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Pro #1: Less Risk, More Reward

November 27, 2012

Most investment managers base their practice on modern portfolio theory, which says that greater risk yields greater rewards and that markets are “efficient,” meaning that they self-correct and reflect the true value of stocks, bonds and other securities.

It turns out, though, that modern portfolio theory is in need of an update. An award-winning paper from Mike Hartmann of Plan To Invest Capital Management, Inc. not only disproves modern portfolio theory, it provides a new way to pick mutual funds. Hartmann’s paper, “Short Term Alpha as a Predictor of Future Mutual Fund Performance,” shows that:

  • Less risk may mean more reward
  • The “efficient frontier” isn’t so efficient
  • Short-term alpha is an effective predictor of mutual fund performance

Check out this insightful white paper and let us know what you think of Mike’s findings. Disclosure: Plan To Invest is a client.