Harry Markowitz, a Nobel laureate economist who applied the adage “don’t put all your eggs in one basket” to the world of stock investing and risk, developing theories on diversified portfolios that inspired the growth of mutual funds and other market-hedge strategies, died June 22 at a hospital in San Diego. He was 95.
His death was announced by the University of California at San Diego, where Dr. Markowitz was an adjunct professor of finance until his retirement in 2019. Dr. Markowitz was admitted to the hospital for pneumonia and later developed sepsis, said his chief assistant, Mary McDonald.
Dr. Markowitz’s work was a novel cross-pollination of statistical mathematics, behavioral science and philosophical constructs such as how past events do not necessarily guarantee future outcomes. His overriding conclusion could seem intuitive: The more an investor diversifies, the more chance of riding out market slumps and coming out ahead in the end. In other words, the old warning about eggs in one basket.
Dr. Markowitz’s research, however, introduced a mathematical structure and analytical rigor that shook up long-standing American investment trends. The prevailing views treated each investment as a stand-alone venture and avoided bundling them with risker stocks and commodities. Dr. Markowitz looked at investing as essentially a numbers’ game that could be leveraged in your favor.
He saw risk as something that could be approximately measured through algorithms and other data, seeking estimates on how much a holding might deviate from expected results. Then those risk factors could be brought down by a balance of investments.
It became the basis “modern portfolio theory,” which Dr. Markowitz first outlined with the 1952 publication of his doctorate dissertation “Portfolio Selection” in the Journal of Finance. Dr. Markowitz’s ideas were later joined by other models on stock pricing and economic interconnections to remake the investment landscape.
That combined work opened the way for a surge in stock ownership as part of pension and retirement plans such as 401(k)s and Individual Retirement Accounts, or IRAs. Deep-pocket hedge funds, too, effectively built upon Dr. Markowitz’s studies. (The dissertation was expanded into a 1959 book “Portfolio Selection: Efficient Diversification of Investments.”)
“The money managers have all followed his principles,” Howard Ross, chairman of the economics department at Baruch College of the City University of New York, said in 1990. That year, Dr. Markowitz, then a Baruch professor, shared the Nobel Prize in economics with other professors exploring investment and business theories: Merton Miller at the University of Chicago and William Sharpe at Stanford University.
In Dr. Markowitz’s view, wise investing involved divvying up the pie on many plates. Instead of 100 shares in one automaker, he used as an example, take 50 and spread the rest with, say, an oil firm, a media company and some no-risk bonds. The different businesses lower exposure to a sudden downturn in one industry; the bonds further shrink the overall risks.
Dr. Markowitz did not expand his work into macroeconomics or broader shifts such as globalization that influence markets. Instead, he drilled down into probabilities and investor psychology.
“I was especially interested in ‘what do we know’ and ‘how do we know it’ and the uncertainty of it all,” Dr. Markowitz said in a 2002 oral history interview with the University of Minnesota. “So the part of economics that interested me the most was the economics of uncertainty.”
An early influence on Dr. Markowitz was 18th century Scottish philosopher David Hume and his deconstruction of predictive results. “Though we release a ball a thousand times, and each time, it falls to the floor,” Dr. Markowitz wrote in his biography for the Nobel Committee, citing Hume’s ideas, “we do not have a necessary proof that it will fall the thousand-and-first time.”
This became a cornerstone for Dr. Markowitz. There is no sure thing except the fact that investments and economies will go up and down, he said. In 1999, the Pensions & Investments newspaper named Dr. Markowitz “man of the century.”
What Dr. Markowitz was not: a public stock-picking guru. He carefully stayed away from any suggestions of where an investor should turn. He told the Los Angeles Times that his own investments were rather rudimentary. He split his cash between a mutual fund and “low-interest” holdings.
“In retrospect,” he said in 2005, “it would have been better to have been more in stocks when I was younger.”
Harry Max Markowitz was born in Chicago on Aug. 24, 1927. His parents ran a grocery store and managed to ride out the economic meltdown after the stock market crash of 1929. “We lived in a nice apartment, always had enough to eat, and I had my own room,” he wrote in his Nobel biography. “I never was aware of the Great Depression.”
He graduated in 1947 from the University of Chicago with a bachelor’s degree in philosophy and decided on economics for his master’s degree, which he earned in 1950 from the university. “Micro and macro were all very fine, but eventually it was the ‘economics of uncertainty’ which interested me,” he wrote.
He studied under professors including Milton Friedman (who would become a 1976 Nobel laureate) and took part in Cowles Commission for Research in Economics (now the Cowles Foundation), a think tank at the University of Chicago until shifting to Yale University in 1955. Dr. Markowitz received his doctorate from University of Chicago in 1954, two years after his dissertation was published.
By this time, Dr. Markowitz was working at the Rand Corp. in studies of U.S. economic challenges. Over the next five decades, Dr. Markowitz moved between research positions, including General Electric and IBM, and academia at Rutgers University, Baruch and the University of California at San Diego.
He developed Simscript, a programming language used in computer simulations including transportation, communications networks and once for the Air Force to address flight malfunctions and assess supply logistics and maintenance.
Dr. Markowitz also is credited for “sparse matrices,” techniques for solving large mathematical problems. In 1968, Dr. Markowitz founded a hedge fund, Arbitrage Management Co., that was among the first firms to do computerized trading. He wrote or co-authored more than 15 books on computer programming and investment theories.
“I’m not a one-shot Nobel laureate – only doing one thing,” Dr. Markowitz told the New York Times in 2014.
Dr. Markowitz’s marriages, first to Luella Johnson and then Gloria Hardt, ended in divorce. He married Barbara Gay in 1970. She died in 2021. Survivors include two children from his first marriage; two from his second; a stepson from his third; 13 grandchildren; and more than a dozen great-grandchildren.
In San Diego, where he lived, Dr. Markowitz created a nonprofit group called the Rational Decision Making Research Institute. One bit of advice often dispensed was to avoid the daily ups and downs of the stock market and the nonstop economic chatter on financial shows.
“They never invite me on television because my message is, ‘Don’t look at television,'” he said in 2017. “Diversify and rebalance.”
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