Moving Beyond Modern Portfolio Theory: Investing That Matters (Routledge; 2021) boldly critiques Modern Portfolio Theory (MPT), the Nobel prize winning investing theory that once revolutionized the investing world, but now threatens to impoverish both investors and the real world. MPT has no mechanism to understand its impacts on the environmental, social and financial systems, nor any tools for investors to mitigate the havoc that systemic risks can wreck on their portfolios. The result is that MPT forces investors to focus on what matters least, both to them and to society.
The authors contend that MPT and the myriad of simplifying assumptions that enable and amplify it have become myths: Easy to understand, powerful in their explanatory power, and wrong. Self-referential capital market benchmarks become false goals, resulting in a financial system misaligned from the real-world needs of investors, society and the economy. It’s time for MPT to evolve.About the Book →
"If you want to know what’s next in finance and investing, read this book. Lukomnik and Hawley expertly show how financial theory got us here, the limitations of that theory and what is poised to take its place in the financial markets of the future."
"Lukomnik and Hawley provide an insightful case for the need to modernize Modern Portfolio Theory. Investors, academics, and everyone interested in finance and a sustainable future should read it—it will challenge how you think."
"A definitive analysis of the limitations of Modern Portfolio Theory and the gaps it has left behind. It demonstrates why and how investment must evolve in coming years and is the foundation on which forward-thinking investors are now building a new practice."
"Lukomnik and Hawley highlight the increasing realization that investing success is inextricably linked to the health of the economy and capital markets, rather than just to an investor’s superior stock-picking prowess. They show clearly how investors have moved beyond diversification to act on climate change and other material ESG risks."
"At a time of deep reflection around the purpose of companies and financial markets, ‘Investing that Matters’ steers us towards a more enlightened view of capitalism in the 21st century, illuminating how modern portfolio theory needs to evolve to better serve our economies and societies now and into the future."
"If you are puzzled by the current disconnect between the stock market and the real economy, but hopeful that investing can go back to its main purpose—that is, allocating capital to address societal problems—you should read this."
"Moving Beyond Modern Portfolio Theory is a highly needed book, in which Jim and Jon realign finance with the real world, reminding us of its purpose. Portfolio and investing activity clearly affect the system—the financial, ecological, social world we live in. They make this argument very convincingly in a finance book that matters!"