Sucker Punch

I've been reading lots of investment material, I'm a masochist at heart. I was reading about Modern Portfolio Theory, which you have to Capitalize (mixed metaphor.)
It's really a fascinating combo of science fiction and meaningless math.
First, it was foisted on an unsuspecting public 50 YEARS ago, and it's STILL called modern, despite there being nothing like today's derivatives and Warren Buffet was only 30 years old.
Investment Manglers, uh, Managers, are using it to decide how to construct portfolios, which they then foist off on YOU in the form of mutual funds, managed accounts and hedge funds. And YOU buy it, well, lots of you do.
Where are all the customer's yachts anyway?
Here are the general assumptions behind Modern Portfolio Theory, try not to throw up.
-Investors are risk averse.
Comment: It isn't true, as demonstrated by Kahneman and Tversky. The research is too long to go into here, but the truth is...investors are LOSS averse. They will actually seek risk under the right circumstances.
-Investors make decisions based purely on expected return and risk.
Comment: No, you didn't read wrong. He posited an investment theory based on people being rational...???
-Investors have a common one period investment horizon.
Comment: It then explains that the period can cover varied lengths of time. If you can make that sensible, let me know how.
-Investors have free access to all information relevant to investment decision making.
Comment: Having access and using it are not the same thing. And you'll have to explain Bernie Madoff if you believe this.
-I LOVE this one
-There are no transaction costs.
Comment: A portfolio construction model that denies costs. ALERT!!!....This is the founding investment theory your children are learning in the expensive Finance and MBA program you are paying for.
-Capital markets are perfectly competitive, so no one can manipulate the market.
Comment: Duh. It also begs the question of why your government should intervene by plowing borrowed money into financial crises, which is nothing but market manipulation.
Soon, we move to the Capital Asset Pricing Model for Dummies. Stay tuned.