Efficient frontier constructed from all assets not necessarily optimal

CFA Level III Portfolio Management
#1

Hey guys,

In the Schweser text, the following sentence appears:
“We will no longer assume that the efficient frontier constructed from all (tradeable) assets is necessarily optimal for a given investor”.

Why is this? What is the rationale behind assuming such a thing?

Regards,

#2

Is it talking about the world portfolio? What is the chapter and LOS?

Also, remember that in real life, investors tend to require constraints to their investments due IPS restrictions, behavioral biases or simply an arbitrary wish. Also, the optimal portfolio will depend on the risk tolerance the investor has and MVO could not yield the most desired portfolio (optimal).

In my knowledge, in real life, probably 99.5% of constructed investment portfolios around the world are not optimal from a mathematical point of view like MVO is meant for. Constraints and editing weigths is the common rule.