The Free Market Portfolio Theory

Mark Matson Money

What is the Free Market Portfolio Theory?

• The synthesis of three academic principles– Efficient Market Hypothesis

– Modern Portfolio Theory

– The Three-Factor Model

Efficient Market Hypothesis

• Investors need to know that there is a choice to how they believe the market works

• Your market philosophy will dictate the investment strategy you take

• Do you perceive the market to be efficient or inefficient

Modern Portfolio Theory • Simply put the asset’s benefit to the portfolio

as an entity is more important than the single asset

• An Efficient Frontier helps to get the largest anticipated return value

for any possible volatility

The Three Factor Model

• Focuses on three functioning independent forms of equity returns– The Market Factor: Stock Risk vs. Fixed Income– The Size Effect: Risk of Small Cap Stocks over Large

Cap Stocks– The Value Effect: Extra risk of high book to market

over low book to market stocks

Three Parts

• Together the three principles give a more defined approach to investing

• Having the right insight is key to making smart financial steps

• Making a smarter more disciplined strategy is better for investments

Follow Up

• For more information on the Free Market Portfolio Theory and our company check us out here: http://aboutmatsonmoney.com/