Post Modern Investment: Facts and Fallacies of Growing Wealth in a Multi-Asset World

Chapter 1

Investment Ideas

Evolution or Revolution?

The universe of investment opportunities can seem infinite. For most investors, modern investment is a complex minefield of multiple assets, multiple products, and multiple means of investment. Added to this mix are the vast numbers of firms competing for an investor's money and the myriad “stories” developed to provide credence to their particular approach.

On the surface, it would appear that modern investment should be a relatively straightforward exercise. At its essence, the process should entail (1) selecting securities that are expected to outperform other securities in an asset class, (2) selecting a group of asset classes that will outperform other asset classes, and (3) deciding on the allocations among asset classes and securities that meet an investor's risk tolerance. Beneath the surface calm of this investment process, however, lie riptides of incomplete information, changing expectations and circumstances, and evolving interrelationships. This state of flux exists both with the investor and the market (the composite investor). An investor's tolerance for or understanding of risks changes over time, as does his or her investment horizon and view of the future. The market's tolerance for an estimate of risks also changes over time, if for no other reason than the sources of returns and risk profiles of differing assets are not static. They change with new information, new interrelationships with the economy and other ...