SIMPLE STRATEGIES FOR PORTFOLIO DIVERSIFICATION: COMMENT.

The article comments on a paper by James C.T. Mao, "Essentials of Portfolio Diversification Strategy," which appeared in the September, 1967 edition of the "Journal of Finance." In that paper Mao discussed a procedure for constructing a diversified portfolio that involved first selecting a given number of securities, and then finding the optimal allocation among them. The author of the current paper surveys Mao's approach to the problem, and provides his own algorithm for solving it. The proposed solution can be adapted to situations where lending and borrowing rates differ.