Harry M. Markowitz
ADVISOR TO 1ST GLOBAL’S INVESTMENT MANAGEMENT SOLUTIONS COMMITTEE AND CONSULTANT TO ITS INVESTMENT MANAGEMENT RESEARCH GROUP SAN DIEGO, CA
SOUNDBITE: “You probably heard I am a Nobel laureate?”
As the father of modern portfolio theory, Dr. Harry Markowitz needs no introduction. His first published article in 1952 provided a framework for how investors could most effectively face uncertainty. Seven years later, his groundbreaking book Portfolio Selection: Efficient Diversification of Investments expanded on the relationship of risk and return — a concept ubiquitous in investing today.
But Markowitz, a Nobel laureate honored in 1990 for his pioneering work, is not resting on his laurels or indeed his laureate.
Markowitz, who turns 84 this month, is working in collaboration with Dallas-based 1st Global on a new book that refines his earlier thinking about risk and return. Its goal: to provide investors with even better information about what they should expect from their portfolio selections over the long haul.
Tony Batman, CEO of 1st Global, calls the book, due out in 2013, an “intellectually rigorous” effort covering a wide range of supporting issues that drive modern portfolio theory. A self-described “long and proud” advocate of Markowitz’ signature work, Batman says the book will quiet critics who abandoned modern portfolio theory, or MPT, during the recent financial meltdown.
“The offensive noise attacking portfolio theory was very violent and still is. This re-engages modern portfolio theory so that people will never have doubts again if there is another 2008 crisis,” says Batman. “We’ve seen lots of advisors abandon this classic portfolio theory and that’s wrong. They didn’t understand it in the first place. They never formed proper beliefs around the future. They took an intellectually lazy approach.”
Markowitz, who lives in San Diego, hired on as a consultant with 1st Global in March 2010. The collaboration has led to five model portfolios — ranging from ultraconservative to aggressive growth — that 1st Global advisors share with their clients today. While the portfolios are deeply rooted in mathematics, their design is also based on very human concepts that explain how investors “ought” to act when faced with an uncertain future. In the works: the development of a methodology for tax-efficient portfolio selection.