Top 15 Quotes & Sayings by Harry Markowitz

In 1989, I was awarded the Von Neumann Prize in Operations Research Theory by the Operations Research Society of America and The Institute of Management Sciences. They cited my works in the areas of portfolio theory, sparse matrix techniques and the SIMSCRIPT programming language.

Portfolio theory, as used by most financial planners, recommends that you diversify with a balance of stocks and bonds and cash that's suitable to your risk tolerance.

During the 1950s, I decided, as did many others, that many practical problems were beyond analytic solution and that simulation techniques were required. At RAND, I participated in the building of large logistics simulation models; at General Electric, I helped build models of manufacturing plants.

I would never be 100 percent in stocks or 100 percent in bonds or cash.

If the investor doesn't have enough time and skill to investigate individual stocks or enough money to diversify a portfolio, the right thing to do is to invest in exchange-traded funds that give you exposure to asset classes. It does make sense for the individual investor to think in terms of holding individual asset classes.

The chief problem with the individual investor: He or she typically buys when the market is high and thinks it's going to go up, and sells when the market is low and thinks it's going to go down.

I was born in Chicago in 1927, the only child of Morris and Mildred Markowitz, who owned a small grocery store. We lived in a nice apartment, always had enough to eat, and I had my own room. I never was aware of the Great Depression.

Diversifying sufficiently among uncorrelated risks can reduce portfolio risk toward zero. But financial engineers should know that's not true of a portfolio of correlated risks.

Becoming an economist was not a childhood dream of mine.

We next consider the rule that the investor does or should consider expected return a desirable thing and variance of return an undesirable thing.

In choosing a portfolio, investors should seek broad diversification, Further, they should understand that equities--and corporate bonds also--involve risk; that markets inevitably fluctuate; and their portfolio should be such that they are willing to ride out the bad as well as the good times.

A good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies.

To reduce risk it is necessary to avoid a portfolio whose securities are all highly correlated with each other. One hundred securities whose returns rise and fall in near unison afford little protection than the uncertain return of a single security.

Perhaps the most important job of a financial advisor is to get their clients in the right place on the efficient frontier in their portfolios. But their No. 2 job, a very close second, is to create portfolios that their clients are comfortable with. Advisors can create the best portfolios in the world, but they won't really matter if the clients don't stay in them.

It's like a crapshoot in Las Vegas, except in Las Vegas the odds are with the house. As for the market, the odds are with you, because on average over the long run, the market has paid off.