory
Economics Of Corporate Finance TheoryEconomics Of Corporate Finance Theory
Economics Of Corporate Finance Theory
 
Security Analysis and Portfolio Theory
Security Analysis and Portfolio TheorySecurity Analysis and Portfolio Theory
Security Analysis and Portfolio Theory
 
What Are The Pros And Cons Of The Capital Asset Pricing Model
What Are The Pros And Cons Of The Capital Asset Pricing ModelWhat Are The Pros And Cons Of The Capital Asset Pricing Model
What Are The Pros And Cons Of The Capital Asset Pricing Model
 
WhitePaper-InvestmentRisk&Uncertainty
WhitePaper-InvestmentRisk&UncertaintyWhitePaper-InvestmentRisk&Uncertainty
WhitePaper-InvestmentRisk&Uncertainty
 
New Report 1SummaryFrom the USA Today article, Sprea.docx
New Report 1SummaryFrom the USA Today article, Sprea.docxNew Report 1SummaryFrom the USA Today article, Sprea.docx
New Report 1SummaryFrom the USA Today article, Sprea.docx
 
Qwafafew meeting 4
Qwafafew meeting 4Qwafafew meeting 4
Qwafafew meeting 4
 

Mehr von Ned McDonnell III, CFA PMP

Tributes / Compliments from Afghanistan, Iraq, and México
Tributes / Compliments from Afghanistan, Iraq, and MéxicoTributes / Compliments from Afghanistan, Iraq, and México
Tributes / Compliments from Afghanistan, Iraq, and MéxicoNed McDonnell III, CFA PMP
 

Mehr von Ned McDonnell III, CFA PMP (20)

Digital Collage UA PL HU.pptx
Digital Collage UA PL HU.pptxDigital Collage UA PL HU.pptx
Digital Collage UA PL HU.pptx
 
Slide-stack from Kharkiv: June 2022
Slide-stack from Kharkiv: June 2022Slide-stack from Kharkiv: June 2022
Slide-stack from Kharkiv: June 2022
 
Slide-stack of Odesa: July 2022
Slide-stack of Odesa: July 2022Slide-stack of Odesa: July 2022
Slide-stack of Odesa: July 2022
 
Challenge Innovation Benefit.docx
Challenge Innovation Benefit.docxChallenge Innovation Benefit.docx
Challenge Innovation Benefit.docx
 
Tributes / Compliments from Afghanistan, Iraq, and México
Tributes / Compliments from Afghanistan, Iraq, and MéxicoTributes / Compliments from Afghanistan, Iraq, and México
Tributes / Compliments from Afghanistan, Iraq, and México
 
Hedge fund manager insurance policy outline
Hedge fund manager insurance policy outlineHedge fund manager insurance policy outline
Hedge fund manager insurance policy outline
 
Digital marketing presentation in Spanish
Digital marketing presentation in SpanishDigital marketing presentation in Spanish
Digital marketing presentation in Spanish
 
Ttbkmx
TtbkmxTtbkmx
Ttbkmx
 
Memorando sobre el manual paraestatal
Memorando sobre el manual paraestatalMemorando sobre el manual paraestatal
Memorando sobre el manual paraestatal
 
Paradigm shifts and the class room.
Paradigm shifts and the class room.Paradigm shifts and the class room.
Paradigm shifts and the class room.
 
Comments / Compliments from Academia
Comments / Compliments from AcademiaComments / Compliments from Academia
Comments / Compliments from Academia
 
Syllabus for accelerated leadership course
Syllabus for accelerated leadership courseSyllabus for accelerated leadership course
Syllabus for accelerated leadership course
 
Project mgt lesson plan
Project mgt lesson planProject mgt lesson plan
Project mgt lesson plan
 
CELTA Certification
CELTA CertificationCELTA Certification
CELTA Certification
 
Nancy Barton's Half-Century of Art
Nancy Barton's Half-Century of ArtNancy Barton's Half-Century of Art
Nancy Barton's Half-Century of Art
 
Provisional CELTA Approval
Provisional CELTA ApprovalProvisional CELTA Approval
Provisional CELTA Approval
 
CELTA Lesson Plan
CELTA Lesson PlanCELTA Lesson Plan
CELTA Lesson Plan
 
Why These Good Sunnis Need Our Help
Why These Good Sunnis Need Our HelpWhy These Good Sunnis Need Our Help
Why These Good Sunnis Need Our Help
 
