Asset Rotation: The Demise of Modern Portfolio Theory and the Birth of an Investment Renaissance

CHAPTER 1TAKING THE 30,000-FOOT VIEWWhere We Are Today

Before we can begin to dissect all of the nuances as to why what has worked in the past may no longer work in the future, we must first start with a “30,000-foot view,” putting into perspective both the realities of the individual investor’s disposition and historical performance, as well as our current economic landscape. Once we have a general understanding of the challenges at hand, we can examine these issues more intimately and ultimately provide practical solutions as to how investors can more efficiently navigate this tumultuous environment (while inherently reducing the impact of outsized risks).

THE INDIVIDUAL INVESTOR

It has often been said that when you are in the thick of things, you simply cannot “see the forest for the trees.” Because of all of the obstacles that surround us (some real, others imagined), our vision is impaired and it is easy for even the most astute observer to become overwhelmed; so much so that they can no longer see the path which lies ahead, nor the bigger picture at hand.

If we apply this analogy to the investment markets and the daily influx of market-moving headlines, prognostications, and so on, it is easy to see how one might get lost in the myriad of directional noise. After all, CNBC, Bloomberg, and the like need to drive ratings, and there is nothing better than sensationalizing a trivial nonevent for this purpose. For that matter, we must admit we find the circus to be mildly ...