Ed Stavetski is a longtime financial services professional who engages with family offices and high net worth clients as PCM Partners, LLC, managing director. Addressing shortfalls in the traditional Modern Portfolio Theory (MPT) as a way of assessing investment risk, Ed Stavetski has created a Post Modern Portfolio Theory (PMPT).
The PMPT approach begins with investors calculating minimum acceptable return (MAR), which is defined as a threshold of portfolio growth that will enable them to meet long-term needs and maintain current purchasing power. Not being tied to indexed benchmarks and strategic asset allocations gives the MAR flexibility. Allowing for significantly lower gains than historical averages enables money managers to chart sensible, risk adverse courses. Upon determining the MAR, investors divide allocations into tactical and strategic categories. Strategic allocations form core portfolio holdings and are focused on broad allocations that are truly diversified. The tactical allocation is that which seeks alpha and can fluidly move between cash, bonds, commodities, and equity positions. Through the tactical allocations, highest possible returns are achieved and downside risks contained. A key advantage of this two-pronged approach, which reduces both risk and expectations, is that investors do not experience paralysis during extended downturns and have flexibility to seek out safe havens for at-risk capital.