Speech composed for visiting V.I.P.s
Speech composed for visiting V.I.P.sSpeech composed for visiting V.I.P.s
Speech composed for visiting V.I.P.s
 
Middle east private equity strategy
Middle east private equity strategyMiddle east private equity strategy
Middle east private equity strategy
 

Kürzlich hochgeladen

RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGeckoRWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGeckoCoinGecko
 
2024.03 Strategic Resources Presentation
2024.03 Strategic Resources Presentation2024.03 Strategic Resources Presentation
2024.03 Strategic Resources PresentationAdnet Communications
 
Buy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptxBuy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptxPrecize Formely Leadoff
 
CLMV-Outlook-March-2024-ENG-20240327.pdf
CLMV-Outlook-March-2024-ENG-20240327.pdfCLMV-Outlook-March-2024-ENG-20240327.pdf
CLMV-Outlook-March-2024-ENG-20240327.pdfSCBEICSCB
 
Work and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingWork and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingHenry Tapper
 
Stock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdfStock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdfMichael Silva
 
Hungarys economy made by Robert Miklos
Hungarys economy   made by Robert MiklosHungarys economy   made by Robert Miklos
Hungarys economy made by Robert Miklosbeduinpower135
 
Stock Market Brief Deck for 3/22/2024.pdf
Stock Market Brief Deck for 3/22/2024.pdfStock Market Brief Deck for 3/22/2024.pdf
Stock Market Brief Deck for 3/22/2024.pdfMichael Silva
 
Zakat and it’s Social Benefits - THE FORGOTTEN PILLAR OF ISLAM
Zakat and it’s Social Benefits - THE FORGOTTEN PILLAR OF ISLAMZakat and it’s Social Benefits - THE FORGOTTEN PILLAR OF ISLAM
Zakat and it’s Social Benefits - THE FORGOTTEN PILLAR OF ISLAMFaisal834049
 
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdfLundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdfAdnet Communications
 
The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...Antonis Zairis
 
The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?Stephen Perrenod
 
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINTACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINTindexPub
 
Monthly Market Risk Update: March 2024 [SlideShare]
Monthly Market Risk Update: March 2024 [SlideShare]Monthly Market Risk Update: March 2024 [SlideShare]
Monthly Market Risk Update: March 2024 [SlideShare]Commonwealth
 
What Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AIWhat Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AI360factors
 
MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.Arifa Saeed
 
Contracts with Interdependent Preferences
Contracts with Interdependent PreferencesContracts with Interdependent Preferences
Contracts with Interdependent PreferencesGRAPE
 
Introduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an EntrepreneurIntroduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an Entrepreneurabcisahunter
 

Kürzlich hochgeladen (20)

RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGeckoRWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
 
2024.03 Strategic Resources Presentation
2024.03 Strategic Resources Presentation2024.03 Strategic Resources Presentation
2024.03 Strategic Resources Presentation
 
Buy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptxBuy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptx
 
CLMV-Outlook-March-2024-ENG-20240327.pdf
CLMV-Outlook-March-2024-ENG-20240327.pdfCLMV-Outlook-March-2024-ENG-20240327.pdf
CLMV-Outlook-March-2024-ENG-20240327.pdf
 
Digital Financial Services Taxation in Africa
Digital Financial Services Taxation in AfricaDigital Financial Services Taxation in Africa
Digital Financial Services Taxation in Africa
 
Work and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingWork and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB funding
 
Stock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdfStock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdf
 
Hungarys economy made by Robert Miklos
Hungarys economy   made by Robert MiklosHungarys economy   made by Robert Miklos
Hungarys economy made by Robert Miklos
 
Stock Market Brief Deck for 3/22/2024.pdf
Stock Market Brief Deck for 3/22/2024.pdfStock Market Brief Deck for 3/22/2024.pdf
Stock Market Brief Deck for 3/22/2024.pdf
 
Zakat and it’s Social Benefits - THE FORGOTTEN PILLAR OF ISLAM
Zakat and it’s Social Benefits - THE FORGOTTEN PILLAR OF ISLAMZakat and it’s Social Benefits - THE FORGOTTEN PILLAR OF ISLAM
Zakat and it’s Social Benefits - THE FORGOTTEN PILLAR OF ISLAM
 
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdfLundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
 
The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...
 
The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?
 
