Portfolio Theory Is Dead

I was talking with my banker Friday. Among the items of converse, I mentioned that I thought that there was a disconnect between the real economy and the stock market; equities were no longer valued properly according to expected returns and future values, etc.

He agreed.

So, by agreeing with my observation, good or poor, the implication is that there is an extremely good chance that classical portfolio theory is invalid at the present time, in as much as the risk associated with stock owning is risk far in excess of what one might expect of the normal business cycle.
Portfolio Theory was not formulated under the hypothesis of the present disconnect between stock markets and asset valuation.

My banker has not thought that far.

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