"He focuses then, then, only on the odds for a crash-sharp, catastrophic price drops. After all, it is not small declines that wipe an investor out, … - Benoit Mandelbrot

"He focuses then, then, only on the odds for a crash-sharp, catastrophic price drops. After all, it is not small declines that wipe an investor out, it is the crashes. So their scaling formula minimizes the odds of too many of the assets in a portfolio crashing at the same time. They used that to draw a "generalized efficiency frontier"-analogous to Markowitz's original portfolio technique-to help pick a portfolio that maximizes returns for a given amount of crash-protection. As the paper put it, "the frequency of very large, unpleasant losses is minimized for a certain level of return."

Thus, it is not just the stock-picking that is important, but also the risk-protection. For the latter, Bouchaud says, multifractal thinking is most useful."