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINTACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
ACADEMIC BANK OF CREDIT: A WORLDWIDE VIEWPOINT
 
Mobile Money Taxes: Knowledge, Perceptions and Politics: The Case of Ghana
Mobile Money Taxes: Knowledge, Perceptions and Politics: The Case of GhanaMobile Money Taxes: Knowledge, Perceptions and Politics: The Case of Ghana
Mobile Money Taxes: Knowledge, Perceptions and Politics: The Case of Ghana
 
Monthly Market Risk Update: March 2024 [SlideShare]
Monthly Market Risk Update: March 2024 [SlideShare]Monthly Market Risk Update: March 2024 [SlideShare]
Monthly Market Risk Update: March 2024 [SlideShare]
 
What Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AIWhat Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AI
 
MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.
 
Contracts with Interdependent Preferences
Contracts with Interdependent PreferencesContracts with Interdependent Preferences
Contracts with Interdependent Preferences
 
Introduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an EntrepreneurIntroduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an Entrepreneur
 

Modern Portfolio Theory in the Age of Unicorns

  • 1. What is Modern Portfolio Theory (MPT)? Modern portfolio theory (MPT), more than fifty years old, is not quite so modern anymore. MPT is based on two underlying assumptions: efficient capital markets and their continuity. MPT uses the capital asset pricing model (CAPM) and multivariate analysis to create an ‘efficient frontier’. The CAPM is a model for the risk-based pricing of capital market assets, principally stocks. As such, it divides risk into two basic components: systematic (beta) and unsystematic risk (alpha). The multivariate analysis is between the prices of the assets in the same risk class or in the same portfolio to see which assets have risk factors that cancel each other out. In theory, one can create a portfolio that accepts a certain level of market-based risk but which minimizes the linkages in pricing patterns among the various possibilities. In a sense the efficient frontiers grants an investor the biggest bang for his bet. In theory, one could diversify away 90-95% of the unsystematic risk with fifteen un-or- slightly correlated investments. Taken to its logical end-point, investors would cancel out each other’s alpha returns. More radically, taken over time, the reasoning argued, investors would cancel out their own alphas as the market caught up to them in integrating the overlooked value driver into the security price. Thus, the rationale for index funds – the equivalent of buying one share or bond of every security in the market – was born. More on the Capital Asset Pricing Model (CAPM) and its progeny. For traditional capital markets practitioners, risk is measured by the historical volatility of asset prices. In its purest form, the CAPM is a simple correlation model to price an asset through the well-known equation of y=Bx+A. Beta is the correlation coefficient between the particular asset and its larger market. The independent variable, the ‘x’, is the change in the market value. Thus, as the dependent variable, Beta becomes a measure of volatility relative to market volatility, or the systematic risk. The Alpha is the element of an asset’s return that cannot be explained in relation to the market, or unsystematic risk; in a geometric setting, the Alpha corresponds to the y-axis intercept. The idea of a positive alpha is appealing to most investors since they want a bigger bang for their bet. Practitioners argue that such unsystematic risk factors include things like leadership quality, a new invention about to hit the market but not yet properly valued, regulations or conditions unique to a particular industry. Alpha also captures, in retrospect, poor estimates made by the market for the unaccounted for return, under the CAPM has nowhere else to go. As one may expect, the CAPM has met with a great deal of skepticism for its heroic assumptions: 1. immediate and accurate impounding of information into asset prices; 2. capturing so many different elements of market risk in the beta of companies so varied in their exposures to these elements; 3. the continuity of stock prices; as well as, 4. the irrelevance of the basic supply and demand elements of the security itself on the trading floor.
  • 2. In the 1970s and 1980s, several multivariate models sought to break the Beta out into four or five specific value-drivers. Under these correlation-driven models, expected returns are those which the market, or the set of value drivers, predicts as captured by the beta or the correlation coefficients (B1, B2…) plus the historical alpha. The implicit assumption was that these few elements would capture almost all of the market risk. Other assumptions remained the same as they did under the CAPM. These models have faced controversy over which factors ought to be included. The eclipse of the CAPM and MPT. For example, one such ‘value driver’ was the price of oil. When that crashed and stayed low for more than a decade from the mid- 1980s on, that model lost its predictive power. That is to say: the past is always trying catch up with the present. These statistically based pricing models are ingenious but have never been accepted by a particular class of investors: technical analysts. These people look to specific price changes, or pricing patterns over a short period of a specific security (stock or bond). This ‘chartist’ method implies strongly that asset prices are not continuous but change discretely. These ‘chartists’ are not alone. Though