Finding a single investment that will return 20% per year for 40 years tends to happen only in dreamland. In the real world, you uncover an opportunity, and then you compare other opportunities with that. And you only invest in the most attractive opportunities. That's your opportunity cost. That's what you learn in freshman economics. The game hasn't changed at all. That's why Modern Portfolio Theory is so asinine.
My most difficult class at Harvard Business School would have to be finance.
Diversification has been, and balance, like Wellington, has been so drummed into me, it's part of my personality.
The beauty of diversification is it's about as close as you can get to a free lunch in investing.
My early work and publications centered around expanding on the analysis of life insurance in my dissertation and its relationship to investment banking.
We don't want to bank all our risk on a small collection of big companies. We don't want to lose 20 percent of our business if one big account goes away.
As in most subjects relating to money management, there's a wide diversity of opinion on portfolio concentration versus diversification.
In 1989, I was awarded the Von Neumann Prize in Operations Research Theory by the Operations Research Society of America and The Institute of Management Sciences. They cited my works in the areas of portfolio theory, sparse matrix techniques and the SIMSCRIPT programming language.
Here is a dirty little secret: Stock-picking is wildly overrated. Sure, it makes for great cocktail party chatter, and what is more fun than delving into a company's new products? But the truth is that individual stocks are riskier than broad indices.
