Post Modern Investment: Facts and Fallacies of Growing Wealth in a Multi-Asset World

Preface

For the most part, significant individual wealth is built on the foundation of the single unadulterated bet with little regard given to risk. Examples abound in life and literature. This is the domain of the entrepreneur who focuses on the single product or idea, the oil wildcatter who sinks his or her last penny into the next well, or the investor who bets it all on the single stock or market trend. There is no risk-to-reward calculation in this model only the pure belief that there can be only one outcome and that loss and risk lie in not fully engaging with a given path. In contrast, institutional wealth is built by the steady analysis and implementation of risk and return models. This approach entails an understanding that preservation of the corpus against inflation is foremost in the accumulation of wealth. The institutional wealth model incorporates concepts such as time horizons, diversification, and asset allocation.

The two models converge when speaking to preservation of wealth with the single bet approach giving way to reasoned and sustained accumulation. Here, the goal of any large portfolio of assets held by individuals, pension plans, banks, insurance companies, or any other similar scheme is simply to earn a rate of return. Earning a rate of return is a relative enterprise. Its success depends on the financial obligations associated with the scheme as well as market variables such as inflation, regulatory policy, investment costs, and time horizons. Intrinsic ...