Don portfolio optimizers give wild answers?
A portfolio optimizer that is given naive inputs will produce solutions that could be financial disaster. However, automobiles have not been abandoned because they crash when left to run down hill on their own. When reasonable constraints and (especially) trading costs are used, an optimization is likely to provide better answers than can be found by other means — and possibly with less effort than the alternatives. An optimizer can provide improved risk management, making the fund manager’s return predictions more valuable. The availability of random portfolio generation in Portfolio Probe means that the usefulness of constraints can be explicitly tested rather than just left to guesswork.