focused on other variables the following classes of investors largely disregard the principles defined by MPT and the CAPM: 1. private equity (expertise by the fund’s partners, ability to keep information from the market and capacity to leverage outside talent); 2. venture capitalists (more like private equity but chasing that unparalleled return in smaller companies through disruptive technologies or products); 3. seed and angel investors (knowledge of local investment conditions; looking for ground-floor entry into disruptions); 4. algorithmic traders (fastening artificial intelligence on the traditional discipline of technical analysis); 5. emerging market investors (looking to exploit local market deficiencies); as well as, 6. value and vulture investors (looking for under-priced securities, often opportunistically and in defiance of the market). People argue that Venture Capitalists, Private Equity and Emerging Markets investors actively diversify their portfolios, consistent with MPT. But three behavior and investment propositions of these investors belie that assertion. First, most high-risk investors don’t diversify across the economy; they focus on one industry, segment or investment venue. Second, in the case of angel investors and venture capitalists, one can argue that diversification does not seek to eliminate unsystematic, or company- specific, risk. Instead, these funds are using proprietary knowledge to increase the likelihood of finding a disruptive company (GOOGLE, Facebook, et al.) from one in a thousand to one in twenty. Finally, the target companies of these investors tend either to have few (if any) historical antecedents thus breaking down continuity of asset values. The legacy and rapid eclipse of Modern Portfolio Theory. The practitioners of MPT changed the standard of fiduciary responsibility from the prudent man rule (looking at the risk / reward trade-off of each investment in isolation) to the prudent expert rule (premised on the belief that portfolio diversification would permit greater risk assumed
  • 3. on a particular investment embedded in a diversified portfolio). The implicit assumption was that people would never knowingly bet on a company destined to go out of business. Over the last thirty years, the capital markets have not so much rejected MPT as made it irrelevant. These factors are simply of few of the shifts that changed the investment landscape radically in one or two generations.  The death of conglomerates in the 1980s and 1990s. With the thinking of Michael Porter’s competitive advantages, many of the leading consulting firms rejected portfolio investing practices of large conglomerates in favor of focusing on ‘core competencies’ that could be protected by barriers of entry and defended by market share. The rise of maverick investor-businessmen, like T. Boone Pickens, ushered in this trend in the early 1980s.  The advent of individual investors in the late 1970s. There have always been individual investors, namely wealthy people with money they can afford to lose and entrepreneurs with their sweat-equity. This arena widened in the later 1970s. Though the ERISA retirement act introduced the idea of “prudent professionals” in 1974, enshrining MPT, that glory was short-lived. By the 1980s, individual retirement accounts had become popular through a loop-hole in provision 401-k of the internal revenue code.  The first technology wave of 1982-2000. By the 1980s and Apple computer, Silicon Valley had emerged as a distinct economic ecosystem (under development since the 1930s). This was the first wave of disruptions toward individual computing and mass-marketed information technologies. This phenomenon made the venture capital bet – staked as it is in inefficient and discontinuous markets – more plausible versus ‘settling’ for market returns.  The stock market crash of 1987. Program trading was caught in a feed-back loop that denied the managers the ability to control their portfolios. While the dramatic one day decline reflected a ‘hyper-efficient’ adjustment of the New York Stock Exchange to empirically verifiable stressors, the precipitate decline argued for structural discontinuities and inefficiencies across the market.  Accelerated liquefaction of financial assets 1988-2008. This factor emerged with the need to expand the credit pool with the then-record deficits of the 1980s. Asset securitization converted normally illiquid assets (e.g., home mortgages or car loans) into a source of liquidity by bundling up thousands of similar assets and factoring them en-masse to the capital markets. One unintended consequence of this practice was to diffuse the ‘unsystematic’ risks of assets like sub-prime mortgages or car-loans across the capital markets.  Globalization in the 1990s and 2000s. MPT had been based upon the U.S. securities markets, though it was easily extended to other developed nations. Globalism brought all manners of markets, some drastically less efficient and more susceptible to insider manipulation. MPT and the CAPM simply could not be one size fits all. The best signals of the discrete changes among and within markets were the Asian financial crisis of 1998 and 9-11. Markets were not impervious to manipulation and sharp discontinuities.  The collapse of defined benefit pensions and other rewards for careerism. Individuals started usurping the professional role in investing their funds in thrift savings plans when the middle-class squeeze become more evident in the
