Black-Litterman is a method for tweaking the expected returns inputs in a mean variance optimization model by layering confidence intervals over the long term averages. Basically, it’s a fancy academic term for predicting the future based on a personal guess. I’m a big believer in modern portfolio theory, and even I think most investors should pretty much ignore Black-Litterman as it’s way too deep in the weeds with highly questionable practical utility.

Also, “modern portfolio theory” is kindof a broad term and it’s important to understand that there are multiple approaches to the same concept of improving risk-adjusted returns. The most important ideas are less about optimization formulas and more about the measurable benefits of different types of diversification. I recommend starting out by learning a few core principles. Here are a few recommended books:

“Fail Safe Investing” by Harry Browne does a great job of discussing how to diversify a portfolio to cover a variety of economic conditions.

“Your Complete Guide to Factor Based Investing” by Larry Swedroe covers how one can diversify their stock holdings using a variety of “factors” other than market Beta (the core CAPM metric behind the classic idea of adding bonds to reduce risk).

“Reducing the Risk of Black Swans”, also by Larry Swedroe, describes how portfolios can be constructed with a simple form of volatility-based risk parity to reduce risk for the same expected return.

And if you want an excellent history of economic theory, including examples of how many famous academic models are provably fundamentally flawed, check out “The Misbehavior of Markets” by Benoit Mandelbrot.

And of course, you can also try reading through the commentary and library at my personal site

Portfolio Charts. I study this type of stuff all the time and do my best to present it in an approachable way. For the record, I don’t think any of the authors above has it all figured out on their own, but by reading different perspectives you can find something that works well for you personally not only financially but also intellectually and emotionally.

I hope that helps!