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

CHAPTER 4BEYOND THE STARSSuggestions for Investment Selection Criteria

Born some 20 years after the death of Nicolaus Copernicus, Galileo Galilei devoted a lifetime to championing the Copernican views of a heliocentric universe. Widely regarded as the father of modern astronomy, Galileo was the first to use the telescope to study the heavens. What Copernicus had theorized, Galileo proved, though at the time, these views were not widely accepted. Rather, the notion of a sun-centered universe was wildly controversial, so much so that Galileo later found himself at the center of the Roman Inquisition. He was found guilty of heresy, forced to recant, and spent the remainder of his life under house arrest.

What Galileo observed, through what by today’s standards would be viewed as a crude telescope, rocked the very foundations of Aristotle’s universe and the theological and philosophical worldview that it supported. Pointing his looking glass to the stars, Galileo discovered craters on the moon, sunspots, the phases of Venus, and the moons of Jupiter. Church officials refused to look through his telescope, believing the devil himself was capable of making anything appear, and surely this was his doing.

The investment world as we know it refuses to look at that which clearly lies in front of them; the philosophical worldview of how to navigate the capital markets, mitigate risk, and achieve investment success simply does not work. Time and time again, this has been proven, by manager ...