This paper is focused on building investment portfolios by using the Markowitz Portfolio Theory (MPT). Derivation based on the Capital Asset Pricing Model (CAPM) is used to calculate the weights of individual securities in portfolios. The calculated portfolios include a portfolio copying the benchmark made using the CAPM model, portfolio with low and high beta coefficients, and a random portfolio. Only stocks were selected for the examined sample from all the asset classes. Stocks in each portfolio are put together according to predefined criteria. All stocks were selected from Dow Jones Industrial Average (DJIA) index which serves as a benchmark, too. Portfolios were compared based on their risk and return profiles. The results of this work will provide general recommendations on the optimal approach to choose securities for an investor’s portfolio.

This paper is focused on building investment portfolios by using the Markowitz Portfolio Theory (MPT). Derivation based on the Capital Asset Pricing Model (CAPM) is used to calculate the weights of individual securities in portfolios. The calculated portfolios include a portfolio copying the benchmark made using the CAPM model, portfolio with low and high beta coefficients, and a random portfolio. Only stocks were selected for the examined sample from all the asset classes. Stocks in each portfolio are put together according to predefined criteria. All stocks were selected from Dow Jones Industrial Average (DJIA) index which serves as a benchmark, too. Portfolios were compared based on their risk and return profiles. The results of this work will provide general recommendations on the optimal approach to choose securities for an investor's portfolio. KeywordsMarkowitz Portfolio Theory, Modern Portfolio Theory, Capital Asset Pricing Model, CAPM, diversification, stock portfolio Introduction Investing in capital markets is one of the main activities of large number of economic subjects. This activity was particularly driven by development of information technology as well as deregulation and globalization, which is typical of the current financial markets. The development of information technology has enabled even small retail investors, who generally do not have the appropriate knowledge and experience, to take advantage of the direct purchase or sale of securities on the capital market. Driven by different motives, investors allocate their available resources to the assets and through selected investment strategies they seek to derive maximum value from invested funds and at the same time eliminate the threat of losses. Different models for assets valuation describing the relationship between risk and return on the given investment can be used as a tool to support investment decision-making. One of the most common methods in designing strategies and building portfolios is the Modern Portfolio Theory (MPT). Although it is based on simplifying assumptions, it can be successfully used in portfolio analysis for explaining the relationship between the return and risk of individual portfolio components. The Capital Market Theory, which is closely related to the MPT, then came up with the Capital Asset Pricing Model (CAPM), which extended the existing theory by an equilibrium view of the asset market. In spite of the fact that the capital asset pricing model rests on simplifying assumptions and has been tested many times since its inception in the 60s, but its general applicability was not confirmed, it is currently among the most widely used models and can be used to manage investment strategies and build investment portfolios. The model is based on the equilibrium between the risk and return, or more precisely the risk (represented by beta coefficient) of a specific title is directly proportional to the return achieved on the given investment. It is these findings about this approach and the model, or its pri...