Abstract
Current portfolio theory assumes that portfolio managers will feel perfectly secure if they are out of the market and in cash. Yet, in reality, portfolio managers seem no more secure with a large cash position than they do with a small one. With a large cash position they are in continual fear of a market rise, while with a small one they are in fear of a market decline. The risk with respect to a market rise was well illustrated by an observation by Professor Samuelson in his Newsweek (9/19/66) column during the 1966 market break. There is an old story that a friend once asked J. P. Morgan, What should I do about my stocks? I can't sleep nights. Morgan replied, I'd sell down to the sleeping point. In 1966 Samuelson quipped:
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