A speaker uses Portfolio Allocation Theory to separate systemic risk from idiosyncratic risk, then applies it to owner churn data. The argument: churn patterns show market-wide forces at work, not individual property managers suddenly changing how they operate.
When I went back and got my MBA in 2008, one of my favorite professors was visiting from University of Chicago, and he taught in an elective class that I took called Portfolio Allocation Theory. He taught us about 2 types of risk, idiosyncratic and systemic risk. And systemic risk, you cannot diversify away from. It just is what it is. It's at a macro level. The world blows up, everybody's gonna suffer. Idiosyncratic risk, you're gonna diversify your holdings, and you can significantly reduce your risk while having high returns. So when I'm thinking about this data that you're presenting, right now, I'm thinking this is indicative of systemic stuff because you're looking at the data in aggregate. This is not idiosyncratic, like all of a sudden all these property managers all at the same time change their business practice. So to me, this would be driven by market forces.
