Nobel laureate and economist Harry Markowitz lectured to a crowded computer science auditorium on the past, present and future of portfolio diversification theory Wednesday.
Markowitz started out by dismissing the notion that investors did not diversify their holdings before his seminal 1952 article, "Portfolio Selection," published in the Journal of Finance.
"Even a crass pirate knows not to put all his eggs in one basket," Markowitz said. He used this reference to Robert Louis Stevenson's "Treasure Island," as well as to Shakespeare's "Merchant of Venice." in order to show that diversification is not a new concept, but rather a longstanding principle of good investment.
Markowitz traced his 1990 Nobel Prize in Economics to a single epiphany about covariances that struck him while reading in the University of Chicago library in 1952.
"I didn't know I was going to get a Nobel Prize for that moment, but I did know that I was going to get a Ph.D," Markowitz said.
Another scholar, A. D. Roy, independently devised and published in 1952 a set of equations very similar to those of Markowitz. Yet Roy did not get a Nobel Prize because he never published another finance article, Markowitz said.
"I stuck around, shot off my mouth," he said, "so when the prize committee came around, I was on their radar screen."
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