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When Warren Buffett and Nassim Nicholas Taleb declare something related to investments a pile of nonsense, you best listen up.

In a brilliant column in The Financial Times, Taleb writes that the modern portfolio theory has the "the empirical and scientific validity of astrology (without the aesthetics), yet the lessons are ignored in what is taught to 150,000 business school students worldwide."

He also takes the folks awarding the Nobel Prize in Economics to task for legitimizing these nonsense theories with that prestigious award.

What does all this mean for investors? Most financial advisors/planners/what used to be called brokers use MPT as the basis for constructing your portfolio -- and they charge you big fees for doing this.

If you accept Taleb's argument that it's all a bunch of crap, you've taken the first step toward doing the smartest thing you can do for your financial future: ditch your broker and buy low-cost index mutual funds.

Taleb rips modern portfolio theory a new one originally appeared on BloggingStocks on Tue, 23 Oct 2007 17:13:00 EST. Please see our terms for use of feeds.

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