The financial community was saddened to hear of the passing of Harry Markowitz on June 22. Not only was Harry a pioneer in many fields and a Nobel laureate, he was also an amazing, friendly and open person. Since he was an advisor to my firm for a couple of years, we got to spend a lot of time discussing research topics, frequently while walking to and back from his neighborhood barbeque joint where I learnt his mantra that “there is a big difference between knowing about something and knowing something”. Harry always knew stuff deeply. Harry also liked to get a good deal, whether it was at the all-you-could-eat diner, or later in his life, making astute real-estate investments in the trough of the housing market melt-down.
At one conference I was giving a talk on the topic of distinguishing between real and imaginary (impossible) probability distributions, which is fundamental to making inferences and good investments. When shown two AI generated images, of amongst the 100 or so participants in the room, only Harry raised his hand and identified the correct one. Undoubtedly there were others who probably thought or knew the right answer, but Harry was the only one in that room who both knew the difference and fearlessly ventured to raise his hand. No wonder he was the one who had stepped up, almost seventy years ago, to present modern portfolio theory (MPT) in the form that it is more or less still used today, before which risk was just a hodge-podge of confused concepts. Mean-Variance optimization, even with its flaws, is still the bedrock of portfolio construction. And by the way, the millions of words of ink that have been spilled critiquing MPT were actually explicitly anticipated and discussed by Harry himself seven decades ago (please download and read his original papers to see this for yourself).
The full note on this important topic can be downloaded at this link: LTA Thinking – Harry Markowitz A Man Who Thought (And Saw) Differently