Wednesday, August 5, 2009


Avner Mandelman’s column in last Saturday’s Globe and Mail, ‘Investing by math alone doesn’t add up’, is worth reading. In it, he excoriates Modern Portfolio Theory, and it’s latest iteration, PostModern Portfolio Theory. MPT has long been a thorn in the side of socially responsible investors due to it’s view that placing constraints on the investable universe of stocks will result in less efficient, and therefore underperforming, portfolios. We respond to that criticism by saying that all managers reduce their universe by some means, and that human rights violations or GRI reporting are no more or less valid than P/E multiples or market capitalization.

Mr. Mandelman’s concern is that “…Modern Portfolio Theorists and other pure math investors continue to insist that math is sufficient to describe the greed and striving and courage that is business.” He feels, as do socially responsible investors, that much of what is important is not always reflected in the financial statements. “How, then, to invest? Research your investments thoroughly, and if at all possible, physically: Step over the Internet’s Turing wall and talk to humans in the company directly.” Hmm, sounds like something most SRI managers do.

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