
Why Modern Portfolio Theory Still Matters
Two different belief systems serve as the basis for investment decisions: the modern portfolio theory (MPT) and behavioral finance (BF). A basic summary of the two schools of thought: the MPT focuses on the optimal state of the market, while BF is more focused on the actual state of the market. While an understanding of both ways of thinking gives you a better understanding of the market, as well as your role as an investor, a primary focus on modern portfolio theory tempered by behavioral finance may enhance your overall investment experience.