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The myths of Modern Portfolio Theory, the Olestra™ of investing, and all of its illegitimate relatives have resulted in the creation of a new and popular set of mindless, imagineered investment disciplines that are nothing more than just other ways to record and illustrate investment history without valid analytical, interpretive, deductive, predictive, or directional investment value:

Modern Portfolio Theory | Brinson's Asset Allocation | Beta | Monte Carlo Analysis | Efficient Frontier Analysis

MPT Risk Management | Pie Charts | Technical Analysis | Investment Planning Software

The premise of Modern Portfolio Theory depends heavily on one's blind, unconditional acceptance of a grossly invalid assumption; if it happened yesterday or if it happened sometime in the past, then it will (probably, more likely than not) happen today or it will (probably, more likely than not) happen sometime in the future much in the same way that it did in the past.

The errors in the reasoning and the math of Modern Portfolio Theory are the failure to distinguish between 'connected and casual' variable relationships and 'contrived and coincidental' variable relationships; the variables, for example, that must be in place to cause rain and the coincidental variable, flooding, or the variables that cause investment prices to rise such as fundamentals and earnings growth and a coincidental and contrived variable relationship; a change in the price of an investment and the change in the price of a related market index; Beta:

Explained another way, a thermometer measures temperatures in degrees as the weather changes. A thermometer is a recording device not a forecasting one and, therefore, it cannot be used to predict future temperature levels.

Beta, like a thermometer, is merely a numeric term used to measure past relative investment performances between two investment variables and not the cause of either.

Furthermore, if a thermometer also happened to store prior temperature readings on a daily basis, you certainly would not retrieve that information and use it to predict tomorrow's or next week's temperature readings; the same holds true for historical beta readings as a basis for predicting future betas.

As one would have to analyze the weather-changing causal variables that affect weather, such as humidity and barometric pressure, to predict future temperature levels, future investment value and associated risk can only be meaningfully understood and predicted based on one’s correct understanding and interpretation of the performance-changing, causal investment variables that affect an equity’s behavior.

Each day in the stock market is a new day and independent of the prior days' stock prices in much the same way selected lottery numbers are independent of the past.

It cannot be said that because a lottery number has been drawn in the past, regardless of the number of times it has been drawn , that previously drawn lottery numbers have a greater probability of being drawn in the future; the same is true for stock prices.

Clearly there can be a carryover affect of prior pricing variables that can affect current price along with other, new pricing variables that did not affect prior prices. To that extent stock market prices are not completely independent of past prices; however, it cannot, therefore, be concluded that today's price is because of yesterday's price.

Think about this:

Step 1: Reflects the closing price of a stock on its first day of trading based on stock market pricing variables:

Earnings, markets, momentum, fundamentals, institutions, individual investors, news, analysts, technical analysis, currency, governments, the list goes on and on, all have unknown impact on each days' prices.
The consensus totality of all of these variables, unknowable in advance, will determine the day's price.

Step 2: Illustrates two days' closing prices with day two's closing price being determined by stock market price variables and not because of the position of the first day's price data dot.

Step 3: There is no basis whatsoever to suggest that the price of a stock will close @ A, B, or C on day three based on the position of the prior two days' closing prices; the fatally flawed leap of faith assumption that technical analysis would have you accept.

The exception being that those who believe in technical analysis, who follow most of the technical analysis rules may have an impact on future prices if they all apply the same rules at about the same time.

Furthermore, technical analysis mistakenly makes much of the reflective not predicative relationship between a stock's daily price and any one of a number of moving averages, 20 Day Moving Average illustrated below, for example.

Daily Prices and a 20 Day Moving Average are nothing more than mathematically connected with the 20 Day Moving Average simply being generated by, being a function of, being a derivative of Daily Prices.

Both are simply ways to record trends; but, neither of them predict trends.

To suggest that a day's stock price will behave in a particular way because of its relationship to a moving average is absurd.

The appeal of Modern Portfolio Theory, et al is that no investment skill or judgment is required; just update, search, retrieve, sort, pick, print, and present information that suggests that past performance, contrary to fact and law, is, in deed, an indicator of future investment results.

"Our updated Efficient Frontier Analysis historical investment performance data and our new and improved pie charts and graphs indicate that we might do better if you were to move your current investments that I recomended to you based on Efficient Frontier Analysis historical investment performance data at that time and that did well in the distant past prior to your investing in them, but have not done well since you have owned them, into investments that are currently on the Efficient Frontier, that have done the best in the most recent past, and that have low Betas; therefore, low investment risk."

"The best news is that because the Betas of your new investments have been around 1.5 and because I think that (based on the past performance of the S&P 500) the S&P 500 is going to go to 2,100 and your new investments, if I am correct about the future of the market (based on the past performance of the market), will go up, on average, about 70%."

Investment history and investment hindsight, other than reference points for considering investment selection, are neither investment insight nor investment foresight.

Investment history will show that these investment advising hoaxes did for investing what peanut butter and jelly sandwiches did for medicine.