Hello Chuck,

I agree with nearly everything that you wrote. I would add that securities analysts can also add in a margin of safety to analyses. I am a very big fan of margin of safety (see my post entitled, "Margin of Safety: The Lost Art" here on Enterprising Investor). Why? For black swans, human error, and other things that go FUBAR. By definition, the greatest risks are those for which there was no planning or accommodation. I cannot get perfect planning, but I can make an accommodation for imperfection.

Perhaps you might find this meaningful, and here I am about to reveal an insight that I believe deserves to be a major area of research. Namely, I think that portfolio thinking, including MPT, in many (perhaps most (let's get some data)) cases results in greater risks being taken on. How? If all you are evaluating are the variances and covariances, or if you think to yourself 'this asset is the risk portion of my portfolio' then you take on risks that otherwise may not make much sense otherwise. Here "no money down mortgages to first time home buyers who are at risk for losing their jobs" come to mind, for example. I could go on.

Yours, in service,

Jason