Free Market Portfolio Theory

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Free Market Portfolio Theory

Safety First employs the investment philosophy pioneered by its strategic partner, Matson Money:  That it is both possible and prudent to apply the best academic research of the past fifty years to understand better the process of successful investing. Established over 20 years ago by a well-known investment manager, author, news and television contributor Mark Matson, Matson Money is leading independent Registered Investment Advisory firm with over $5 billion under management.

Economists have long been working to understand how markets work. Prior to the availability of reasonably fast computers, this endeavor was primarily theoretical. The empirical side of academic research in the area of economics and investing began in the early 1960s.

Many believe that the publication of Eugene Fama’s Ph.D. dissertation in 1963 was the culmination of empirical research in this area. This information is the foundation upon which Matson Money has been built. Together these concepts form a solid, disciplined, and diversified investment strategy.

Matson Money’s Free Market Portfolio Theory is the combination of three evolutionary breakthroughs in the area of modern finance that encompass the Free Market Portfolio Theory: Efficient Market Hypothesis, Modern Portfolio Theory, and the Three-Factor Model.

Free Market Portfolio Theory
The word “free” is used in the phrase Free Market Portfolio Theory based on the works of Adam Smith and FA Hayek. Both of these great thinkers clarified and explained the power of free markets.

F.A. Hayek 
In his book, The Fatal Conceit, Hayek gives the main arguments for the free market case and labels as the “fatal conceit”-the idea that “man is able to shape the world around him according to his wishes.”

Adam Smith 
In his classic work, The Wealth of Nations, Adam Smith, the “father” of modern day capitalism opined, “Every individual in pursuing his own good is led as if by an invisible hand, to achieve the best good for all. Therefore, any interference with free competition by the government is injurious. Market forces of capitalism will produce the best results, economically and socially, if they are not tampered with.”