Harry Max Markowitz is an American economist who was awarded the Nobel Prize in Economic Sciences for his work in financial economics. He shared the prize money with Merton H. Miller and William F. Sharpe, two other American economists. His research established a completely new field of study within financial economics, emphasizing the importance of risk, diversification, and correlation. Markowitz had already developed a portfolio theory in the early 1950s, outlining strategies for optimizing investment returns. Economists at the time emphasized portfolio diversification and cautioned against putting all of one’s money in one place. Markowitz devised methods for calculating the risk associated with individual securities and for constructing a combined portfolio that maximized the return on the risk taken. He demonstrated how two stocks with comparable risks and returns can be combined in a portfolio to reduce overall risk. This is possible if the price of one share tends to fall when the price of the other rises, thereby minimizing total risk while maintaining a relatively high rate of return. Makowitz’s concept quickly gained traction, and all portfolio managers and investors began using it to keep money flowing into their bank accounts.
Childhood & Adolescence
Harry Markowitz was born on August 24, 1927 in Chicago, Illinois, USA to Morris and Mildred Markowitz. They were the proprietors of a small grocery store in Chicago. He was his parents’ only child.
He developed an interest in philosophy and physics during his high school years. He enrolled at the ‘University of Chicago’ in 1947 and earned a B.Phil degree there. During this time period, he developed an interest in the risks associated with stock market investments.
He continued his studies at the university level and earned a master’s degree in economics. He was heavily influenced by prominent economists such as Jacob Marschak and Leonard Savage. In 1950, he earned a master’s degree from the university.
While still a student, he was invited to join the ‘Cowles Commission for Economic Research’ in Chicago. He chose the stock market as the subject of his PhD thesis and attempted to apply mathematical formulations to analyze the variance of market shares.
He discovered that at the time, stock market knowledge lacked an understanding of how risks could affect share prices. His theory of portfolio allocation resulted in the 1952 publication of a paper titled ‘Journal of Finance.’ In 1955, he earned a PhD from the ‘University of Chicago.’
Career of Harry
In 1952, Harry Markowitz joined the RAND Corporation and began working with George Dantzig on the development of a ‘critical line algorithm’ to aid in portfolio mean-variance optimization. This was dubbed the ‘Markowitz frontier.’ He developed an algorithm for identifying portfolios with the greatest amount of optimization potential.
He spent a year at Yale University’s ‘Cowles Foundation’ from 1955 to 1956. During this time period, he worked on his algorithm, which was published in 1956, as well as his book on portfolio allocation, which was published in 1959.
In 1960, he returned to the RAND Corporation and assisted in the development of ‘SIMSCRIPT,’ the first’simulation programming language.
On July 17, 1962, he co-founded the ‘California Analysis Center’ with Herb Karr, which later became ‘CACI International’.
In 1968, he joined the ‘Arbitrage Management Company’ and co-founded a hedge fund with Robert Merton and Paul Samuelson that is credited with being the first attempt to conduct arbitrage trading using computers. In 1970, he was appointed CEO of this company. He left the company in 1971, when Stuart & Co. acquired it.
He joined the University of California, San Diego’s ‘Rady School of Management’ as a finance professor. He also served on the advisory board of ‘BPV Capital Management Company,’ another hedge fund firm.
He has worked with the ‘Investment Committee of LWI Financial Inc’ in San Jose, the advisory board of ‘Research Affiliates’ in Newport Beach, ‘Index Fund Advisors’ and ‘1st Global’s Investment Committee’ in Dallas.
Markowitz co-founded ‘Guide Choice,’ which provided investment and account management advice. He created the firm’s investment solution and serves as chairman of the ‘Guided Choice Investment Committee.’
He taught economics as a professor at ‘Baruch College’ under the auspices of the ‘City University of New York’ beginning in 1982.
He was elected to the ‘Institute for Operations Research and Management Studies’ as a fellow in 2002. His most recent endeavor is to assist retirees with wealth distribution through the use of ‘Guided Spending.’
Significant Works of Harry
Harry Markowitz’s first book, ‘Portfolio Selection,’ was published in 1952. In 1959, he published ‘Portfolio Selection: Efficient Diversification of Investments.’
Awards and Accomplishments
In 1989, the ‘Operations Research Society of America’ and the ‘Institute of Management Sciences’ jointly awarded Harry Markowitz the ‘John Von Neuman Prize in Operations Research Theory’. In 1990, he was awarded the Nobel Prize in Economics.
He received the ‘Fred Arditti Innovation Award’ from the ‘CME Group’ in 2009, which is now known as the ‘Melamed Arditti Innovation Award’.
Personal History and Legacies
Harry Markowitz is married to Barbara and they reside in Chicago, Illinois. Harry Markowitz is a retired economics professor. He continues to lecture on portfolio management at a variety of venues.
Estimated Net Worth
In 2016, Harry Max Markowitz’s net worth was estimated to be approximately $737 million, which includes real estate, stocks, airplanes, and yachts.