Investing 3.0—(Mis)measuring Risk

Gary Smith () and Margaret Smith ()
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Gary Smith: Pomona College

Chapter Chapter 3 in The Power of Modern Value Investing, 2023, pp 39-65 from Springer

Abstract: Abstract In the 1950s Harry Markowitz and James Tobin developed mean–variance analysis (or Modern Portfolio Theory). There are several valuable insights, including that a diversified stock portfolio may be safer than any stock in the portfolio and that the gains from diversification depend on the correlations among the stock returns. However, there are debilitating problems, including the fact that stock returns are not normally distributed, and past returns are not a reliable guide to the future. Even more damning is that mean–variance analysis focuses on price volatility, which should be of little concern to most investors.

Date: 2023
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DOI: 10.1007/978-3-031-45900-9_3

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