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GETTING
BACK TO
BUSINESS
BACK TO
BUSINESS
WHY MODERN PORTFOLIO THEORY FAILS
INVESTORS AND HOW YOU CAN BRING
COMMON SENSE TO YOUR PORTFOLIO
DANIEL PERIS
ISBN: 978-1-26-013533-6
MHID: 1-26-013533-0
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—From a Declaration of Principles Jointly Adopted
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The views and opinions expressed in this publication are those of the author and do not necessarily reflect the
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TERMS OF USE
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tort or otherwise.
Contents
Preface v
Acknowledgments ix
Conclusion 289
Notes 295
Index 331
vii
O ver the past five years, I have discussed the issues raised in
this book and shared early drafts with numerous practitio-
ners, academics, and individual investors. I am grateful to all
of them for helping me work out and refine my propositions.
Some were sympathetic to my agenda; others challenged it
energetically. I want to call out two readers in particular, one
from each camp. Pierre Schell shares many of my views, but
our exchanges allowed me to see points that I might otherwise
have overlooked. My colleague, Mike Granito, took the other
side and interpreted the orthodox finance model in a number
of very stimulating back-and-forth sessions. At McGraw-Hill,
Noah Schwartzberg has been an excellent partner in this ven-
ture. Finally, the members of my family have had to endure
my being occupied with investment theory and history for too
long. Getting Back to Business is dedicated to them. It is now
time for me to get back to them.
xi
xiii
paid to support. But the truth is the truth: after half a century
and despite constant tweaking, MPT is not helping investors
achieve their financial goals; investor returns are mediocre at
best, retirement accounts are far from where they need to be,
and most pension funds are not even remotely able to meet
their future obligations. Not surprisingly, few people hold the
investment industry in high regard, and most people actively
dislike Wall Street.
In The Strategic Dividend Investor (2011), I identified
a prolonged decline in interest rates as contributing to the
retreat from stock market investments focused on generat-
ing cash streams, that is, dividend payments, and turning the
stock market into a grand betting parlor. In The Dividend
Imperative (2013), I focused on the harm done by share
repurchase programs. In this volume, however, I am suggest-
ing that although falling interest rates and share buybacks
are manifestations of a problem, they would not have done
the damage that they did without the underlying paradigm of
MPT, which gave a green light to speculating in prices rather
than investing in businesses. That intellectual narrative—
the time-honored set of comforting MPT rules by which we
invest—is itself the problem. Nearly a decade into a market
rally, and with a large portion of the population of an age
where the condition of their retirement accounts really mat-
ters, it is a good time to double-check the story that we have
been taught.
What’s at stake is not just the health of your 401(k) or the
publication records of academics. For better or worse, invest-
ment in publicly traded equities—the stock market—is closely
associated in the popular imagination with capitalism, and
with the mostly free market–based system of exchange and
investment that is a distinctive characteristic of our society.
Stock market volatility and poor returns run the risk of creat-