Join our community of smart investors

Good investing habits that can boost your portfolio

James Norrington takes you through the theory of investing to see what you can add
February 20, 2024

Monty Python’s Life of Brian probably wouldn’t be made today, but one of the cleverest bits is the crowd repeating “we’re all individuals” then a lone member declaring “I’m not!”. There’s also a juxtaposition between unique and uniform in investing as, although people’s circumstances differ, decades of research have focused on formulaic approaches.

The starting gun for modern portfolio theory (MPT) was fired by US economist Harry Markowitz in 1952. His central idea was that differences in the correlations between asset price movements make it possible to achieve objectives with lower overall volatility for each unit of return. Essentially, risk can be reduced through diversification, which Markowitz referred to as the only free lunch in investing. 

Switching Python film references, portfolio theory’s Holy Grail is a mix of available assets that confers the maximum ratio of reward to risk. It’s assumed rational people would strive to hold this optimal portfolio.

This is subscriber only content
Start your trial to keep reading
PRINT AND DIGITAL trial

Get 12 weeks for £12
  • Essential access to the website and app
  • Magazine delivered every week
  • Investment ideas, tools and analysis
Have an account? Sign in