Thanks Thomas and Jason for concisely mapping out the rise/fall of MPT – very though provoking indeed, including the commentary. I’m not currently an active manager, but I’m interested in this from a theoretical basis. (BTW – your blog reminded me of the book “The Lunacy of Modern Finance Theory and Regulation” by Les Coleman – have you read it?)

A couple questions.

1. “Smart Beta” and factor investing: Is this just MPT/EMH on Steroids? (BTW – my local CFA Mpls society will host a speaker next month). Defined as the intersection of EMH and value investing to optimally diversify portfolio w/ attractive risk/return profile. Seems more of creating ‘manager constraints’ and enforcing a refined etiological approach – are prices/returns really reflective of only one or more few factors? Thoughts?

2. What’s in store for the new paradigm? Considering Kuhn’s seismic scientific revolution to yet hit the finance discipline, and based on systems thinking (whereby complex adaptive systems are emergent) that the whole is greater than the sum of the parts – What are your thoughts in how this might play out for portfolio construction?

3. ‘Cup half full’ or ‘half empty’ philosophy. What if we measured the variance asymmetrically or positive variance as the chance of gain as a ‘good’ thing? Risk profiles would look differently, I would think. Thoughts in what that might look like?

Look forward to your insights!
Joanne Ott, CFA