Harry Markowitz facts for kids

Harry Max Markowitz (born August 24, 1927 – died June 22, 2023) was an American economist. He won the John von Neumann Theory Prize in 1989 and the Nobel Memorial Prize in Economic Sciences in 1990.

Markowitz was a professor of finance at the Rady School of Management at the University of California, San Diego (UCSD). He is famous for his important work on modern portfolio theory. This theory looks at how things like investment risk (how likely you are to lose money), return (how much money you might gain), and diversification (spreading your investments around) affect how well an investment portfolio might do.

Biography

Early Life and Education

Harry Markowitz was born in Chicago, Illinois. His parents were Morris and Mildred Markowitz. When he was in high school, Harry became very interested in physics and philosophy. He especially liked the ideas of David Hume, a famous philosopher. He continued to study these subjects when he went to the University of Chicago.

After getting his first degree in Liberal Arts, Markowitz decided to focus on economics at the same university. There, he learned from many important economists. These included Milton Friedman, Tjalling Koopmans, Jacob Marschak, and Leonard Savage. While he was still a student, he was invited to join the Cowles Commission for Research in Economics. This was a group that did important economic research. He earned his master's degree in Economics in 1950.

Developing New Ideas

For his PhD, Markowitz decided to use mathematics to study the stock market. His advisor, Jacob Marschak, encouraged him. Markowitz noticed that the way people understood stock prices back then didn't really consider risk. Risk is the chance that an investment might not do as well as expected.

This important idea led him to create his famous theory about how to choose investments when there's uncertainty. He published this new theory in 1952 in a journal called the Journal of Finance.

In 1952, Harry Markowitz started working at the RAND Corporation. There, he met George Dantzig, another smart mathematician. With Dantzig's help, Markowitz kept working on ways to find the best solutions to problems, called optimization. He developed a method called the critical line algorithm. This method helps find the best investment portfolios, creating what is now known as the Markowitz frontier.

In 1954, he earned his PhD in Economics from the University of Chicago. His ideas were so new that some people, like Milton Friedman, even argued that his work wasn't really economics! Markowitz then spent a year at the Cowles Foundation at Yale University. He published his critical line algorithm in 1956. He also used this time to write a book about choosing investments, which came out in 1959.

Later Career and Awards

Harry Markowitz won the Nobel Memorial Prize in Economic Sciences in 1990. At that time, he was a professor of finance at Baruch College in New York. The year before, he received the John von Neumann Theory Prize. This award was for his work in three areas:

• His investment theory (portfolio theory).
• Methods for solving very large math problems where most numbers are zero (sparse matrix methods).
• A computer language for simulations called SIMSCRIPT.

SIMSCRIPT has been used a lot to create computer simulations. These simulations help people understand how things like factories, transportation, and computer systems work.

CACI and Other Work

On July 17, 1962, Markowitz co-founded a company called California Analysis Center, Inc., which later became CACI International. He and his partner, Herb Karr, helped create SIMSCRIPT. When SIMSCRIPT became available to everyone, CACI was started to offer support and training for it.

Later, Markowitz worked with other companies and continued to share his knowledge. He taught at the Rady School of Management at the University of California at San Diego. He also gave lectures and advised investment firms. He helped design software for retirement planning.

Harry Markowitz passed away on June 22, 2023, in San Diego, California, at the age of 95.

Research

One of Markowitz's most important ideas is the Markowitz-efficient portfolio. Imagine you have different investments. An efficient portfolio means you've chosen them in a way that lowers the overall risk for a certain amount of expected return. Or, it means you can't get more expected return without taking on more risk.

The Markowitz Efficient Frontier is a line on a graph. It shows all the portfolios that give you the highest possible expected return for each level of risk. These ideas about efficiency were very important for developing other financial models, like the capital asset pricing model.

Markowitz also helped edit a textbook called The Theory and Practice of Investment Management. He was also part of the editorial board for an international finance journal.

See also

In Spanish: Harry Markowitz para niños

• List of economists
• List of Jewish Nobel laureates
• Risk management tools