  • 4. 1990s. This trend increased as pension plans became strained and switched to defined contribution plans or as collapsing companies wiped out people’s retirement and profit sharing funds. Individual investing, disengaged from financial expertise, gained its fullest bloom with individual day traders in the late- 1990s, inter-net investing through companies like eTrade in the 2000s and crowd-funding during the current decade.  The second technology wave, starting 2006. This is the wave of social media. The idea of sharing information has extended to services and will eventually permeate the sector of capital goods. The big winners here are household names like Facebook, Über, Linked-In, Air BnB, Slideshare, etc. Disruptive companies come out of nowhere, or so it seems; they cannot be anticipated as there are few (if any) historical antecedents. MPT is not designed for an economy of individual achievement and serial disruption. The status quo never calms down enough for the concepts to apply.  The near melt-down of 2008. This situation was potentially catastrophic. What triggered the global tantrum was a small segment of the loan market, securitized sub-prime mortgage loans hidden beneath portfolios of securitized assets backed by high-ratings and credit support. When this market collapsed, the soft belly of securitized assets soon emerged to collapse banks around the world. In diversifying securities, many institutional investors unwittingly doubled up on the risk by purchasing vastly under-priced collateralized securities backed by terrible assets.  Excess liquidity, historically low volatility of the money supply post-2008. The liquidity push by the Federal Reserve after the dot-com bust, 9-11 and, especially, the quantitative easing of the Federal Reserve and other state banks (including the European Central Bank) following the 2008 debacle, has set the market up for a liquidity trap (in which no amount of liquidity spurs activity) and could be followed by a possible run-away inflation if the velocity of money accelerates too quickly for liquidity to be withdrawn from the system. Reframing the idea of MPT in the age of the Unicorn. MPT is gone; it was a great theory for a corporate civilization at her zenith, when the status quo seemed to be everlasting and people had little reason to question authority or their future prospects. For the good reasons noted above, plus many others, MPT is not that hot a topic of discussion anymore. What we see in the post-MPT world is a clutter of index funds, which can not escape sudden societal reversals (e.g., run-away inflation) and people throwing ‘Hail Mary Passes’. To be sure, the variants of the long-bombers may not resemble each other. Yet they do share a desire to beat the odds. Venture Capitalists and, increasingly, Private Equity Funds are looking for that one-in-a-thousand company that will bury the dozens of losses. These companies are known as Unicorns (e.g., Paypal and Twitter). What does a Unicorn look like? There are many examples. Snapchat is a good one because its value proposition and product concepts seem to require a leap of faith. Snapchat provides for the sharing of self-deleting photos and text so people do not have to worry about a stupid picture wrecking their careers as it careens across the inter-net.
  • 5. This product concept, while relevant, would strike many people as narrow. Yet, in three years the assessed value of Snapchat has risen from a set living room furniture to between $10 and 20 billion. Since valuations are speculative, funding histories give a more concrete picture of the way of the Unicorn. Snapchat was created as a concept in 2011 in the living room of a student’s family. It received its first financing of less than half a million dollars a year later. In just thirteen more months, in June 2013, Snapchat had raised 195x the amount of its first round. In another two years, until now, Snapchat has raised in excess of 11x the amount of money it had in 2013, to $1.1 billion and ‘implying’ a valuation of $15 billion or more. So where does portfolio investing fit in? Absent three to five investments in their best portfolio companies (less than 1%), Kleiner Perkins or Sequoia would consist of a group of geniuses running a fund that barely matches the performance of market-index funds. This statement is not intended to disparage the titans of Sand Hill Road but to clarify just how strong – and elusive – the Unicorn is. Yet, two of the key concepts – one implicit and one explicit – of MPT remain alive and well. The explicit value is the wisdom of intentional diversification. That is to say: diversification willfully and willingly undertaken by those not seeking unicorns but more reliable returns on controlled investments. The other is the ‘people’ part of market efficiency. The returning relevance of diversification. Venture Capitalists claim to diversify their portfolios. That is not true. Most focus on narrow segments of emerging industries. That is a wise idea: capitalize on the superior knowledge of the fund managers to make the most educated bets. Yet diversification is really a by-product of the venture capital discipline. At their founding, most of these disruptors (i.e., the portfolio companies) have limited capital appetites. The investments have to go somewhere. Secondly, the thinking goes, by investing in hundreds of companies, of which two or three need to succeed as disruptors for the fund to make out-sized returns for – and ‘earn’ out-sized fees from – investors, Venture Capital funds increase their chance of catching a Unicorn; cast a wider net to catch more fish elevates the chance that the mermaid will turn up, too. So diversification is not intended to smooth returns and mitigate risks in this case. Truly, Venture Capital funds are swinging for the fences on every pitch, waiting for one to be a hanging curve-ball. People, people, people. The other principle left standing from the MPT framework is the ‘people’ factor in market efficiency. This idea is implicit in the mechanics of how an efficient market works in the real world. In their hey-day, blue-chip stocks had dozens of publicly published (“sell-side”) analysts touting the strength of the companies being studied. Complementing that were the private opinions of hundreds of analysts and portfolio managers (on the “buy side”) in considering various investments for their particular investment funds. These people would talk, exchange information, debate and hang up on each other in the course of an investment cycle. That interaction, far more than intrinsic strengths of
