Harry Max Markowitz is an American economist who won the Nobel Prize in Economic Sciences for his contribution to the field of financial economics. He shared the prize money with two other American economists, Merton H. Miller and William F. Sharpe. His research opened up a completely new field of study related to financial economics where the effect of risks, diversification and correlation were very important. Markowitz had already developed a portfolio theory in the early 1950s on the ways in which returns on investments could be optimized. Economists at that time stressed on diversification of portfolios and were against putting all their money in one place. Markowitz came up with ways to measure the risk involved for each security and how to make a combined portfolio that could bring maximum returns for the risk taken. He showed how two shares, both having equally high risks and high returns, can be combined in a portfolio to lower the overall risk. This could be possible if the price of one share had a tendency to fall when the other rose thus minimizing the total risk while keeping the level of returns quite high. Makowitz’s idea caught on very fast and all portfolio managers and investors started to use this technique to keep the money flowing into their bank accounts.
Childhood & Early Life
Harry Markowitz was born in Chicago, Illinois, USA on August 24, 1927 to Morris Markowitz and Mildred Markowitz. They owned a small grocery store in Chicago. He was the only child of his parents.
He acquired a love for philosophy and physics during his days in high school.
He joined the ‘University of Chicago’ and earned his B.Phil degree from there in 1947. During this period he became interested about the uncertainties that were attached to investments in the share market.
He continued with his studies at the university and specialized in economics. He was greatly influenced by famous economists such as Jacob Marschak, Leonard Savage and others. He earned his M.A. degree from the university in 1950.
He received an invitation to join the ‘Cowles Commission for Research in Economics’ located in Chicago while he was still a student.
For his PhD thesis, he chose the stock market and tried to apply mathematical formulations to analyze the variance of shares in the market. He found that the understanding of stock markets at that time lacked the knowledge of how risks could create an impact on share prices. His theory on the allocation of portfolio led to the paper titled ‘Journal of Finance’ that was published in 1952. He received his PhD from the ‘University of Chicago’ in 1955.
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Harry Markowitz joined the RAND Corporation in 1952 and started working with George Dantzig on the development of a ‘critical line algorithm’ that would help in the optimization of the mean-variance in the portfolios. This came to be known as the ‘Markowitz frontier’. He developed an algorithm for identifying the portfolios that would have shares with the greatest amount of optimization.
He spent a year from 1955 to 1956 at the ‘Cowles Foundation’, Yale University. During this time he worked on his algorithm which was published it in 1956 and on his book on the allocation of portfolio which came out in 1959.
He returned to the RAND Corporation in 1960 and helped develop a programming language called ‘SIMSCRIPT’ which was the first ‘simulation programming language’ of its kind.
He founded the ‘California Analysis Center’ on July 17, 1962 with the help of Herb Karr which later became the ‘CACI International’.
He joined the ‘Arbitrage Management Company’ in 1968 and created a hedge fund with the help of Robert Merton and Paul Samuelson which is supposed to be the first ever attempt to conduct arbitrage trading with the help of computers. He became the CEO of this company in 1970. He left the company in 1971 after it was bought by Stuart & Co.
He joined the ‘Rady School of Management’ of the University of California, San Diego as a professor of finance.
He has also served in the advisory board of ‘BPV Capital Management Company’ which was another firm dealing in hedge funds.
He has worked with the ‘Investment Committee of LWI Financial Inc’ at San Jose, with the advisory board of ‘Research Affiliates’ in Newport Beach , ‘Index Fund Advisors’ and ‘The Investment Committee of 1st Global’ in Dallas.
Markowitz co-founded ‘Guide Choice’ which provided advice on investments and accounts. He designed the investment solution provided by this firm and is the head of the ‘Guided Choice Investment Committee’.
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From 1982 onwards he taught at the ‘Baruch College’ under the ‘City University of New York’ as a professor of economics.
In 2002 he was elected a fellow of the ‘Institute for Operations Research and Management Studies’.
His latest activity involves giving assistance to retirees on wealth distribution with the help of ‘Guided Spending’.
Harry Markowitz published his first book ‘Portfolio Selection’ in 1952.
His next book was titled ‘Portfolio Selection: Efficient Diversification of Investments’ which came out in 1959.
Awards & Achievements
Harry Markowitz was awarded the ‘John Von Neuman Prize in Operations Research Theory’ in 1989 by the ‘Operations Research Society of America’ and the ‘Institute of Management Sciences’.
He was awarded the Nobel Prize in Economics in 1990.
In 2009 he was honored with ‘Fred Arditti Innovation Award’ which is currently known as the ‘Melamed Arditti Innovation Award’ from the ‘CME Group’.
Personal Life & Legacy
Harry Markowitz is married to Barbara and they live in Chicago, Illinois, as a retired professor of economics.
He still gives lectures on portfolio management at various forums.
Harry Max Markowitz’s net worth is estimated to be about $737 million in 2016 which includes properties, stocks, airplanes and yachts.