Saturday, February 6, 2010
Thoughts on Portfolio Selection - A 50 Year Retrospective - Earl Malvar
Harry Markowitz can indeed be considered the father of modern portfolio theory on account that he introduced mathematical formalization in investment diversification. Critical to the emergence and development of modern financial economics was his highlighting of the two key factors in investing and portfolio management - expected returns and quantified risk - that brought about his own theory on diversification. Markowitz was able to integrate mathematical proofing and human behavior to develop his practical theories in investments. Although his work was paved by academicians, financial and economic philosophers ahead of him, he was the one to synthesize the theories and principles into something practicable and (almost) tangible to the investment profession. Diversification, with the intent of identifying the set of efficient portfolios, established the principle by which all investors have recognized until today. Based on his subsequent works, Markowitz theories can be characterized as malleable as he offered suggestions to his contemporaries on the theories that may be further explored and developed.