  • 6. the stock, bond or company, impounded the publicly available information into a security’s price, more or less as a fuzzy. Additionally, because of investment restrictions and fiduciary constraints, most of these CFA and other financiers were interested in securities that would last and could be counted on, as a minimum, to accrete value over time at least at the growth rate of the economy (i.e., real growth plus inflation). The world as it is. If one steps back and looks at the economy of today, where Unicorns tend to dominate the headlines, he will realize that, magical as they are, Unicorns are products of our time. It is a commonplace to hear that the corporate career is largely gone. That is true in two ways. Companies are relying more on ‘contractors’ to avoid non-wage benefits and to pick up talent as needed for a particular project. For the core base of full-time employees remaining inside the firms, one sees these people’s careers as a string of projects – working on acquisitions, new products being developed, constructing a school-house, etc. That ‘project’ culture is present in the start- up where most start-ups last for three-to-five years around one product concept before being acquired or radically changing the culture to adapt to the next disruption. One need look only at GOOGLE and Microsoft to understand that these two companies have not been start-ups for a long-time. They act more like monopolists in buying potential disruptions to shut them down or trying to find a Unicorn for themselves. Beneath that stratum of igniting rockets and benighted cash cows, there is a host of companies that have strong value propositions and prospects, within the next three-to- five years. Empirical findings suggest that the best valuation analysts only have clarity for the forward eighteen months. MPT has a home. Two lingering elements of MPT – diversification and the people factor – remain important in looking for those three-to-five year, single project companies (like GOOGLE and Yahoo! once were). In the end, the radical transformation of the investment world and the global society points towards something that MPT implied but never articulated. That is: people change businesses and industries; technologies follow the vision. Like securities in the capital markets, technologies are discovered, invented or developed by people; gain their currency among people; and, attain their value through discussions between people. All these ‘people’ factors – not just the numbers-crunching of the CFAs and MBAs of yesteryear – create and sustain (or nullify) the value of the single-product firms arising in the market. Diversification becomes important not in the hope of casting a wide-enough net to snare that Unicorn, but in accumulating an array of projects addressing defined needs with a reasonable probabilities of success. What drives the value is not so much the disruptive potential of the investment but the proven talent and value-add the management team brings to the project.
  • 7. What sustains the investment value, and increases it over time, is the debate about the project (start-up), and its proposition within the larger network, at first, and then across the larger market. By restricting the investment space to certain arenas, investment managers can network the people behind these projects to link up to create new products or ideas. They can also remain in the contact web of their investment space to recycle their knowledge and experience into new ventures if their projects fail. With the lean start-up strategy and the minimum viable product (as a working prototype going to market), industry conditions permitting, this cycling of talent and knowledge happens quickly. In essence, the smart investment manager will be one who is independent but not necessarily contrarian; who will think like start-up founders and serial entrepreneurs in focusing on the mission to make it work. The new investor spends more time creating an environment of information exchange and inter-project innovation than he does running a portfolio per se. As the disruptive ideas emerge, they will change with time and re-pivots. In a sense, the portfolio will often diversify itself, so the manager can look more to creating a ‘primordial soup’ out of which the new enterprises emerge. The incentive for the entrepreneur in this arrangement is has two parts. For successful project ventures, the entrepreneur can enjoy a longer time of ownership to prove the project’s / product’s concept and realize greater value when the big players swoop in to take it over. The second advantage is that, should the project fail, the entrepreneur can be confident that making the right business judgement – scuttling the business – will not leave him alone and, seemingly, without prospects.