✅ 1. Correlations Converge

When markets crash, assets that were once uncorrelated often fall together —

leaving you overexposed.

✅ 2. Volatility Isn’t Risk

MPT equates movement with danger.

But the real threat is irreversible loss,

not short-term noise.

✅ 3. Normal Distributions Underestimate Outliers

MPT assumes that extreme events are rare.

But history tells a different story:

tail events are frequent —

and destructive.

✅ 4. Past ≠ Future

The efficient frontier is a map of past performance.

But markets don’t repeat —

they rhyme, shift, and evolve.

✅ 5. It Doesn’t Account for Behavioral Breakdown

Even if the math holds, humans often don’t.

MPT assumes rational investors.

Real investors panic.

✅ 6. It Ignores Structural Risk

MPT focuses on returns,

not the underlying design.

When stress hits, poorly built portfolios collapse —

even if they looked “diversified.”