Hello Nathan,

Again, thank you for the consideration you give to my points, and for taking the time to share your own.

Regarding 'something better than MPT' - your example of diet and exercise is too generalized, in my opinion. What I mean by that is that there are many ways to diet. For example, caloric restriction, vegetarianism, periodic fasting, paleo eating, Atkins/high protein, and so forth. It is the underlying principle that matters, not necessarily the means. The aforementioned 'diets' have at their heart something implicit: something that is being maximized/minimized. This is up to the one dieting. Likewise, there are many forms of exercise as well. Because your analogy was, in my opinion, too generic I think you miss the idea that how you construct portfolios to maximize returns per unit of risk is not constrained, but by seeing the world only through an MPT lens, you might think it is.

As for my track record...I made choices, in time, in response to the unique events that affected my securities, and as constrained by my investment charter. Those times and those events will never replicate, so you are correct, those returns are impossible to achieve again. However, to the degree that there are approximate times and approximate events, and as filtered through method, one could hope to improve one's results. I have shared nearly the entirety of what I did to earn my returns on Enterprising Investor, and in the publications that I have authored for CFA Institute. I believe if you review them you will see thinking not described elsewhere. Whereas, I consider my DNA to be entirely mundane. Put another way, my knowledge could be used to generate returns that are differentiated.

As for my thinking about MPT, my own portfolio that I managed had a flexible charter that I took advantage of to generate the returns of the portfolio. The Davis Appreciation and Income fund was long only; the charter was to deliver 80% or more of the upside of the S&P 500, while limiting the downside to 50% or less of the S&P 500; and the vehicles for this were equities, fixed income, preferred stocks, convertible bonds, convertible preferred stocks, warrants, options, and very importantly, cash. On occasion I would be long both the equity and fixed income of the same underlying business/credit, yet, in a proportion designed to deliver the 80:50 strategy. In this instance, if I used MPT, I would have been unable to deliver on my charter. Notice though, that the charter/prospectus is the contract with the investor and it provides many means of discussing goals, objectives, risk tolerance, and managing expectations. Just as there are many diets, and many forms of exercises, there are many ways of having these types of conversations, too; if only the underlying principle is understood and one is willing to temporarily avert one's eyes from form, and direct it instead to substance.

As for human behavior being predictable...yes, it is true we have a profession that is better described by soft sciences, than hard sciences. However, that human behavior is not perfectly preditable in the way that F = MA implies does not mean that human behavior is not predictable. If human behavior were not predictable then there would not be consumer products companies, there would not be 'impulse items' at the cashier, there would not be behavioral finance, and so on. As an out of context example, I am currently reading a book about personal development that was authored around 300 C.E. It admonishes against bad human behavior that is easily recognizable to someone living almost 1,800 years after the text was authored.

Last, in my opinion you have set up a straw man in your final paragraph that seems unnecessarily absolute. Here I am referring to your sentence, "Until the holy grail of return without risk is discovered..." I know that neither Tom, nor I believe in that. However, how we go about seeking return and evaluating risk, and hence how we conduct securities analysis and portfolio construction, is not limited or constrained by MPT. Our point is that MPT is a poor way of conducting these goals, and that there are other ways to do this. The point of our series is to discuss just that. Again, I refer back to my previous comment when I highlighted that the philosophy of MPT makes sense, whereas its implementation does not. Philosophy also has the luxury of not being constrained by, or hiding behind, poor mathematics.

Yours, in service,

Jason