Why Modern Portfolio Theory Works for Institutional Investors and Doctors
MPT is the first investment concept to be broadly adopted by large institutional investors. MPT provides a method for diversifying across different sectors (asset classes) of the stock and bond markets. Research shows that 95% of investment performance is based on asset class decisions, while less than 5% results from security selection and market timing. Measuring how different asset classes interact with each other, MPT provides a formula that allows us to more broadly diversify, avoiding over-concentration and uncompensated losses.
Doctors who ignore Modern Portfolio Theory do so at their risk. Less efficient investment methods mean that doctors have to work longer and save more than those who use this process. Moreover, MPT helps reduce the stress associated with the "roller-coaster" rides experienced by doctors with poorly diversified accounts.