An item from the Department of More Things Change, the More They Stay the Same.
Last week, speaking at a conference on managing retirement income, an executive with a U.S. division of Deutsche Bank announced that with the "failure" of diversified investing strategies, Modern Portfolio Theory was dead. R.I.P. balanced portfolios. R.I.P. the Nobel Prize-winning work of Harry Markowitz. R.I.P. Monte Carlo simulation projections.
Instead, announced Phillip Hensler, "Advisors who offer predictability will prevail"– isn’t predictability the goal of all those portfolio managers who rely on statistical analysis techniques for risk assessment? And he foresees that we will enter a new era of "Outcome Driven Investing"–isn’t outcome what drives all investment activity?
In this new era financial planners will help their clients match their "health risks, market risks, and longevity risks with specific guaranteed and non-guaranteed" investment products. Two questions: What else have financial planners been doing for the past decade? And just how are they going to measure that risk?
Maybe in this new era, sound investment advice won’t be based on Modern Portfolio Theory and risk evaluation won’t be the work of Monte Carlo software. But just exactly what will be the era’s guiding principles and analytical techniques? Post-Modern Portfolio Theory and Las Vegas computational tools?