The Father of Portfolio Theory on the Crisis
Harry Markowitz says valuation is the critical step.
By L. Gordon Crovitz — November 3, 2008
In the early 1950s, when young Harry Markowitz was looking for an area of economics to pursue, a chance encounter with a stockbroker in Chicago led him to apply a new logic about risk to what had been an investment industry based on touting individual stocks. He revolutionized the investing world by showing how to create diversified portfolios that reduce risk and maximize return.
Our current credit crisis arose from an imbalance of risk and return in portfolios of mortgage-backed and other debt securities, so it seems timely to ask the father of modern finance what went wrong and what to do about it.
Now 81 and still teaching and advising funds, Mr. Markowitz has good news and bad news.
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