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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75871  
Subject: Re: Questions on diversification and MPT Date: 5/30/2011 11:02 PM
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One of the problems with trying to implement your asset allocation based on modern portfolio theory is that the correlation between asset classes is constantly changing which means that the optimal strategy is also always changing. When you look at the nice long term MPT charts seem to show a clear strategy, but when you look at this by decade the optimal strategy is different for each decade.

I can't link to it directly but the link below will take you to the Amazon "look inside" search for Richard Ferri's book "All About Asset Allocation".

http://www.amazon.com/All-About-Asset-Allocation-Second/dp/0...

in this search on the phrase;

"diversification benefit over the decades"

Then on the left side of the screen select Page 59, figure 3-10


This shows how the chart is all over the place when graphed by decade. This doesn't mean that MPT is useless, but to me a least it instead of showing and absolute best strategy it instead shows more a general style of how and why to mix your asset classes.


Greg
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