IFA Radio's Episode 23

IFA Radio
Friday, June 04, 2010

Whenever Nobel Laureate, Harry Markowitz talks, the economic world listens. 

In 1952, Harry Markowitz developed the simple, but profound notion that investors must consider not only return, but the risk associated with their investments. Markowitz’s ground-breaking discovery earned him the 1990 Nobel Prize in Economics, and sparked the financial revolution called: Modern Portfolio Theory. Markowitz is widely known as the father of Modern Portfolio Theory.
 
Today, Harry Markowitz’s highly acclaimed research serves as the framework for the Prudent Investor Rule, as well as for the investment strategies of institutional investors around the world. It is estimated that some $7 trillion dollars in institutional assets are invested in accordance with Professor Markowitz’s Nobel-Prize winning discoveries.

Markowitz’s research supports IFA’s investment strategy: A portfolio that carries broad-based diversification among low-cost and passively managed indexes has shown to be the most prudent investing strategy over time.

"Don't bet the ranch.
Get more bang for your buck.
Maximize output relative to input.
Nothing ventured, nothing gained.
Diversify instead of striving to make a killing.
Don't put all your eggs in one basket; if it drops, you're in trouble.
High volatility is like putting your head in the oven and your feet in the refrigerator."

These common sense sayings capture the essence of Harry Markowitz's brainstorm, sparked one afternoon as he sat in the University of Chicago library reading a book about the current thinking of stock market investing. At 25 years old, Markowitz thought investors should be equally concerned with the volatility or risk of investments as they are with the return of investments. Thirty-eight years later, this innovative, practical theory earned him the 1990 Nobel Prize in Economics. This landmark contribution to the investment world was first published in 1952 in an essay entitled, "Portfolio Selection."
 
Listen to the exclusive interview with Harry Markowitz on IFA Radio here…
 
Read his recent article, “Does Portfolio Theory Work During Financial Crises?” here…

 

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