The Black-Litterman model is the mad-scientist creation of two Goldman Sachs dudes, combining three things: 1. the modern portfolio theory (basically: having a balanced portfolio that protects you from too much risk while still maximizing returns), 2. the capital asset pricing model (bases pricing of investments on risk-level and time invested), and 3. the mean-variance optimization theory (maximizing your portfolio for the be$t return$).
Say what now?
Basically, the Black-Litterman model helped portfolio managers solve the balancing-act problem many of them had, allowing them to produce a reasonable estimate of expected returns within a balanced portfolio that’s also optimized for maximum money-making.
It’s a tool that gave them the best of both worlds (balanced portfolio and risk/time-based pricing of investments).
Make it rain, boys.
Related or Semi-related Video
Finance: What are Balanced Funds?37 Views
Finance a la shmoop what are balanced funds? well this is a teeter
and this is a totter and this thing here is the fulcrum and here's you madam [Woman sitting on the fulcrum]
imbalanced funds sitting in the middle a gentle breeze sways you left toward a
little more yield or interest on bond investments and then another breeze
sways you right toward a little more growth or capital appreciation from [woman swaying right]
equities a balanced fund is a type of mutual or index fund which generally
keeps an even ish mix of growth and income for investors who don't want the
volatile sharp rocky mountain peaks and valleys that growth only throws at you [Growth chart with peaks and valleys]
but well they want a bit more excitement than all bonds got it or rather they can
handle a bit more risk in their lives than what a simple bond income fund
would deliver to them you know a whole lot of boring yield balance is almost [Woman balancing]
always good for zen.. oops didn't see that breeze coming
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