What is Modern Portfolio Theory?
Modern Portfolio Theory was first documented in 1952 by Harry Markowitz, who later won a Nobel Prize in Economics for his work. The theory helps quantify risk and has become widely accepted by Institutional Investment Managers during the past 50 years.
Diversification is more than simply dispersing one’s “eggs” into many baskets. Modern Portfolio Theory explains the benefits of portfolio diversification and demonstrates quantitatively why and how it works to reduce risk.
Markowitz was also the first to establish the concept of an efficient portfolio. An efficient portfolio is one that has the smallest attainable portfolio risk for a given level of expected return (or the largest expected return for a given level of risk).
Maintaining a diversified portfolio – why and how?