Risk-Return Analysis, Volume 2: The Theory and Practice of Rational Investing

by Harry M. Markowitz

The Nobel Prize-winning Father of Modern Portfolio Theory returns with new insights on his classic work to help you build a lasting portfolio today Contemporary investing as we know it would not exist without these two “Portfolio selection.” Though it may not seem revolutionary today, the concept of examining and purchasing many diverse stocks―creating a portfolio―changed the face of finance when Harry M. Markowitz devised the idea in 1952. In the past six decades, Markowitz has risen to international acclaim as the father of Modern Portfolio Theory (MPT), with his evaluation of the impact of asset risk, diversification, and correlation in the risk-return tradeoff. In defending the idea that portfolio risk was essential to strategic asset growth, he showed the world how to invest for the long-run in the face of any economy. In Risk Return Analysis , this groundbreaking four-book series, the legendary economist and Nobel Laureate returns to revisit his masterpiece theory, discuss its developments, and prove its vitality in the ever-changing global economy. Volume 2 picks up where the first volume left off, with Markowitz’s personal reflections and current strategies. In this volume, Markowitz focuses on the relationship between single-period choices―now―and longer run goals. He discusses dynamic systems and models, the asset allocation “glide-path,” inter-generational investment needs, and financial decision support systems. Written with both the academic and the practitioner in mind, this richly illustrated volume provides investors, economists, and financial advisors with a refined look at MPT, highlighting the rational decision-making and probability beliefs that are essential to creating and maintaining a successful portfolio today.

Genres: Economics

400 pages, Hardcover

First published January 1, 2016

About the author

Harry M. Markowitz, PhD, is a consultant in the area of finance. In 1990, he was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his groundbreaking work in portfolio theory. In 1989, he received the John von Neumann Theory Prize of the Institute for Operations Research and the Management Sciences for his work in portfolio theory and other applications of mathematics and computers to business practice.

Reviews

[Max Lybbert · Rating 4 out of 5]

I was surprised to see this book listed on Amazon. Somehow, I had overlooked the fact it had been published for two years.

Most of the book covers simulations, Markowitz's contributions to simulations in the form of Simscript and a design pattern he calls EAS-E (entities, attributes, sets and events). Markowitz presents the concepts behind EAS-E and Simscript, and discusses particular simulations he had a hand in.

There's a chapter on how to use dynamic programming to find optimal solutions, and then additional chapters on efficient ways to get close-to-optimal solutions.

Volume I largely emphasized some of the often-overlooked details Markowitz included in his original work on mean-variance analysis. The simulations from this volume are largely focused on how to get more information than classic mean-variance analysis can provide, especially how to combine different portfolios with different rules (primarily different portfolios with different tax treatment). I am looking forward to the next two volumes.