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Markowitz's "Portfolio Selection": A Fifty-Year Retrospective

THIS YEAR MARKS the fiftieth anniversary of the publication of Harry Markowitz's landmark paper, "Portfolio Selection," which appeared in the March 1952 issue of the Journal of Finance. With the hindsight of many years, we can see that this was the moment of the birth of modern financial economics. Although the baby had a healthy delivery, it had to grow into its teenage years before a hint of its full promise became apparent. What has always impressed me most about Markowitz's 1952 paper is that it seemed to come out of nowhere. Compared to the work of his 1990 co-Nobel Prize winners (Sharpe primarily for his paper on the capital asset pricing model and Miller for his paper on capital structure), Markowitz's paper seems to have more of this flavor. In 1676, Sir Isaac Newton wrote his friend Robert Hooke, "If I have seen further it is by standing on the shoulders of giants" (Newton (1959)) and that is true of Markowitz as well, but, like Newton, he certainly saw a long distance given the height of those shoulders. Markowitz was hardly the first to consider the desirability of diversification. Daniel Bernoulli in his famous 1738 article about the St. Petersburg