Harry M Markowitz - Investing Pioneer’s Other Accomplishments
February 28th, 2010 |
Harry M. Markowitz is best known for the afternoon he spent in the University of Chicago’s library where he thought about investing and pulled down statistics books and came up with the theory of the efficient frontier, for which he eventually received a Nobel Prize.
However, Markowitz did not stop with transforming the field of portfolio management. He took other jobs and had a good many other accomplishments.
After getting his doctorate with his dissertation on portfolio theory, he spent a year working for the Cowles Foundation. That Foundation was set up by Alfred Cowles.
Alfred Cowles was the man who, following the 1929 stock market crash, asked, “If all these guys who claim they can predict the stock market and stock winners are so good, how come none of them predicted the crash?”
He set up the Foundation to scientifically study the correlation between stock market predictions and actual performance. His work set the stage for the many subsequent academic studies that show that people who claim to know where the market or individual stocks are going — don’t.
That’s true of brokers, fund managers, stock analysts, market analysts, TV pundits, experts interviewed by the financial press, and newsletter writers.
Markowitz went on to work for the RAND Corporation. He collaborated with Alan S. Manne, Tibor Fabian, Thomas Marschak, Alan J. Rowe and others on industrial activity analysis models of industrial capability. They developed the sparse matrix techniques which are standard today in large linear programming codes.
Markowitz also participated in the building of large logistics simulation models. He did this both while still at RAND and later while at General Electric building models of manufacturing plants.
In his autobiography he describes his work as the “application of mathematical or computer techniques to practical problems, particularly problems of business decisions under uncertainty.”
So his later work could be described as simply as new application of what he did that one afternoon, when he figured out how an individual investor should decide on a security given the uncertainty of the financial markets.
All this complex math required by economic simulation studies stretched the limits of the computer capabilities of the time.
Therefore, in the early 1960s Markowitz went back to work at RAND and helped developed a computer programming language to shorten the time necessary to program these models.
This resulted in SIMSCRIPT. It allows a programmer to describe the system to be simulated rather than program every step the computer hardware must take to accomplish the simulation.
B. Hausner wrote the original SIMSCRIPT compiler. Herb Karr and Markowitz co-founded a computer software company, Consolidated Analysis Centers Inc (CACI) in 1964 to develop a new compiler for IBM. CACI still supports SIMSCRIPT III.
For these accomplishments, Markowitz won the Von Neumann Prize in Operations Research Theory from the Operations Research Society of America and the Institute of Management Sciences in 1989.
Not the Nobel Prize, but a notworthy achievement nonetheless. The Nobel Prize came a year later.
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