Who is 'Harry Markowitz'
Harry Markowitz (1927 ) is a Nobel Prize winning economist who devised the modern portfolio theory, introduced to academic circles in his article, "Portfolio Selection," which appeared in the Journal of Finance in 1952. Markowitz's theories emphasized the importance of portfolios, risk, the correlations between securities and diversification. His work, in collaboration with Merton H. Miller and William F. Sharpe, changed the way that people invested. These three intellectuals shared the 1990 Nobel Prize in Economics. Markowitz is currently a professor at the Rady School of Management of the University of California at San Diego.
BREAKING DOWN 'Harry Markowitz'
In his own words, Harry Markowitz said, "the basic concepts of portfolio theory came to me one afternoon in the library while reading John Burr Williams's Theory of Investment Value. Williams proposed that the value of a stock should equal the present value of its future dividends. Since future dividends are uncertain, I interpreted Williams's proposal to be to value a stock by its expected dividends. But if the investor were only interested in expected values of securities, he or she would only be interested in the expected value of the portfolio; and to maximize the expected value of a portfolio one need invest only in a single security." (source: Nobel Prize official website)
Investing in a "single security" did not make sense to Markowitz. Thus, Markowitz embarked on developing the modern portfolio theory with the foundation of diversification underpinned by concepts of risk, return, variance and covariance. Markowitz explains: "Since there were two criteria, risk and return, it was natural to assume that investors selected from the set of Pareto optimal riskreturn combinations." Known as the Markowitz efficient set, the optimal riskreturn combination of a portfolio lies on an efficient frontier of maximum returns for a given level of risk based on meanvariance portfolio construction. The theory of meanvariance portfolios that Markowitz revolutionized eventually extended to the development of capital asset pricing model, a vital component of investment management practice.

Markowitz Efficient Set
The Markowitz efficient set is a portfolio with returns that ... 
Homogeneous Expectations
Homogenous expectations is an assumption in Portfolio Theory ... 
Mutual Fund Theorem
The mutual fund theorem is an investing strategy using mutual ... 
Inefficient Portfolio
An inefficient portfolio is one that delivers an expected return ... 
Merton Miller
Merton Miller was a noted economist who received the Nobel Prize ... 
Alfred Nobel
Alfred Nobel is the man after whom the Nobel Prize is named. ...

Investing
Understanding The History Of The Modern Portfolio
Learn the history of how a collection of incomeproducing assets known as the modern investment portfolio became so ingrained in our financial world. 
Investing
Two Approaches to Building a LowRisk Portfolio
Building a portfolio consisting of lowrisk assets is achieved primarily by using one of two principal lowvolatility strategies. 
Insights
Where Does the Nobel Prize Money Come From?
The cash award associated with the Nobel Prize has changed in value considerably since the first awards in 1901. Find out where it come from today. 
Financial Advisor
Changing the Definition of Risk in Retirement Planning
For retirement savers, risk is about more than seeing your investments fall short of a benchmark. 
Investing
Strategies For Determining The Market's True Worth
Learn the strengths and weaknesses of passive and active management when trying to uncover the overall market's worth. 
Investing
Seven Controversial Investing Theories
Find out information about seven controversial investing theories that attempt to explain and influence the market as well as the actions of investors. 
Investing
Modern Portfolio Theory Vs. Behavioral Finance
Or: How financial markets would work in an ideal world vs. how they work in the real world. 
Investing
Quantitative analysis: A simple overview
The “quantitative” approach to investing seeks to pay attention to the numbers instead of the intangibles. 
Investing
Explaining The Efficient Frontier
Most investment choices involve a tradeoff between risk and reward. The "Efficient Frontier" is a modern portfolio theory tool that shows investors the best possible return they can expect from ...

How do investment advisors calculate how much diversification their portfolios need?
Learn how modern portfolio theory (MPT) can help determine a diversified mix of assets in a portfolio that is able to reduce ... Read Answer >> 
What are the differences between weak, strong and semistrong versions of the Efficient ...
Discover how the efficient market theory is broken down into three versions, the hallmarks of each and the anomalies that ... Read Answer >> 
What's the difference between agency theory and stakeholder theory?
Learn how agency theory and stakeholder theory are used in business to understand common business communication problems ... Read Answer >> 
What is the chaos theory?
The chaos theory is a complicated and disputed mathematical theory that seeks to explain the effect of seemingly insignificant ... Read Answer >> 
How is covariance used in portfolio theory?
Learn how covariance is used to reduce risk in modern portfolio theory, how covariance is calculated and how it is used to ... Read Answer >>