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

CHAPTER 5THE LANDSCAPE HAS CHANGEDThe Proliferation of the ETF

Revered in his lifetime as Il Divino, “the divine one,” Michelangelo’s hands moved as though by the grace of God, possessing the innate and unparalleled ability to resurrect life from a block of marble, or with the mere stroke of his brush. Producing works of such awe-inspiring grandeur, Michelangelo’s legacy embodied the archetypical spirit of the Renaissance.

By now you may be familiar with the story of David and Goliath, but the symbolism behind this biblical account goes far beyond defeating an adversary donning superior strength. Rather, Michelangelo’s “David” depicted a mind-set, a willful act of defiance to act upon one’s strongest convictions with courage, to break free of the malpractice and injustice of the day and to establish order in an otherwise chaotic world. This much can be seen in David’s resilient expression.

Michelangelo’s statue of David became a symbol for enlightenment, for courage in the face of oppression, and for the glory and power of the human spirit.

On August 31, 1976, the world’s first index mutual fund was launched: the Vanguard S&P 500 (ticker: VFINX). At the time, it was viewed by the majority in the investment community as a slap in the face, proposing that just buying and holding the broad stock market would yield better results than trying to beat it by picking stocks. An indexed approach was dismissed as a recipe for achieving average results. Surely investors could do better ...