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About Us | Our Philosophy Modern Portfolio Theory, as recognized by the 1990 Nobel Prize, is the philosophical foundation for how all of our clients' portfolios are structured and how subsequent decisions are made. The underlying concepts of Modern Portfolio Theory include: Investors are risk averse. The only acceptable risk is that which is adequately compensated by potential portfolio returns. Markets are efficient. It is virtually impossible to anticipate the future direction of the market as a whole or of any individual security. It is, therefore, unlikely that any portfolio will succeed in consistently “beating the market”. The design of the portfolio as a whole is more important than the selection of any particular security within the portfolio. The appropriate allocation of capital among asset classes (stocks, bonds, cash, etc.) will have far more influence on long-term portfolio results than the selection of individual securities. Investing for the long term (preferably longer than ten years) becomes critical to investment success because it allows the long-term characteristics of the asset classes to surface. For a given risk level, an optimal combination of asset classes will maximize returns. Diversification helps reduce investment volatility. The proportional mix of asset classes determines the long-term risk and return characteristics of the portfolio as a whole. Portfolio risk can be decreased by increasing diversification of
the portfolio and by lowering the correlation of market behavior
among the asset classes selected. (Correlation is the statistical
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