In the last lesson on Modern Portfolio Theory, I used an example involving coin flips that showed the results of a normal outcome of heads and tails for one coin and then for two coins in order to show the surprising benefits of diversification (lower risk combined with higher returns). More than one reader (but Read more »
Lesson 8 – Modern Porfolio Theory
Please read this one slowly (and, hopefully, more than once). Modern Portfolio Theory (MPT) is one of the most important concepts in investing to understand. It isn’t obvious: indeed, Harry Markowitz won a Nobel Prize in economics for coming up with this idea in 1951. (So the idea isn’t really all that modern at this Read more »
Lesson 7 – The Problem of the Short Term
People sometimes get the impression that I think all investors, regardless of their personal circumstances, ought to keep 100% of their investment funds in stocks all of the time. Now I won’t be so disingenuous as to say, “Nothing could be further from the truth.” But I will say that isn’t the truth. As books such Read more »
Lesson 6 – The Real Meaning of Safety
There are some people who believe that a retiree’s portfolio should consist primarily of “safe” investments. In this context, safe generally means low volatility. If, for example, you keep all your money in a federally insured bank account, then it will never have a day when it goes down in value. There are, however, two Read more »