Perhaps you recall the delightful story by Hans Christian Anderson.

An emperor of a prosperous city who cares more about clothes than military pursuits or entertainment hires two swindlers who promise him the finest suit of clothes from the most beautiful cloth. This cloth, they tell him, is invisible to anyone who was either stupid or unfit for his position. The Emperor cannot see the (non-existent) cloth, but pretends that he can for fear of appearing stupid; his ministers do the same. When the swindlers report that the suit is finished, the Emperor then goes on a procession through the capital showing off his new "clothes." During the course of the procession, a small child cries out, "the emperor is naked!" The crowd realizes the child is telling the truth. The Emperor, however, holds his head high and continues the procession. (Wikipedia)

Early this year, I took on the role of the child in a modern-day rendition of the fable. As various seers, analysts, financial writers, and prognosticators debated “black swans,” and even talked about the progeny of modern portfolio theory, I announced:

“Modern Portfolio theory is dead! Its consort, ‘Buy and Hold’ is dead.” Perhaps I was able to see this as clearly as I did because I am not a financial advisor. But just as the child saw clearly that the emperor was naked, I saw just as clearly that not only is modern portfolio theory dead, but that advisors now need to take back the management of their funds.

Whack! Two foundation stones of accepted wisdom. Gone … or will be.

Here is how I came to see Modern Portfolio Theory in its awful nakedness.

A Death in the Family

Sometime in the fourth quarter last year, a death occurred in the investment world. Given its influence, it should have rated a front-page New York Times® obituary. But so far, its passing has been little noted except by a February 16 article in Barron’s®, Modern Portfolio Theory Ages Badly: The Death of Buy-and-Hold which noted the 2008 fourth quarter massacre saw ostensibly uncorrelated asset classes—except Treasury Bills—dive into the shallow end of the pool simultaneously …

Modern Portfolio Theory, sainted intellectual icon, also dove into the shallow end of the pool as did its nieces and nephews—the top rated Morningstar® and Value Line funds.

Writing in the New York Times January 25, 2009, Mark Hurlbert, editor of the Hurlbert Financial Digest® said, “Consider a portfolio that was rebalanced at the start of each month into all no-load domestic equity mutual funds with five-star Morningstar ratings at the time. According to data from Morningstar, such a portfolio lost 22.3 percent in the fourth quarter. That was only slightly better than the 22.9 percent loss for the Dow Jones Wilshire 5000 index.

"Morningstar wasn’t alone in its inability to steer investors out of trouble during the quarter.

“The fund-ranking system of Value Line Inc. performed nearly as poorly. A portfolio of its top-ranked funds lost 22.2 percent in the quarter, according to The Hulbert Financial Digest."

Some write as if it still lives. So I therefore willingly assume the role of the child in "The Emperor Has No Clothes" and again announce: MPT is dead.

It now belongs in the dust bin of discredited ideas, having served up devastating losses to its practitioners and their clients.

Strong words, especially from someone known as a marketer not an investment theorist or a financial advisor. Nevertheless, truth is where you find it.

Solution?

A solution slowly dawned on me in February or March. I should have seen it earlier.

Beginning early January, I had my team get me five appointments a day just to talk to clients. As I made hundreds of calls through January, February and into March, I saw an obvious pattern … and an anomaly.

One of my questions was:

Bill: "How have your portfolios performed?

"Down 40%? Down 30%? Down 45%? Down 30%?
"Down 1%?"

Client: Huh?
"We’re about even. We’ve been in cash."

Bill: Huh?
On the odd answer, I asked "What are you doing?"

It was that occasional whisper of good news—plus some personal experience that I will detail in a moment—that lead ultimately to the realization that as a marketer, I needed to deliver you this advice:

Your story needs to change. You cannot invite people to the same presentation this year as last year. You can no longer explain how asset allocation, efficient frontiers, five-star funds and modern portfolio theory will protect them. They ordered from that menu last year. It made them sick. They don’t want to hear it. Seminar invitations offering a replay of this story do not pull.

As an observer of the wreckage, as a friend and as one who went to cash, I also need to tell you:

You need new portfolio management technology.

The Solution Was In My Face

In November 2007, I wrote a review in e-Gorilla of Forget the Pie by Ric Lager. Ric has been a BGM System user for over twenty years. I helped him transition from wirehouse broker to RIA.

We began talking in the summer of 2007. I started listening as well. By following his advice on my personal 401(k) account, I was 80% in cash when the market tipped over.

In his article in the New York Times, Mark Hurlbert also noted, “To have sidestepped such losses in the last quarter, a stock fund investor would have had to be in cash.”

That’s where I was. Here comes the rest of the story.

Those whispers of good news were, with one exception, all from advisors using the same tool box as Ric, the point & figure technical analysis tools as developed by Dorsey Wright & Associates® in Richmond, VA.

And get this: most of them learned about Dorsey Wright from a speech Ric gave at a Marketing Conference we held in Orlando in 2000. I wish I had paid more attention then.

I have known Tom Dorsey for years. I had him speak at one of our conferences. I should have listened to him. But the reflection of all the smiles of a bull market blinded me as well as you.

In several conversations with Ric, we began to plan a program BGM could offer which would help you in the transition.

Then I started talking to Jack Reutemann, long-time BGM subscriber and multi-million- dollar producer. For many years, Jack has been in the top ten at LPL Financial®. When we have done conference calls with Jack, he has allowed me to say, "Bill Good helped make me a multi-millionaire." I knew he was a Dorsey Wright “Point and Figure Craftsman” as well. Jack shared with me his audited track record. PLUS he agreed to be an instructor with Ric.

After presenting three “No More Pies” seminars, we were extremely fortunate to go a step beyond having Dorsey Wright just tolerating us, and let us do it. Now they are participating.

The Solution: 1+1+1+1

Let’s suppose you decide you need to change investment horses. Unless you are going to build a brand new business, new investment technology is only a third of the solution.

The middle third is to convince your clients to change, but do in such a way they stick with you.

The final third is to manage the transition in an orderly manner so you do not sign up for yet another income reduction plan.

That’s why I developed:
No More Pies!
A “No Apology”
Investment Strategy Seminar
May 21 - 22, Salt Lake City, Utah

Chuck Fuller will teach you the basics of point and figure methodology.

Ric will take you step-by-step through the process. You will drill creating and analyzing portfolios. He will also then show you how to use your analysis in conversations with clients and prospects.

Jack will show you how to educate your clients so they come with you. Perhaps most importantly, he will show you how to manage a big portfolio, and how to keep raising money.

Yes, you can both manage and raise money.

And I will show you how to do it all in an orderly fashion.