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EOM 9.3.17 Chart

Today, I wrap-up the current series, does the Modern Portfolio Theory work? I will analyze an example of the true cost of diversification with buy-hold and forget.

Why is the MPT so popular with money managers? The answer: To spread risk between equity and bonds. For years the mantra on Wall Street has been when money goes out of equity funds it goes into bond funds.

To explain, let’s examine the performance of five holdings from a follower, since September 2013. Here’s the name of the funds and type: AGTHX-equity fund, ANWPX- equity fund, CAIBX-blend (equity and bond fund), CWBFX-bond fund, and AIBAX-bond fund.

At first glance, it looks like there is a nice blend between equity and bond funds in case the markets dip. Let’s look at the performance to date.

Two holdings (AGTHX and ANWPX) both equity funds outperformed the Standard & Poor’s 500. More important, three holdings, CAIBX-blend fund, CWBFX-bond fund, and AIBAX-bond fund traded in the green but grossly underperformed the market.

Since the reader did not receive charts showing holdings performance vs. the market, their reports looked good with all results being profitable. The following shows how much value was lost (returns vs. the returns of the S&P 500) AGTHX +15.06 percent, ANWPX +4.08 percent, CAIBX -18.40 percent, CWBFX -48.53 percent and AIBAX -40.32 percent. The four-year cumulative results underperformed the market over 88 percent. Yikes!

These holdings were in a managed account. At no point did the follower receive charts showing the true performance of their holdings compared to simply investing with a low commission/fee S&P Index Fund. With such poor holdings performance and high opportunity cost, you can see why.

When asked why I did not show any charts showing positive results using the MPT. My answer -- all charts in this series are from followers. No one sent in any holdings to demonstrate another side of the story.

So, here are action points to think about:

First, these results in no way represent all MPT results.

Second, the MPT does not guarantee profitability.

Third, are your holdings diversified?

Fourth, are your holdings outperforming the market returns?

Fifth, do you receive charts showing your holdings performance compared to the market?

Sixth, if not, why?

In my classes and seminars, I teach that diversification works until it doesn’t – and does not guarantee profitability. You can now see why.

Wall Street makes its money with us being in the market. We make our money with what we own and when.

If interested in learning the many advantages and disadvantages of trading online using an online broker, attend my Friday, Sept. 8, seminar at John A. Logan College. For more information, visit my website,

Next week, we will examine these holdings during the 2007-2009 downturn to see if these Bond Funds increased as much as these Equity Funds decreased, proving a reason to use the MPT.

Plan your work, work your plan, and share your harvest!

DAVID O. ENGLAND is the founder of the Eye on the Market-Training Academy ( and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Your decision to buy, sell, short or hold any investment product is a direct result of your decisions, free will, and research. For questions-send to


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