davelj, the last time I read the definitions of MPT and CAPM, I decided I don’t believe in it either. What are your reasons? Did you invest in the Prudent Bear funds? What do you think about shorting WaMu? The gains on shorting an undiscovered loser like WaMu could be huge. But yes, a lot can go wrong; they could quietly move their losses to a different section of their books, and by the time the market realizes their losses are due to foreclosures, my shorts will be priced out. The gov’t could bail them out, etc.