Suppose that two portfolio managers who work for competing investment management houses each employs a group of security analysts to prepare the input list for the Markowitz algorithm. When all is completed, it turns out that the efficient frontier obtained by portfolio manager A dominates that of manager B. By dominate, we mean that A’s optimal risky portfolio lies northwest of B’s. Hence, given a choice, investors will all prefer the risky portfolio that lies on the CAL of A.

a. What should be made of this outcome?

b. Should it be attributed to better security analysis by A’s analysts?

c. Could it be that A’s computer program is superior?

d. Would you advise clients to periodically switch their money to the manager advertising the most northwesterly portfolio?