practice, however, different managers will estimate different input lists, thus deriving different efficient frontiers, and offer different "optimal" portfolios to their clients. The source of the disparity lies in the security analysis. It is worth mentioning here that the rule of GIGO (garbage in-garbage out) also applies to security analysis. If the quality of the se- curity analysis is poor, a passive portfolio such as a market index fund will result in a bet- ter CAL than an active portfolio that uses low-quality security analysis to tilt portfolio weights toward seemingly favorable (mispriced) securities. As we have seen, optimal risky portfolios for different clients also may vary because of portfolio constraints such as dividend-yield requirements, tax considerations, or other client preferences. Nevertheless, this analysis suggests that a limited number of portfolios may be sufficient to serve the demands of a wide range of investors. This is the theoretical basis of the mutual fund industry. The (computerized) optimization technique is the easiest part of the portfolio construc- tion problem. The real arena of competition among portfolio managers is in sophisticated security analysis.             CONCEPT C H E C K ☞ QUESTION 4 Suppose that two portfolio managers who work for competing investment management houses each employ 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 dom- inates that of manager B. By dominate, we mean that As optimal risky portfolio lies northwest of Bs. 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 As analysts? c. Could it be that As computer program is superior? d. If you were advising clients (and had an advance glimpse at the efficient frontiers of various managers), would you tell them to periodically switch their money to the manager with the most northwesterly portfolio?     Asset Allocation and Security Selection