What the efficient frontier is — the set of portfolios with maximum return for each risk level

What Modern Portfolio Theory says — diversification reduces risk without reducing expected return

MPT asserts that diversification lowers unsystematic risk while maintaining expected return

What the Sharpe ratio measures — excess return per unit of risk: (R - Rf) / σ

Sharpe ratio: Excess return per standard deviation of portfolio returns

What the Markowitz mean-variance optimization does — finds the portfolio with minimum variance for a given return

Determines optimal asset allocation for desired return with minimal portfolio risk

What Buffett's annual letters consistently emphasize — focus on return on equity, not earnings per share

Buffett's letters stress long-term value creation via high return on equity

What the risk-free rate represents — return on a theoretically riskless investment (Treasury bills)

The risk-free rate is the return on investments with minimal risk, like Treasury bills

What the risk parity approach does — allocates based on risk contribution, not capital allocation

Risk parity distributes capital proportionally to each asset's risk contribution